0001104659-04-013098.txt : 20040507 0001104659-04-013098.hdr.sgml : 20040507 20040507102818 ACCESSION NUMBER: 0001104659-04-013098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040403 FILED AS OF DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZEBRA TECHNOLOGIES CORP/DE CENTRAL INDEX KEY: 0000877212 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 366966580 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19406 FILM NUMBER: 04787198 BUSINESS ADDRESS: STREET 1: 333 CORPORATE WOODS PKWY CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 7086346700 10-Q 1 a04-5565_110q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2004

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-19406

Zebra Technologies Corporation

(Exact name of registrant as specified in its charter)

Delaware		36-2675536
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

333 Corporate Woods Parkway, Vernon Hills, IL 60061
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (847) 634-6700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

As of May 4, 2004, there were the following shares outstanding:

Class A Common Stock, $.01 par value 47,661,564

ZEBRA TECHNOLOGIES CORPORATION

QUARTER ENDED APRIL 3, 2004

INDEX

PART I - FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

Consolidated Balance Sheets as of April 3, 2004 (unaudited) and December 31, 2003

Consolidated Statements of Earnings (unaudited) for the three months ended April 3, 2004 and March 29, 2003

Consolidated Statements of Comprehensive Income (unaudited) for the three months ended April 3, 2004 and March 29, 2003

Consolidated Statements of Cash Flows (unaudited) for the three months ended April 3, 2004 and March 29, 2003

Notes to Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations


Item 3.	Quantitative and Qualitative Disclosures About Market Risk


Item 4.	Controls and Procedures

PART II - OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K

SIGNATURES

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	April 3, 2004		December 31, 2003
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	17,312	$	14,266
Investments and marketable securities	470,271		433,582
Accounts receivable, net	82,104		81,867
Inventories	48,009		42,781
Deferred income taxes	4,617		4,507
Prepaid expenses	4,414		4,415
Total current assets	626,727		581,418

Property and equipment at cost, less accumulated depreciation and amortization	41,896		39,286
Goodwill	61,074		61,150
Other intangibles	8,436		9,031
Other assets	14,570		10,726
Total assets	$	752,703	$	701,611

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	20,768	$	16,238
Accrued liabilities	22,121		26,938
Current portion of obligation under capital lease	182		153
Income taxes payable	11,118		2,273
Total current liabilities	54,189		45,602
Obligation under capital lease, less current portion	351		452
Deferred income taxes	1,898		723
Deferred rent	543		518
Other long-term liabilities	3,093		2,401
Total liabilities	60,074		49,696

Stockholders’ equity:
Preferred stock	¾		¾
Class A Common Stock	476		474
Additional paid-in capital	72,240		62,166
Retained earnings	613,780		585,846
Accumulated other comprehensive income (loss)	6,133		3,429
Total stockholders’ equity	692,629		651,915
Total liabilities and stockholders’ equity	$	752,703	$	701,611

See accompanying notes to consolidated financial statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended
	April 3, 2004			March 29, 2003
Net sales	$	154,174		$	124,685
Cost of sales	73,571			60,336
Gross profit	80,603			64,349

Operating expenses:
Selling and marketing	17,207			14,504
Research and development	8,896			7,579
General and administrative	12,746			10,251
Amortization of intangible assets	649			371
Exit costs	363			—
Merger costs	45			—
Total operating expenses	39,906			32,705

Operating income	40,697			31,644

Other income (expense):
Investment income (expense)	3,073			2,439
Interest expense	(26		)	(38		)
Foreign exchange losses	(656		)	(143		)
Other, net	(293		)	6
Total other income (expense)	2,098			2,264

Income before income taxes	42,795			33,908
Income taxes	14,861			11,868
Net income	$	27,934		$	22,040

Basic earnings per share	$	0.59		$	0.47
Diluted earnings per share	$	0.58		$	0.47

Basic weighted average shares outstanding	47,500			46,797
Diluted weighted average and equivalent shares outstanding	48,179			47,241

See accompanying notes to consolidated financial statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Three Months Ended
	April 3, 2004		March 29, 2003
Net income	$	27,934	$	22,040

Other comprehensive income (loss):
Foreign currency translation adjustment	1,288		(738		)
Changes in unrealized gains/losses on hedging transactions, net of tax	1,026		—
Changes in unrealized gains/losses on investments, net of tax	390		(119		)
Comprehensive income	$	30,638	$	21,183

See accompanying notes to consolidated financial statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Three Months Ended
	April 3, 2004			March 29, 2003
Cash flows from operating activities:
Net income	$	27,934		$	22,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,050			2,909
Tax benefit from exercise of stock options	3,148			¾
Deferred income taxes	1,089			(66		)
Changes in assets and liabilities:
Accounts receivable, net	1,097			(7,684		)
Inventories	(4,712		)	(2,416		)
Other assets	(3,130		)	(33		)
Accounts payable	3,527			3,281
Accrued liabilities	(4,879		)	(1,402		)
Income taxes payable	8,795			12,642
Other operating activities	1,462			(2,598		)
Net cash provided by operating activities	37,381			26,673

Cash flows from investing activities:
Purchases of property and equipment	(4,805		)	(1,935		)
Purchases of investments and marketable securities	(233,278		)	(326,683		)
Sales and maturities of investments and marketable securities	196,589			307,424
Net cash used in investing activities	(41,494		)	(21,194		)

Cash flows from financing activities:
Proceeds from exercise of stock options and stock purchase plan purchases	6,928			3,017
Payments for obligation under capital lease	(68		)	(184		)
Net cash provided by financing activities	6,860			2,833

Effect of exchange rate changes on cash	299			(221		)

Net increase in cash and cash equivalents	3,046			8,091
Cash and cash equivalents at beginning of period	14,266			18,418
Cash and cash equivalents at end of period	$	17,312		$	26,509

Supplemental disclosures of cash flow information:
Interest paid	$	26		$	38
Income taxes paid	3,053			1,478

Supplemental disclosures of non-cash transactions:
Conversion of Class B Common Stock to Class A Common Stock	¾			3

See accompanying notes to consolidated financial statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

Management prepared these unaudited interim consolidated financial statements for Zebra Technologies Corporation and subsidiaries (Zebra) according to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information required in full-year audited financial statements is omitted, as allowed by SEC rules and regulations. These omissions relate to required annual disclosures, which have not materially changed since our Form 10-K was filed with the SEC. See our Form 10-K for the year ended December 31, 2003, for these additional disclosures.

The consolidated balance sheet as of December 31, 2003, in this Form 10-Q is taken from the audited consolidated balance sheet in our Form 10-K. These interim financial statements include all adjustments necessary to present fairly Zebra’s consolidated financial position as of April 3, 2004, and the consolidated results of operations and cash flows for the three months ended April 3, 2004 and March 29, 2003. These results, however, are not necessarily indicative of results for the full year.

Note 2—Stock-Based Compensation

As of April 3, 2004, we had three stock-based compensation plans available for future grants. We account for these plans under the principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation cost is reflected in net income, because all options granted under these plans had grant prices equal to the market value of the underlying common stock on the date of grant. The following table shows the effect on net income and earnings per share if we had used the alternative fair value recognition provisions of Statement of Financial Standards (SFAS) No. 123, Accounting for Stock-based Compensation (in thousands, except per share data):

	Three Months Ended
	April 3, 2004			March 29, 2003
Net income	$	27,934		$	22,040
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(1,409		)	(1,249		)
Pro forma net income	$	26,525		$	20,791

Basic earnings per share:
As reported	$	0.59		$	0.47
Pro forma	0.56			0.44

Diluted earnings per share:
As reported	$	0.58		$	0.47
Pro forma	0.55			0.44

Note 3 – Inventories

The components of inventories are as follows (in thousands):

	April 3, 2004		December 31, 2003
Raw materials	$	30,536	$	29,127
Work in process	546		645
Finished goods	16,927		13,009
Total inventories	$	48,009	$	42,781

Note 4 – Investments and Marketable Securities

We classify the majority of our investments and marketable securities as available-for-sale in accordance with the classifications defined in SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.

SFAS No. 115 requires that changes in the market value of available-for-sale securities are reflected in the accumulated other comprehensive income caption of stockholders’ equity in the balance sheet, until we dispose of the securities. Once these securities are disposed of, either by sale or maturity, the accumulated changes in market value are transferred to investment income. On the cash flow statements, changes in the balances of available-for-sale securities are shown as purchases, sales and maturities of investments and marketable securities.

Changes in market value of trading securities are recorded in investment income as they occur, and the related cash flow statement includes changes in the balances of trading securities as operating cash flows.

Unrealized gains and losses on investment securities are included in these financial statements as follows (in thousands):

	Three Months Ended
	April 3, 2004		March 29, 2003

Unrealized gains (losses) on available-for-sale securities, recorded net of tax, in accumulated other comprehensive income	$	390	$	(119	)

Unrealized gains (losses) on trading securities in investment income	$	15	$	(45	)

Note 5—Stockholders’ Equity

Share count and par value data related to stockholders’ equity are as follows:

	April 3, 2004		December 31, 2003
Preferred Stock
Par value per share	$	0.01	$	0.01
Shares authorized	10,000,000		10,000,000
Shares outstanding	—		—
Common Stock - Class A
Par value per share	$	0.01	$	0.01
Shares authorized	78,358,189		78,358,189
Shares issued	47,639,688		47,399,302
Shares outstanding	47,639,688		47,399,302

Note 6—Other Comprehensive Income (Loss)

Stockholders’ equity includes certain items classified as other comprehensive income, including:

• Foreign currency translation adjustment relates to our non-U.S. subsidiary companies that have designated a functional currency other than the U.S. dollar. We are required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, month-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income.

• Unrealized gains (losses) on foreign currency hedging activities relate to derivative instruments used to hedge the currency exchange rates for forecasted euro sales. These hedges are designated as cash flow hedges, and we have deferred income statement recognition of gains and losses until the hedged transaction occurs. See Note 9 for more details.

• Unrealized gains (losses) on investments classified as available-for-sale are deferred from income statement recognition until the gains or losses are realized. See Note 4 for more details.

The components of other comprehensive income (loss) included in the Consolidated Statements of Comprehensive Income are as follows (in thousands):

	Three Months Ended
	April 3, 2004		March 29, 2003
Foreign currency translation adjustments	$	1,288	$	(738	)

Changes in unrealized gains on foreign currency hedging activities:
Gross	$	1,578	—
Income tax	552		—
Net	$	1,026	—

Changes in unrealized gains (losses) on investments classified as available for sale:
Gross	$	600	$	(183	)
Income tax (benefit)	210		(64		)
Net	$	390	$	(119	)

The components of other comprehensive income (loss) included in the Consolidated Balance Sheets are as follows (in thousands):

	As of
	April 3, 2004		December 31, 2003
Foreign currency translation adjustments	$	5,398	$	4,110

Unrealized gains (losses) on foreign currency hedging activities:
Gross	$	41	$	(1,537	)
Income tax (benefit)	14		(538		)
Net	$	27	$	(999	)

Urealized gains on investments classified as available for sale:
Gross	$	1,089	$	489
Income tax	381		171
Net	$	708	$	318

Note 7—Earnings Per Share

Earnings per share were computed as follows (in thousands, except per share amounts):

	Three Months Ended
	April 3, 2004		March 29, 2003
Basic earnings per share:
Net income	$	27,934	$	22,040
Weighted average common shares outstanding	47,500		46,797
Per share amount	$	0.59	$	0.47

Diluted earnings per share:
Net income	$	27,934	$	22,040
Weighted average common shares outstanding	47,500		46,797
Add: Effect of dilutive securities – stock options	679		444
Diluted weighted average and equivalent shares outstanding	48,179		47,241
Per share amount	$	0.58	$	0.47

Potentially dilutive securities that were excluded from the earnings per share calculation consist of stock options with an exercise price greater than the average market price of the Class A common stock. These options totaled 213,000 for the three months ended April 3, 2004, and 194,000 for the three months ended March 29, 2003.

Note 8—Goodwill and Other Intangible Asset Data

Intangible asset data are as follows (in thousands):

	April 3, 2004					December 31, 2003
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
Current technology	$	12,279	$	(6,067	)	$	12,033	$	(5,466	)
Customer relationships	2,333		(109		)	2,503		(39		)
Total	$	14,612	$	(6,176	)	$	14,536	$	(5,505	)

Unamortized intangible assets
Goodwill	$	61,074				$	61,150

Aggregate amortization expense
For the three months ended March 29, 2003						$	371
For the three months ended April 3, 2004	$	649

Estimated amortization expense
For the year ended December 31, 2004	$	2,568
For the year ended December 31, 2005	1,691
For the year ended December 31, 2006	1,103
For the year ended December 31, 2007	1,103
For the year ended December 31, 2008	1,099
For the year ended December 31, 2009	975
For the year ended December 31, 2010	292
For the year ended December 31, 2011	254

We test the impairment of goodwill each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We completed our last assessment during June 2003.

We evaluate the impairment of long-lived assets including identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors considered that might trigger an impairment review consist of:

• 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

• Significant negative industry or economic trends

• Significant decline in Zebra’s stock price for a sustained period

• Significant decline in market capitalization relative to net book value

If we believe that one or more of the above indicators of impairment have occurred, we measure impairment based on a projected discounted cash flow using a discount rate that incorporates the risk inherent in the cash flows.

Note 9—Derivative Instruments

In the normal course of business, portions of Zebra’s operations are subject to fluctuations in currency values. We manage these risks using derivative financial instruments.

Hedging of Net Assets

We use forward contracts and options to manage exposure related to our pound and euro denominated net assets and designate these contracts and options as fair value hedges. We record gains and losses on these contracts and options in income each quarter along with the translation gains and losses related to our net euro asset position, which would ordinarily offset each other. Summary financial information related to these activities follows (in thousands):

	Three Months Ended
	April 3, 2004			March 29, 2003
Change in gains (losses) from foreign exchange derivatives	$	529		$	(1,355	)
Gain (loss) on net foreign currency assets	(1,185		)	1,212
Net foreign exchange loss	$	(656	)	$	(143	)

	As of
	April 3, 2004		December 31, 2003
Notional balance of outstanding contracts:
Pound	£	6,198	£	8,569
Euro	€	27,000	€	22,000

Hedging of Anticipated Sales

We manage the exchange rate risk of anticipated euro denominated sales using forward contracts and designate these contracts as cash flow hedges. Gains and losses on these contracts are deferred in other comprehensive income until the contracts are settled and the hedged sales are realized, at which time the deferred gains or losses will be reported as an increase or decrease to sales. Summary financial information related to the cash flow hedges of future revenues follows (in thousands, except percentages):

	As of
	April 3, 2004			December 31, 2003
Net unrealized gains (losses) deferred in other comprehensive income:
Gross	$	41		$	(1,537	)
Income tax	(14		)	538
Net	$	27		$	(999	)

Notional balance of outstanding contracts	€	15,470		€	30,420
Hedge effectiveness	100		%	100		%

Net losses included in revenue for the
Three months ended March 29, 2003				—
Three months ended April 3, 2004	$	(642	)

Note 10—Costs associated with Exit or Disposal Activities

During the third quarter of 2003, we initiated a plan to close our engineering site in Varades, France. This plan was announced in October 2003 and is accounted for under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. All exit costs associated with this activity are identified on a separate line of our income statement, as part of operating expenses. Our consolidation plan is intended to reduce costs and improve manufacturing efficiency.

Our Varades facility conducted the product development for our line of card imaging identification printers and included the European service center for these printers. We transferred the product development activities to Camarillo, California, where we have manufactured these printers since 2001. We transferred the European card imaging printer service operation to our Preston, United Kingdom, facility where the Europe, Middle East and African distribution of these printers already occurs. To date, we eliminated most of the Varades administrative functions including finance, information systems and human resources support. At the completion of the plan, the Varades facility will be closed and no employees will remain. As of April 3, 2004, we expect the following exit costs to be incurred for the entire project (in thousands):

Type of Cost	Costs incurred to date		Additional costs expected		Total costs expected to be incurred
Severance, stay bonuses, and other employee-related expenses	$	1,321	$	457	$	1,778
Asset disposal costs	¾		278		278
Other exit costs	94		214		308
Total	$	1,415	$	949	$	2,364

Included above in the costs incurred to date is $335,000, which is included in accrued liabilities as of April 3, 2004.

During January 2004, we announced plans to consolidate our Warwick, Rhode Island, printer manufacturing and repair service business into our Camarillo, California and Vernon Hills, Illinois locations. This transition is expected to take 12 to 18 months to complete. The Warwick facility will continue to manufacture and distribute bar code label printer supplies, as well as house engineering, product management, and the key account sales functions for mobile products. We expect the following exit costs:

Type of Cost	Costs incurred to date		Additional costs expected		Total costs expected to be incurred
Severance, stay bonuses, and other employee-related expenses	$	73	$	820	$	893
Asset disposal costs	¾		150		150
Other exit costs	65		553		618
Total	$	138	$	1,523	$	1,661

Included above in the costs incurred to date is $73,000, which is included in accrued liabilities as of April 3, 2004.

Note 11—Contingencies

On April 24, 2003, Paxar Americas, Inc. (Paxar Americas) filed a patent infringement lawsuit in the United States District Court for the Southern District of Ohio against Zebra and certain of its subsidiaries. Paxar Americas’ Complaint alleges that certain of Zebra’s products infringe on one or more of eight identified Paxar Americas patents, although not each product is accused of infringing each patent. Zebra has filed an Answer to Paxar Americas’ Complaint, denying Paxar Americas’ allegations of infringement and asserting several affirmative defenses, including the invalidity of Paxar Americas’ asserted patent claims.

On November 21, 2003, ZIH Corp. (ZIH) filed a Complaint in the United States District Court for the District of Massachusetts against Paxar Corporation, alleging that Paxar Corporation printers infringe ZIH’s U.S. Patent Nos. 5,813,343 and 5,860,753. Paxar Corporation answered ZIH’s Complaint, denying infringement and seeking a declaratory judgment that ZIH’s patents-in-suit are not infringed and are invalid and/or unenforceable. Paxar Corporation filed a motion to transfer ZIH’s Massachusetts suit to Ohio federal court. ZIH opposed Paxar Corporation’s motion to transfer, and the parties are awaiting the Court’s ruling on the transfer motion.

On November 25, 2003, Paxar Americas filed a Complaint against ZIH in the United States District Court for the Southern District of Ohio, seeking a declaratory judgment that the patents asserted by ZIH in its Massachusetts Complaint are not infringed and are invalid and unenforceable. On December 17, 2003, Paxar Americas amended its complaint to add Zebra Technologies Corporation as a defendant. The parties have filed a motion to stay this action pending the Massachusetts District Court’s ruling on Paxar Corporation’s motion to transfer. The parties have agreed to file a motion to transfer this action to the Massachusetts District Court if the Massachusetts District Court denies Paxar Corporation’s pending motion to transfer.

We do not believe a liability is probable and are unable at this time to estimate the range of the potential liability that would result from an unsuccessful defense, and consistent with the requirements of SFAS No. 5, Accounting for Contingencies, no liability has been recorded in Zebra’s consolidated financial statements as of April 3, 2004.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations: First Quarter of 2004 versus First Quarter of 2003

Sales

Sales by product category, percent change, and percent of total sales for the three months ended April 3, 2004, and March 29, 2003, were (in thousands, except percentages):

	Three Months Ended
Product Category	April 3, 2004			March 29, 2003		Percent Change	Percent of Total Sales - 2004		Percent of Total Sales - 2003
Hardware	$	118,477		$	94,552	25.3	76.8		75.8
Supplies	28,674			23,139		23.9	18.6		18.6
Service and software	6,541			6,037		8.3	4.2		4.8
Shipping and handling	1,124			957		17.6	0.8		0.8
Cash flow hedging activities	(642		)	—		—	(0.4	)	—
Total sales	$	154,174		$	124,685	23.7	100.0		100.0

Sales to customers by geographic region, percent changes and percent of total sales for the three months ended April 3, 2004, and March 29, 2003, were (in thousands, except percentages):

	Three Months Ended
Geographic Region	April 3, 2004		March 29, 2003		Percent Change	Percent of Total Sales - 2004	Percent of Total Sales - 2003
Europe, Middle East and Africa	$	52,452	$	39,332	33.4	34.0	31.6
Latin America	8,439		6,666		26.6	5.5	5.3
Asia-Pacific	12,150		9,129		33.1	7.9	7.3
Total International	73,041		55,127		32.5	47.4	44.2
North America	81,133		69,558		16.6	52.6	55.8
Total sales	$	154,174	$	124,685	23.7	100.0	100.0

We believe that our sales growth for the first quarter of 2004 reflects the overall increase in economic activity as well as the success of our sales and marketing programs to improve demand for Zebra products, strengthen distribution channel relationships and increase the awareness of Zebra products and the Zebra brand in targeted end markets. The growth in Zebra’s business was well balanced across geographies, products, and channels. New printer products (defined as printers released within 18 months prior to the end of the applicable fiscal period) accounted for 28.7% of printer sales in the first quarter of 2004 and 21.3% of printer sales in the first quarter of 2003.

In North America, we introduced a new marketing and channel program during 2003, which strengthened the quality of our relationships with our channel partners and expanded the number of resellers selling Zebra products. We have now signed about 200 of these new channel partners, up from only 100 six months ago. Our strategy of creating demand for solutions incorporating Zebra products, and fulfilling that demand through stronger channels, is proving successful.

We believe a new organizational structure in Europe helped achieve sharper business focus and contributed to the sales growth in that region. We estimate that favorable foreign exchange movements, offset by product pricing adjustments, had a net positive effect of $3,780,000 on sales. The Zebra representatives added to Asia-Pacific in the past two years had a positive impact on the first quarter sales.

Our international sales are denominated in multiple currencies, primarily the dollar, pound and euro, which causes our reported sales to be subject to fluctuations in currency rates. When significant currency rate fluctuations occur, we review our product pricing and make appropriate changes to maintain our competitive position.

Since the first quarter of 2003, the dollar has weakened significantly against both the euro and pound. As a result, our first quarter sales translated into dollars increased by $7,323,000, or 5.9 percentage points, compared to translating the same sales using the exchange rates that prevailed in the first quarter of 2003. Competitive pricing adjustments caused by the currency situation reduced sales by $3,543,000 or 2.8 percentage points.

Zebra’s program to hedge the exchange rate on forecasted euro-denominated sales resulted in a loss of $642,000 due to foreign exchange rates climbing above those included in our forward contracts. See note 9 to the financial statements for a more detailed discussion of this hedging program.

Printer unit volumes and average selling price information is summarized below:

	Three Months Ended
	April 3, 2004		March 29, 2003		Percent Change
Total printers shipped	150,657		128,519		17.2
Average selling price of printers shipped	$	639	$	608	5.1

For the first quarter of 2004, unit volumes increased in all product lines and all regions. The number of units sold during the first quarter of the high end and mid range tabletop printers are a greater percentage of the total units sold relative to the first quarter of 2003. These printers generally have higher average unit selling prices, resulting in a higher overall average unit selling price.

Gross Profit

Gross profit information is summarized below (in thousands, except percentages):

	Three Months Ended
	April 3, 2004		March 29, 2003		Percent Change
Gross Profit	$	80,603	$	64,349	25.3
Gross Margin	52.3		51.6

The major contributors to the margin improvement were:

• Higher capacity utilization related to the higher sales volume, representing $8,242,000 of the total gross profit increase for the first quarter of 2004.

• Changes in product mix accounted for $4,518,000 of the increase in gross profit for the first quarter of 2004.

• Foreign exchange rate movements, which we estimate increased gross profit by $6,926,000 before any pricing adjustments for the first quarter of 2004, compared with the exchange rates that prevailed during the first quarter of 2003.

• Price decreases of select products, which offset the above increases to gross profit, resulted in a decrease in gross profit of $3,543,000 during the first quarter of 2004.

Selling and Marketing Expenses

Selling and marketing expenses are summarized below (in thousands, except percentages):

	Three Months Ended
	April 3, 2004		March 29, 2003		Percent Change
Selling and marketing expenses	$	17,207	$	14,504	18.6
Percent of sales	11.2		11.6

We continue to make significant investments in demand-generating activities. During the first quarter of 2004, selling and marketing expenses increased due to higher payroll and benefits and advertising costs.

Research and Development Costs

The development of new products and enhancement of existing products are important to Zebra’s business and growth prospects. To maintain and build our product pipeline, we made investments in research and development, summarized below (in thousands, except percentages):

	Three Months Ended
	April 3, 2004		March 29, 2003		Percent Change
Research and development costs	$	8,896	$	7,579	17.4
Percent of sales	5.8		6.1

Quarterly product development expenses fluctuate widely depending on the status of on-going projects. We are committed to a long-term strategy of significant investment in product development. For the first quarter of 2004, payroll and benefits increased by $654,000 in relation to the first quarter of 2003. Consulting and legal expenses declined $480,000 due to the resolution of a third party funded research and development project.

We believe that there will be long-term growth in radio frequency identification, or RFID, and that Zebra is well positioned to participate in that growth. We have introduced new products that extend RFID technologies into our bar code label printers, and we expect to invest a larger portion of our engineering expenditures in the future on the development of RFID printer/encoders.

General and Administrative Expenses

General and administrative expenses are summarized in the table below (in thousands, except percentages):

	Three Months Ended
	April 3, 2004		March 29, 2003		Percent Change
General and administrative expenses	$	12,746	$	10,251	24.3
Percent of sales	8.3		8.2

For the first quarter of 2004, payroll and benefits increased $1,555,000 due to increases in headcount as well as higher payroll taxes on stock option exercises and bonus payments. Legal expenses also increased $642,000 related to:

• Litigation with Paxar described in Note 12,

• Increased intellectual property work,

• International activity,

• Records retention, and

• Compliance issues related to Sarbanes-Oxley internal control requirements.

Exit Costs

During the fourth quarter of 2003, we announced plans to close our engineering site in Varades, France. This plan is accounted for under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Included in operating expenses for the first quarter of 2004 are exits costs in the amount of $224,000. These costs consist primarily of severance and other employee related expenses.

During the first quarter of 2004, we announced plans to consolidate our Warwick, Rhode Island, printer manufacturing and repair service business into our Camarillo, California and Vernon Hills, Illinois locations. During the first quarter, we incurred exit costs of $139,000 for severance and travel costs related to the consolidation.

Operating Income

Operating income is summarized in the following table (in thousands, except percentages):

	Three Months Ended
	April 3, 2004		March 29, 2003		Percent Change
Operating Income	$	40,697	$	31,644	28.6
Percent of sales	26.4		25.4

The increase in operating income is attributable to the following factors:

• Higher first quarter sales,

• Improved gross margins resulting from increased overhead utilization,

• Favorable changes in foreign exchange rates for Zebra’s non-dollar denominated business, and

• Cost controls that held operating expense growth below the rate of sales growth.

As a result of these actions, operating income increased by 4.9 percentage points more than the rate of sales growth during the first quarter.

Non-operating Income and Expenses

Zebra’s non-operating income and expense items are summarized in the following table (in thousands):

	Three Months Ended
	April 3, 2004			March 29, 2003
Investment income	$	3,073		$	2,439
Interest expense	(26		)	(38		)
Foreign exchange losses	(656		)	(143		)
Other, net	(293		)	6
Total other income	$	2,098		$	2,264

Higher investment balances were the major contributor to the increase in investment income for the first quarter of 2004. In addition, increases in the euro and pound exchange rates relative to the exchange rates on our forward contracts have resulted in foreign exchange losses during the quarter.

Income Taxes

The effective income tax rate for the first quarter was 34.7%, compared with 35% for the same quarter last year. This change is the result of implementing tax minimization strategies over the last year.

Net Income

Zebra’s net income is summarized below (in thousands, except per share amounts):

	Three Months Ended
	April 3, 2004		March 29, 2003
Net income	$	27,934	$	22,040
Diluted earnings per share	$	0.58	$	0.47

Liquidity and Capital Resources

Zebra continued to generate cash well in excess of its operating requirements. As a result, Zebra’s cash and investment balances have continually grown over time. As of April 3, 2004, Zebra had $487,583,000 in cash, cash equivalents, investments and marketable securities, compared with $447,848,000 at December 31, 2003. Factors affecting cash and investment balances during the first three months of 2004 include:

• Operations provided cash in the amount of $37,381,000, primarily from net income.

• Accounts receivable decreased $1,097,000 year-to-date (net of the effect of foreign currency translation adjustment) accompanied by a decrease in days sales outstanding to 49 days in the first quarter of 2004 from 57 days a year ago.

• Inventories increased $4,712,000, net of foreign currency translation adjustment. This increase was in support of the higher sales levels. Compared to the same period a year ago, inventory turns are up slightly to 6.1 from 6.0.

• Other assets increased $3,130,000, net of foreign currency translation adjustment, primarily due to the increase in the value of outstanding forward contracts.

• Taxes payable increased $8,795,000 because of the timing of tax payments combined with increased taxation resulting from higher profits.

• Purchases of property and equipment totaled $4,805,000.

• Stock option exercises and purchases under the stock purchase plan contributed $6,928,000.

Management believes that existing capital resources and funds generated from operations are sufficient to finance anticipated capital requirements. It is our intention to actively pursue opportunities to acquire other businesses.

Critical Accounting Policies and Estimates

Management prepared the consolidated financial statements of Zebra Technologies Corporation under accounting principles generally accepted in the United States of America. These principles require the use of estimates, judgments and assumptions. We believe that estimates, judgments and assumptions we use are reasonable, based upon the information available.

Our estimates and assumptions affect the reported amounts in our financial statements. The following accounting policies comprise those that we believe are the most critical in understanding and evaluating Zebra’s reported financial results.

Revenue Recognition

Zebra recognizes product sales at the time of shipment and passage of title, which are generally the same. Other items that affect our revenue recognition include:

Customer returns

Customers have the right to return products that do not function properly within a limited time after delivery. We monitor and track product returns and record a provision for the estimated future returns based on historical experience and any notification received of pending returns. Returns have historically been within expectations and the provisions established, but Zebra cannot guarantee that it will continue to experience return rates consistent with historical patterns. A significant increase in product failure rates and the resulting credit returns could have a material effect on our operating results. A 10% increase (decrease) in returns above historical levels would have decreased (increased) operating income for the first quarter of 2004 by $115,000, or 0.3% of operating income.

Volume Rebates

Some of our customers are offered incentive rebates based on the volume of product they purchase from us over a quarter or year. These rebates are recorded as a reduction to revenue. Each quarter, we estimate the amount of outstanding volume rebates and establish a reserve for them based on shipment history. Historically, actual volume rebates have been in line with our estimates.

Price Protection

Some of our customers are offered price protection by Zebra as an incentive to carry inventory of our product. These price protection plans provide that if we lower prices, we will credit them for the price decrease on inventory they hold. We estimate future payments under price protection programs quarterly and establish a reserve, which is charged against revenue. Our customers typically carry limited amounts of inventory, and Zebra infrequently lowers prices on current products. As a consequence, the amounts paid under theses plans have been minimal. We cannot guarantee that this minimal level will continue.

Software Revenue

We sell three types of software and record revenue as follows:

• Our printers contain embedded firmware, which is an part of the hardware purchase. We consider the sale of this firmware to be incidental to the sale of the printer and do not attribute any revenue to it.

• We sell a limited amount of prepackaged, or off-the-shelf, software for the creation of bar code labels using our printers. There is no customization required to use this software, and we have no post-shipment obligations on the software. Revenue is recognized as this prepackaged software is shipped.

• We sometimes provide custom software as part of a printer installation project. We bill custom software development services separate from the related hardware. Revenue related to custom software is recognized once the custom software development services have been completed and accepted by the customer.

Shipping and Handling

We charge our customers for shipping and handling services based upon our internal price list for these items. The amounts billed to customers are recorded as revenue when the product ships. Any costs incurred related to these services are included in cost of sales.

Investments and Marketable Securities

Investments and marketable securities at April 3, 2004 consisted of U.S. government securities (42.8%), state and municipal bonds (44.8%), corporate bonds (8.3%) and partnership interests (4.1%). We classify our debt and marketable equity securities in one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities that Zebra has the ability and intent to hold until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of discounts or premiums. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity until realized.

Accounts Receivable

We have standardized credit granting and review policies and procedures for all customer accounts, including:

• Credit reviews of all new customer accounts,

• Ongoing credit evaluations of current customers,

• Credit limits and payment terms based on available credit information,

• Adjustments to credit limits based upon payment history and the customer’s current credit worthiness, and

• An active collection effort by regional credit functions, reporting directly to the corporate financial officers.

We reserve for estimated credit losses based upon historical experience and specific customer collection issues. Over the last three years, accounts receivable reserves varied from 1.7% to 2.9% of total accounts receivable. Accounts receivable reserves as of April 3, 2004, were $1,772,000, or 2.1% of the balance due. We feel this reserve level is appropriate considering the quality of the portfolio as of April 3, 2004. While credit losses have historically been within expectations and the provisions established, we cannot guarantee that our credit loss experience will continue to be consistent with historical experience.

Inventories

We value our inventories at the lower of the actual cost to purchase or manufacture using the first-in, first-out (FIFO) method, or the current estimated market value. We review inventory quantities on hand and record a provision for excess and obsolete inventory based on forecasts of product demand and production requirements for the subsequent twelve months.

A significant increase in the demand for Zebra’s products could result in a short-term increase in the cost of inventory purchases; however, this would be offset by improved overhead utilization resulting from the additional demand. A significant decrease in demand could result in an increase in excess inventory quantities on hand.

Our forecasted product demand may prove to be inaccurate, in which case the provision required for excess and obsolete inventory may be understated or overstated. If inventories were determined to be overvalued, we would recognize such costs in cost of goods sold at the time of such determination. We make every effort to ensure the accuracy of our forecasts of product demand; however, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of inventories and reported operating results.

Over the last three years, our reserves for excess and obsolete inventories have ranged from 10.4% to 13.1% of gross inventory. As of April 3, 2004, reserves for excess and obsolete inventories were $6,233,000, or 11.3% of gross inventory. We feel this reserve level is appropriate considering the quantities and quality of the inventories as of April 3, 2004.

Valuation of Long-Lived and Intangible Assets and Goodwill.

We test the impairment of identifiable intangibles and goodwill each year or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We completed our last assessment during June 2003.

We evaluate the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors considered that may trigger an impairment review consist of:

• 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,

• Significant negative industry or economic trends,

• Significant decline in Zebra’s stock price for a sustained period, and

• Significant decline in market capitalization relative to net book value.

If we believe that one or more of the above indicators of impairment have occurred, we measure impairment based on projected discounted cash flows using a discount rate that incorporates the risk inherent in the cash flows. Net intangible assets, long-lived assets and goodwill amounted to $111,406,000 as of April 3, 2004.

Contingencies

We record estimated liabilities related to contingencies based on our estimates of the probable outcomes. Quarterly, we assess the potential liability related to pending litigation, tax audits and other contingencies and confirm or revise estimates and reserves as appropriate.

Stock-Based Compensation

As of April 3, 2004, Zebra had three stock-based compensation plans available for future grants. We account for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-based Compensation, to stock-based compensation (in thousands, except per share amounts):

	Three Months Ended
	April 3, 2004			March 29, 2003
Net income, as reported	$	27,934		$	22,040
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(1,409		)	(1,249		)
Pro forma net income	$	26,525		$	20,791

Basic earnings per share:
As reported	$	0.59		$	0.47
Pro forma	0.56			0.44

Diluted earnings per share:
As reported	$	0.58		$	0.47
Pro forma	0.55			0.44

Significant Customer

ScanSource, Inc. is our most significant customer and comprised 13.1% and 13.3% of net sales for the first quarter of 2004 and 2003, respectively. No other customer accounted for 10% or more of net sales during the first quarter of 2004 or 2003.

Expectations

During our quarterly conference call on April 28, 2004, we provided net sales and earnings guidance for the second quarter of 2004 as follows (in thousands, except per share amounts and percentages):

		Second Quarter 2004
Net sales		$154,000 to $160,000
Gross profit margins		51.0% to 52.5%
Operating expenses		$41,000 to $43,000
Diluted earnings per share		$0.54 to $0.59

Investment income is expected to be approximately $2,000,000 for the second quarter of 2004, and the effective tax rate is expected to be 34.75% of income before income taxes.

Our forecast includes a $550,000 restructuring charge related principally to closing our facility in Varades, France, and the consolidation of operations into other Zebra facilities. This consolidation will increase operating margin and give us greater efficiency in our product development and manufacturing activities.

Safe Harbor

Forward-looking statements contained in this filing are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and are highly dependent upon a variety of important factors which could cause actual results to differ materially from those reflected in such forward looking statements. These factors include market acceptance of Zebra’s printer and software products and competitors’ product offerings. They also include the effect of market conditions in North America and other geographic regions on Zebra’s financial results. Profits will be affected by Zebra’s ability to control manufacturing and operating costs. Because of Zebra’s large investment portfolio, interest rate and financial market conditions will also have an impact on results. Foreign exchange rates will have an effect on financial results, because of the large percentage of Zebra’s international sales. When used in this document and documents referenced herein, the words “anticipate,” “believe,” “estimate,” “will” and “expect” and similar expressions as they relate to Zebra or its management are intended to identify such forward-looking statements. Readers of this document are referred to prior filings with the Securities and Exchange Commission, including the Risk Factors portion of Management’s Discussion and Analysis of Financial Condition and Results of Operation in Zebra’s Form 10-K for the year ended December 31, 2003, for a further discussion of issues that could affect Zebra’s future results. Zebra undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes, except as discussed below, in Zebra’s market risk during the quarter ended April 3, 2004. For additional information on market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of our Form 10-K for the year ended December 31, 2003.

In the normal course of business, portions of Zebra’s operations are subject to fluctuations in currency values. We manage these risks using derivative financial instruments.

Hedging of Net Assets

	Three Months Ended
	April 3, 2004			March 29, 2003
Change in gains (losses) from foreign exchange derivatives	$	529		$	(1,355	)
Gain (loss) on net foreign currency assets	(1,185		)	1,212
Net foreign exchange loss	$	(656	)	$	(143	)

	As of
	April 3, 2004		December 31, 2003
Notional balance of outstanding contracts:
Pounds	£	6,198	£	8,569
Euros	€	27,000	€	22,000

Hedging of Anticipated Sales

During the second quarter of 2003, we began a program to manage the exchange rate risk of anticipated euro denominated sales using forward contracts and designated these contracts as cash flow hedges. Gains and losses on these contracts are deferred in other comprehensive income until the contracts are settled and the hedged sales are realized, at which time the deferred gains or losses will be reported as an increase or decrease to sales. Summary financial information related to the cash flow hedges of future revenues follows (in thousands, except percentages):

	As of
	April 3, 2004			December 31, 2003
Net unrealized gains (losses) deferred in other comprehensive income:
Gross	$	41		$	(1,537	)
Tax benefit	(14		)	538
Net	$	27		$	(999	)

Notional balance of outstanding contracts	€	15,470		€	30,420
Hedge effectiveness	100		%	100		%

Net gain (loss) included in revenue for the
Three months ended March 29, 2003				—
Three months ended April 3, 2004	$	(642	)

Item 4. Controls and Procedures

Zebra’s management is responsible for designing and implementing disclosure controls and procedures to provide reasonable (not absolute) assurances that desired control objectives are achieved including:

• Filing with the SEC all required disclosures within the time limits specified by the SEC.

• Providing all material information to our management, including the CEO and CFO, to enable them to make timely decisions about required disclosures.

When designing and evaluating controls and procedures, we make assumptions about the likelihood of future events. At the same time, we make judgments about the cost-benefit relationship of possible controls and procedures. We cannot assure that this design will succeed in achieving its stated goals under all potential future conditions. Similarly, we cannot assure that our evaluation of controls will detect all control issues or instances of fraud, if any.

We completed our review of disclosure controls and procedures under the supervision of the Disclosure Committee, and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based on this review, the Chief Executive Officer and Chief Financial Officer concluded that as of April 3, 2004 our disclosure controls and procedures were effective to provide reasonable assurance that reports are filed or submitted within the time limits specified by the SEC, and that information is accumulated and communicated to management to allow timely decisions regarding required disclosure. There was not any change in Zebra’s internal control over financial reporting that occurred during the quarter ending April 3, 2004 that has materially affected, or is reasonably likely to materially effect Zebra’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

	10.1	Employment Agreement between the Registrant and Michael T. Edicola. +
	10.2	Employment Agreement between the Registrant and Hugh K. Gagnier. +
	31.1	Rule 13a-14(a)/15d-14(a) Certification
	31.2	Rule 13a-14(a)/15d-14(a) Certification
	32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b) Reports.

The Registrant furnished one report on Form 8-K during the quarterly period covered by this report. The Form 8-K was furnished in connection with the Company reporting its financial results for the year ended December 31, 2003.

+ Management contract or compensatory plan or arrangement required to be filed as an exhibit.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ZEBRA TECHNOLOGIES CORPORATION


Date: May 5, 2004	By:	/s/Edward L. Kaplan
		Edward L. Kaplan
		Chief Executive Officer


Date: May 5, 2004	By:	/s/Charles R. Whitchurch
		Charles R. Whitchurch
		Chief Financial Officer

EX-10.1 2 a04-5565_1ex10d1.htm EX-10.1

Exhibit 10.1

	Zebra Techologies Corporation
	333 Corporate Woods Parkway
	Vernon Hills, Illinois 60061.3109 U.S.A.
	Telephone +1.847.793.2690
	Facsimile +1.847.913.2575
	ceturnbu@zebra.com
	www.zebra.com

Charles E. Turnbull

President

August 16, 1999

Mr. Michael T. Edicola

36 Copperfield Drive

Hawthorn Woods, Illinois 60047

Dear Mike,

This letter confirms my offer to you to join Zebra Techologies Corporation, start date September 7, 1999, as Vice President, Human Resources, reporting directly to me. This updated version also includes a short paragraph on severance in the event of termination.

With acceptance of this position, you will be part of the top-level management team and we are all excited about your ability to contribute to our continued success. Developing our organizational strength and building to the vision of a much larger company will be a challenge, but one that I know you will enjoy…as will I. I look forward to your arrival.

Base and Pay Bonus. Your base salary of $6,923.08 will be payable bi-weekly. This computes to $180,000 on an annual basis. There is also a significant Management Bonus Plan opportunity that has a target equal to 25% of base earnings, which when annualized is $45,000.

Participation in our Management Bonus Plan is based on full calendar quarters of employment, with a portion of the bonus paid each quarter. In your case the bonus will be pro-rated as of your start date and will be guaranteed to pay at least at the target level described above. The bonus is based on a mix of sales, gross margin, and operating profit performance versus targets plus accomplishments compared to MBO’s. Individual objectives will require your input, and when finalized, will be the basis of the MBO portion of your bonus plan.

Stock Options. Also, you will be granted a Stock Option for 20,000 share of Zebra Class A Common Stock on your first day of employment. Zebra Techologies Corporation Stock Options vest over 5 years at the rate of 15% on the first anniversary of the grant, 17.5% on the second anniversary, 20% on the third anniversary, 22.5% on the fourth anniversary and the remaining 25% on the fifth anniversary. Zebra options have a ten-year life from the date of grant. This means that the value of your option can appreciate for ten years from the Grant Date before you are required to exercise. You may sell up to 100% of the shares you acquire upon exercise of each of your options with no holding period.

Future options are granted at the discretion of the Board of Directors and the CEO.

Other Benefits. Zebra offers family coverage in the Zebra healthcare plan (medical/dental), life insurance coverage of $150,000 and other Zebra employee benefit plans in accordance with the plan documents or company policy. You will be eligible to participate in the company’s Profit Sharing and Savings Plan and the Employee Stock Purchase Plan (attached) in accordance with the plan documents. The Company retains its existing right to amend or terminate at any time any employee benefit plan.

Vacation. With respect to vacation, in addition to the standard vacation plan, you will receive additional paid vacation days so that in total, you will not have less than three weeks vacation per year.

Termination. If you are terminated for other than cause, you will receive 6 months base salary continuation and outplacement assistance. All salary continuation payments cease when you accept other employment.

Zebra Techologies Corporation expects each of its employees who have access to confidential business information to keep such information confidential. It is also our policy to avoid the use of confidential information, which you may have concerning your previous employer. We are including our standard form Employment Agreement and request you review it and upon acceptance of our offer, sign and return it with the signed offer letter to my attention. If there are any conflicts between the referenced Employment Agreement and this letter, this letter will prevail.

This offer is contingent upon successful completion of the referencing process. Your employment is also subject to passing a drug screening which you will schedule with the Human Resources team.

Your employment is for no specific period of time, and both you and the Company may terminate the employment relationship per the above agreement.

The letter contains the entire agreement concerning our offer of employment and may not be modified or changed unless in writing signed by me.

To acknowledge acceptance of this offer, please sign and return to me one copy of this letter.

Best regards,		ACCEPTED:

/s/Charles E. Turnbull		/s/Michael T. Edicola

Charles E. Turnbull		Michael T. Edicola
President
		8/17/99
		Date

EX-10.2 3 a04-5565_1ex10d2.htm EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of July 9, 1998, is made by and between HUGH K. GAGNIER (the “Employee”), an individual residing at 5395 Round Meadow Road, Hidden Hills, California 91302, ELTRON INTERNATIONAL, INC., a California corporation (the “Company”), and ZEBRA TECHNOLOGIES CORPORATION, a Delaware corporation (“Zebra”).

PREAMBLE:

A. The Company desires to retain Employee as a senior executive of the Company and Employee desires to perform such duties.

B. Concurrently herewith, the Company, Zebra and SPRUCE ACQUISITION CORP., a Delaware Corporation (“Merger Sub”) are entering into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the “Merger Agreement”; capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement) pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly-owned subsidiary of Zebra (the “Merger”).

C. The effectiveness of this Agreement is expressly conditioned upon consummation of the Merger and the transactions contemplated by the Merger Agreement.

D. This Agreement, once effective, will supersede all previous employment agreements by and between the Company and Employee (the “Prior Agreements”), which Prior Agreements shall be null and void, having no further force or effect, as of the Effective Time.

E. In consideration of the continuation of his employment with the Company subsequent to the Merger, Employee has agreed to certain nonsolicitation and noncompetition provisions contained in this Agreement.

STATEMENT OF AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee agree as follows:

Section 1. Employment, Term and Duties.

1.1 Employment. Upon the terms and subject to the conditions contained herein, during the Employment Term (as defmed in Section 1.2 - - the Company hereby employs Employee as a senior executive officer of the Company. Employee shall initially report directly to the President of Zebra. Employee hereby accepts such employment, and during the Employment Term shall devote his full business time, skill, energy and attention to the business of the Company, and shall perform his duties in a diligent trustworthy, loyal, businesslike and efficient manner, all for the purpose of advancing the business of the Company. The Company agrees that in the event that Employee’s position is eliminated by the Company and Employee is not offered any other comparable position with the Company in the Los Angeles metropolitan area, Employee shall have the right to terminate his employment and Employee shall be entitled to receive all of the benefits set forth in Section 3.4 below.

1.2 Employment Term. The Employment Term shall commence as of the Effective Time on the Closing Date and, unless extended by mutual agreement of the parties hereto or sooner terminated or canceled pursuant to Section 3 hereof, shall be for a period ending at 11:59 P.M., California time, on December 31, 2000 (the “Initial Term”) and shall automatically renew at the end of the Initial Term and on each anniversary thereafter, in each case, for an additional one (1) year period. “Employment Term” shall mean the Initial Term and any extensions or renewals thereof.

1.3 Duties and Responsibilities. Employee shall serve the Company initially as its Vice President and General Manager of Simi Valley Operations of the Company and shall have the duties and responsibilities associated

therewith. Employee initially will be in charge of the engineering, manufacturing and product management areas of the Company’s Simi Valley Operations and the managers of such areas will report to Employee. Employee agrees to observe and comply with the policies, procedures and rules of the Company regarding performance of his specific duties and the duties of the Company employees in general, Employee specifically covenants, warrants and represents to the Company that he has the full, complete and entire right and authority to enter into this Agreement that he has no agreement, duty, commitment or responsibility of any kind or nature whatsoever with any other party, person or entity which would conflict in any manner whatsoever with any of his obligations to the Company under this Agreement, and that he is fully ready, willing and able to perform each and all duties and responsibilities set forth in this Agreement.

Section 2. Compensation.

2.1 Base Salary. Subject to annual adjustments as provided below, the Company shall initially pay, and Employee shall be entitled to receive from the Company, a base salary for full-time employment referred to in Section 1 hereof, compensation at the rate of $180,000 per year (“Base Salary”), payable in equal bi-weekly installments. The Company shall make all deductions, withholdings and/or payments that are required by law from the gross sums payable pursuant to the provisions of this Section 2.

2.2 Adjustment. During the Employment Term, the Base Salary and Incentive Bonus (as defined in Section 2.3) which Employee is entitled to receive will be reviewed each December by the Compensation Committee of the Board of Directors and shall be adjusted effective January 1 of each year. The Base Salary and Incentive Bonus will be determined at the sole discretion of the Compensation Committee, but in no event will the Base Salary be decreased.

2.3 Incentive Bonus. An incentive bonus may be awarded to Employee. The incentive bonus shall be in an amount not to exceed seventy-five percent (75 %) of Employee’s Base Salary for the fiscal year in respect of which a bonus is payable (the Incentive Bonus”). The Incentive Bonus which Employee shall be entitled to receive will be based on the audited financial statements of the Company, and will be calculated based on the criteria determined by the Compensation Committee of the Board of Directors described in Appendix I.

In the event that either the nature of the Company changes by virtue of a merger, acquisition or similar event or if Employee is called upon to serve in a substantially different role by the Company, the bonus criteria will be reviewed and revised to reflect such terms as are mutually acceptable to both Employee and the Compensation Committee of the Company’s Board of Directors.

2.4 Stock Option Plans. Employee shall be eligible to participate in the Company’s Stock Option Plans. Notwithstanding any terms to the contrary contained in any Stock Option Agreement all stock options received by Employee from the Company shall immediately accelerate upon a Change in Control (as defined in Section 3.5).

2.5 Expenses. The Company shall reimburse Employee for all ordinary and necessary expenses incurred and paid by him in the course of the performance of his duties pursuant to this Agreement and consistent with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses, and subject to the Company’s requirements with respect to the manner of reporting such expenses. The Company shall continue in effect (or substitute on a comparable basis) the major medical, hospitalization, life, travel, accident and disability insurance policies covering Employee and/or his eligible dependents.

2.6 Benefit Plans and Other Fringe Benefits. Employee and his dependents that are eligible will be permitted to participate in medical, life insurance and disability plans now made available generally by the Company to its employees or which may be made generally available in the future, subject to, and on a basis consistent with the terms, conditions and administration of each such plan.

It will not constitute a breach of this Agreement if the Company unilaterally modifies, reduces or eliminates any of the benefits under any of these plans if such modifications, reduction or elimination applies equally to all similarly situated eligible participants in such plans.

2.7 Zebra Stock Options. On the Closing Date, but in no event prior to the Effective Time, Employee shall be granted an option to purchase 22,000 shares of Class A Common Stock of Zebra (the “Common Stock”) at an exercise price per share equal to the closing price of the Common Stock on the Closing Date as reported by the Nasdaq

National Market (“Nasdaq”). In the event a closing price is not reported by Nasdaq, the price per share shall be equal to the closing price as reported by the Wall Street Journal. Such option shall be granted in accordance with the Zebra 1997 Stock Option Plan attached hereto as Exhibit C and upon the terms and conditions set forth in Zebra’s customary form of stock option certificate; provided, that such option shall immediately become exercisable in the event that the Company terminates this Agreement pursuant to Section 3.4 hereof.

2.8 Eltron Stock Options. The parties acknowledge and agree that all options to acquire common stock of the Company previously granted to Employee shall become automatically fully vested at the strike price at the time of such grant upon commencement of the Employment Term.

Section 3. Termination.

3.1 Termination of Employment For Cause. The Company may at any time during the term of this Agreement, by written notice, terminate the employment of Employee For Cause (as defined below). In such event, Employee shall be entitled to receive any unpaid amounts of Base Salary and Incentive Bonus for services provided by Employee to the Company up to and including the date of termination of the employment of Employee, but under no circumstances whatsoever shall Employee be entitled to receive any other compensation of any kind or nature whatsoever, including without limitation, for any period of time after the date of the termination of the employment of Employee. The following shall be deemed to constitute the types of acts or conduct which shall constitute grounds for termination of Employee’s employment “For Cause” by written notice pursuant to this Agreement:

(a) The conviction (notwithstanding any possible or pending appeal) of Employee of any felony; provided, however, that prior to any conviction, but while charged with a felony, the Company may, at its discretion, suspend Employee with or without pay;

(b) Any material breach by Employee of any term, provision or covenant contained in this Agreement and the failure of Employee to cure the same within a reasonable period of time not to exceed sixty (60) days of receipt of written notice of such failure (which notice must state specifically and precisely what action or inaction by the Employee constitutes the breach and what Employee must do or not do to correct the breach) and the demand that the same be cured;

(c) The persistent and willful failure, neglect, inability or refusal of Employee to perform in all material respects his duties and responsibilities under this Agreement and the failure to cure the same within fifteen (15) days of receipt of written notice (which notice must state specifically and precisely what action or inaction by the Employee constitutes the breach and what Employee must do or not do to correct the breach) of such failure and the demand that the same be cured; or

(d) Any material breach by Employee of any of the Company’s policies, practices, rules and/or regulations and the failure to cure the same within fifteen (15) days of receipt of written notice (which notice must state specifically and precisely what action or inaction by the Employee constitutes the breach and what Employee must do or not do to correct the breach) of such failure and the demand that the same be cured.

3.2 Disability. If during the Employment Term Employee becomes disabled due to illness, injury or similar cause in such a manner that he is unable fully to perform his duties pursuant to this Agreement, he shall be entitled upon certification of such disability by a physician of the Company’s choice to a leave of absence from the Company for the duration of such disability as certified by such physician up to but not exceeding the expiration of a period of one (1) year or until the end of the current Employment Term of this Agreement, whichever first occurs. Such period shall not to exceed one (1) year and shall be integrated with any existing Company disability policy, provided, however, in no event shall Employee receive disability income coverage beyond the period of one (1) year except to the extent provided in the Company’s disability policy, if any. Employee’s salary as provided in this Agreement including the Base Salary and the incentive bonuses (if earned), shall continue to be paid by the Company during any such leave of absence not to exceed one (1) year provided, however, that if Employee receives any payment or payments on account of such disability from any employer-provided, governmental, employee-provided or other program or programs of disability insurance attributable to the one (1) year leave of absence, or when appropriate, such shorter time period the Company shall be obligated to pay to Employee only the difference, if any, between the salary provided to Employee by the Company pursuant to this Agreement for the applicable period and the total amount of any disability

insurance payments payable to Employee through or by any such program or programs of disability insurance attributable to the same applicable period. If Employee’s absence because of disability continues for more than one (1) year and the term of this Agreement has not expired, the Company shall have the full and unrestricted right, in its sole and exclusive discretion, immediately to terminate Employee’s employment by the Company.

3.3 Death of Employee. In the event of the death of Employee during the term of this Agreement, this Agreement shall immediately terminate, and Employee’s estate shall be entitled to receive any unpaid amounts of Base Salary and Incentive Bonus for services provided by Employee to the Company up to and including the date of Employee’s death and an additional payment equal to the aggregate of Employee’s base salary and Incentive Bonus during his last full year of employment by the Company, but under no circumstances whatsoever shall Employee’s estate be entitled to receive any other compensation of any kind or nature whatsoever for any period of time after the date of Employee’s death.

3.4 Option to Terminate Without Cause. If the Company terminates Employee’s employment for any reason other than For Cause, Employee shall be entitled to receive all of the following severance benefits, which shall satisfy all of the Company’s liabilities to Employee for any claims related to such termination:

(a) A continuation of his Base Salary in effect immediately prior to such termination for a period of one (1) year from the date of termination (“Continued Base Salary”); and

(b) During any such period that he is receiving Continued Base Salary, Employee shall also receive medical coverage for himself and his dependents and life insurance for himself, all at a level equivalent (or as nearly equivalent as practicable) to the benefits he was receiving immediately prior to his termination. Employee agrees to cooperate with the Company to facilitate its provision of such benefits to Employee at the lowest reasonable cost. No vacation benefits shall accrue during any such period.

In any such case, any Continued Base Salary payments shall be made in accordance with the Company’s then existing payroll policies. During any period that Employee is receiving Continued Base Salary, Employee agrees to advise and consult with the Company’s officers and directors with respect to the Company’s affairs if reasonably requested to do so.

3.5 Option to Terminate Upon Change in Control. Upon a Change in Control (as defined below), Employee shall have the option for a period of up to one (1) year from the date of any Change in Control, to terminate his employment and shall be entitled to receive a lump-sum severance payment equal to one time his then existing annual Base Salary subject to normal withholding requirements (the “Severance Payment”). Employee shall notify the Company in writing 60 days prior to his decision to terminate based upon said Change in Control. Following such notice and on or before Employee’s last day of employment, the Company shall pay Employee the Severance Payment.

For purposes of this Agreement a “Change in Control” means the occurrence of any of the following events:

(i) Any “person” or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company or Zebra representing 50% or more of the total voting power represented by the Company’s or Zebra’s then outstanding voting securities, as the case may be; or

(ii) A change in the composition of the Board of Directors of Zebra occurring within any two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of Zebra as of the date hereof; or (B) are elected, or nominated for election, to the Board of Directors of Zebra with the affirmative votes of at least a majority of the current directors who were directors at the beginning of such two year period (but shall not include an individual whose election or nomination is proposed in connection with an actual or threatened proxy contest relating to the election of directors for Zebra); or

(iii) The stockholders of Zebra approve any transaction which would be a reorganization under Delaware law and results in the voting securities of Zebra outstanding immediately prior to the consummation of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) less than fifty percent (50%) of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such merger or consolidation; or

(iv) The stockholders of Zebra approve a plan of complete liquidation of Zebra or an agreement for the sale or disposition by Zebra of all or substantially all of Zebra’s assets.

Notwithstanding the paragraph above, the following events shall not constitute a Change in Control: (i) any acquisition of beneficial ownership pursuant to a will or the laws of descent and distribution; (ii) any acquisition of beneficial ownership by operation of a trust established prior to such reorganization and merger, created and utilized for estate planning purposes and which was the record holder of 5 % or more of the voting; (iii) any acquisition of beneficial ownership pursuant to (A) a reclassification, however effected, of Zebra’s authorized stock, or (B) a corporate reorganization involving Zebra or any of its subsidiaries which does not result in a material change in the ultimate ownership by the shareholders or Zebra (through their ownership of Zebra or to the successor to Zebra resulting from the reorganization) of the assets of Zebra and its subsidiaries, if such reclassification or reorganization is approved by the Board of Directors of Zebra; or (iv) the Merger or any transaction contemplated by the Merger Agreement.

3.6 Option of Employee to Terminate Employment. If Employee terminates his employment with the Company (other than in connection with a Change in Control or pursuant to Section 1.1 above), or his employment is terminated by the Company For Cause, the Company’s obligation to provide Employee with compensation or employment benefits shall cease upon the effective date of such termination and Employee shall not be entitled to receive any severance payments, or any other payments or reimbursements, in connection with such termination.

3.7 Duties of Employee After Termination of Employment. Following any termination of Employee’s employment with the Company for any reason under Section 3, Employee shall fully cooperate with the Company in all matters relating to the winding up of his pending work on behalf of the Company and the orderly transfer of any such pending work and of his duties and responsibilities for the Company to such other employees of the Company as may be designated by the Company. The Company shall be entitled to such full-time or part-time services of Employee as the Company may reasonably require during all or any part of the thirty (30) day period immediately following any termination of Employee’s employment by the Company, excluding Saturdays, Sundays and federal holidays. In addition, to any other severance benefits, Employee shall receive reasonable compensation for any such services so rendered. Immediately upon any termination of Employee’s employment with the Company, Employee shall return to the Company any and all property of the Company of any kind or nature whatsoever in Employee’s possession, custody or control.

Section 4. Full-Time Employment; Confidentiality; Indemnification.

4.1 Full-Time Employment. Employee will devote his full time, energies and attention to perform all of his duties to the Company under this Agreement. In addition, Employee will not engage in any business, civic or other activities that would interfere with the performance of his duties hereunder. Employee further agrees that he will not perform services, whether or not for compensation, for any person or entity which competes directly or indirectly with the Company.

4.2 Confidentiality. Except as may be required in the ordinary course of performing his duties hereunder. Employee at no time, whether during or after the termination of his employment (other than to promote and advance the business of the Company), will reveal to any person or entity any trade secrets proprietary or confidential business information concerning the Company, including but not limited to, its production: processes, inventions, formulae, research results and activities, marketing plans and strategies, pricing policies, customer lists and accounts, business or financial information of the Company which have come to the Employee’s knowledge in the course and result of his employment with the Company. These restrictions will not apply to (a) information that is in the public domain through no breach by Employee of this Agreement, (b) information that is required to be disclosed by law or an order of a court, agency or proceeding, or (c) in the event Employee is authorized in writing to disclose such information by the Board of Directors of the Company.

4.3 Return of All Company Property and Documents. Upon the termination of employment, Employee will immediately return to the Company all property of the Company including, without limitation, all keys, credit cards, documents and information, however maintained (including computer files, tapes, and recordings), concerning the Company and acquired by Employee in the course and scope of his employment (excluding only those documents totaling to Employee’s own salary and benefits).

4.4 Company’s Right to Equitable Relief. Employee acknowledges that the provisions of Sections 4.2, 5.1 and 5.2 are reasonable and necessary to protect the legitimate interests of the Company. If Employee commits a

breach, or threatens to commit a breach, of Sections 4.2, 5.1, 5.2 or any other term of this Agreement it is understood and agreed that such conduct would result in immediate and irreparable harm to the Company and would cause damage to the Company which cannot reasonably or adequately be compensated by monetary damages. The Company will be entitled to the remedies of injunction and specific performance by any court having competent equity jurisdiction, and nothing in Section 8 herein shall apply or be interpreted to prohibit the Company from seeking such equitable remedies.

4.5 Indemnification. The Company agrees to indemnify and hold harmless Employee from and against all claims, suits, damages, losses, costs and expenses incurred or suffered by Employee by reason of any acts or omissions arising out of Employee’s services to or activities on behalf of the Company or its subsidiaries to the full extent permitted by the California General Corporation Law. Employee will also be covered by Zebra’s directors and officers liability insurance policy.

Section 5. Non-Solicitation and Non-Competition.

5.1 Non-Solicitation. During the Employment Term and for a period of three (3) years thereafter, Employee agrees that he shall not solicit any customers of the Company, or recruit or cause any other person to recruit any employee of or consultant to the Company, to stop working for, contracting with, or otherwise alter their relationship with the Company or to work for or contract with any business or businesses competitive with the Company.

5.2 Non-Competition. For a period of one (1) year after termination of employment under this Agreement, Employee shall not (a) compete with the Company or any affiliate or subsidiary of the Company, in the Territory (as defined below), in the conduct of its business as a manufacturer and/or seller of bar code printers and plastic card printers, or (b) engage or participate, directly or indirectly, whether for his own account or for that of any other person, firm or corporation, and whether as a stockholder (except as a stockholder in a publicly held corporation of which Employee owns less than 1% of the outstanding securities of any class), principal, agent proprietor, partner, officer, director, employee or consultant, or in any other capacity. “Territory” shall mean each of the cities, counties or other jurisdictions set forth on Exhibit D attached hereto, and any other domestic or foreign jurisdiction in which the Company or any affiliate or subsidiary of the Company, as of the date of the Agreement, has conducted any part of its business, whether design, development, engineering, manufacturing, sale, distribution or servicing of its products or other marketing operations, in any business or businesses substantially similar to the business as conducted by the Company as of the date of this Agreement or as may thereafter be conducted by the Company at any time during the Employment Term.

Section 6. Inventions.

6.1 Inventions Retained and Licensed. Employee has attached as Exhibit A hereto a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by Employee prior to his employment with the Company (collectively referred to as “Prior Inventions”), which belong to Employee, which relate to the Company’s proposed business, products or research and development and which are not assigned to the Company hereunder, or, if no such list is attached, Employee represents that there are no such Prior Inventions. If in the course of Employee’s employment with the Company, Employee incorporates into the Company product, process or machine any Prior Inventions owned by Employee or in which Employee has an interest the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Inventions as part of or in connection with such product process or machine.

6.2 Assignment of Inventions. Employee agrees that he will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all of Employee’s right title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which Employee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time Employee is in the employ of the Company (collectively referred to as “Inventions”), except as provided in Section 6.5 below. Employee further acknowledges that all original works of authorship which are made by Employee (solely or jointly with others) within the scope of and during the period of his employment with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.

6.3 Maintenance of Records. Employee agrees to keep and maintain adequate and current written records of all Inventions made by Employee (solely or jointly with others) during the term of Employee’s employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.

6.4 Patent and Copyright Registrations. Employee agrees to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the inventions and any copyright patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all permanent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. Employee further agrees that his obligation to execute or cause to be executed, when it is in Employee’s power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of Employee’s mental or physical incapacity or for any other reason to secure Employee’s signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering inventions or original works of authorship assigned to the Company as above, then Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Employee’s agent and attorney-in-fact, to act for and in Employee’s behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters or patent or copyright registrations thereon with the same legal force and effect as if executed by Employee.

6.5 Execution to Assignments. Employee understands that the provisions of this Agreement requiring assignment of inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached as Exhibit B). Employee will advise the Company promptly in writing of any inventions that Employee believes meet the criteria in California Labor Code Section 2870 and which are not otherwise disclosed on Exhibit A.

Section 7. No Mitigation or Set Off. Employee’s right to receive benefits under this Agreement shall not be reduced by reason of Employee’s employment with any other employer after termination or resignation of employment with the Company. Any compensation for services rendered or consulting fees earned after the date of termination or resignation shall not diminish Employee’s right to receive all amounts due hereunder. The right of Employee to receive benefits under this Agreement shall be absolute and shall not be subject to any set-off, counterclaim, recoupment, defense, duty to mitigate or other right the Company may have against him or anyone else.

Section 8. Arbitration. Any controversy, dispute or claim arising out of, or relating to or concerning the employment and compensation of Employee or the termination of Employee’s employment or a claimed violation of any provision of any local, state or Federal law will be settled by arbitration in Ventura County, California, in accordance with the Rules of the American Arbitration Association (the “AAA”) then existing. Should the AAA publish rules designed to accomplish the arbitration of employment disputes between employees not represented by a union and their employers, then those rules will be utilized. This agreement to arbitrate will be specifically enforceable. Judgment upon any award rendered by an arbitrator may be entered in any court having jurisdiction. If the rules of the AAA differ from those of this Section, the provisions of this Agreement will control.

(a) Procedure for Arbitration. Subject to the above, any demand for arbitration may be filed with the AAA and served upon the other party at any time within the period covered by the applicable statute of limitations.

(b) Conduct of Arbitration Proceedings. The cost of the arbitrator will be shared equally by the parties. If there is any issue whatsoever concerning confidentiality or trade secrets, no recording or transcription of the arbitration will take place.

(c) Powers of the Arbitrator. The arbitrator will have no authority to extend, modify or suspend any of the terms of this Agreement. The arbitrator will make his award in writing and shall accompany it with opinion discussing the evidence and setting forth the reasons for his award. The arbitrator shall have the power to make all factual determinations and rule on all issues of law. ANY AWARD RENDERED BY THE ARBITRATOR SHALL BE FINAL AND BINDING UPON EACH PARTY TO THE ARBITRATION AND UNREVIEWABLE FOR ERROR OF

LAW OR FOR LEGAL REASONING OF ANY KIND AND ANY SUCH AWARD MAY BE CONFIRMED AND A JUDGMENT ON SUCH AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.

(d) Waiver of Right to Trial by Jury or Court. THE COMPANY AND EMPLOYEE EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OR A TRIAL BEFORE A STATE OR FEDERAL COURT JUDGE OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT BY ONE PARTY AGAINST ANY OTHER PARTY OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE EMPLOYEE EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE ARBITRATED AS PROVIDED IN THIS SECTION 8. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY OR A TRIAL BEFORE A STATE OR FEDERAL COURT JUDGE IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.

Section 9. Miscellaneous.

9.1 Notice. Any notice or other communications required or permitted to be given to the parties hereto shall be deemed to have been given when received addressed as follows (or at such other address as the party addressed may have substituted by notice pursuant to this Section):

(a)		If to the Company:

		Eltron International, Inc.
		41 Moreland Road
		Simi Valley, California 93065-1692
		Telephone:	(805) 579-1800
		Facsimile:	(805) 579-2085

(b)	If to Employee:

	To the address specified in the first paragraph hereof.

9.2 Heading. The captions set forth in this Agreement are for convenience of reference only and shall not be considered as part of this Agreement or as in any way limiting or amplifying the terms and provisions hereof.

9.3 Governing Law. The Agreement, shall in all respect, be interpreted, construed and governed by and in accordance with the law of the State of California.

9.4 Severability. If any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein and there shall be deemed substituted such other provision as will most nearly accomplish the intent of the parties to the extent permitted by applicable law.

9.5 Whole Agreement. This Agreement embodies all the representations, warranties, covenants and agreements of the parties in relation to the subject matter hereof, and no representations, warranties, covenants, understandings or agreements or otherwise, in relation thereto exist between the parties, or in an instrument in writing signed by the party to be bound thereby which makes reference to this Agreement.

9.6 No Rights in Third Parties. Nothing herein expressed or implied is intended to or shall be construed to confer upon or give to any person, firm or other entity, other than the parties hereto and their respective successors and assigns or personal representatives, any rights or remedies under or by reason of this Agreement.

9.7 Assignment. The Company may assign its rights and delegate its responsibilities under this Agreement to any successor corporation or to any corporation which acquires all or substantially all of the operating assets of the Company by merger, consolidation, dissolution, liquidation, combination, sale or transfer or assets or otherwise. Employee may not assign any rights or obligations under this Agreement.

9.8 Amendment. The Agreement may not be amended orally but only by an instrument in writing duly executed by the parties hereto.

9.9 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.

9.10 Survival of Obligations. Notwithstanding anything to the contrary set forth in this Agreement, the obligations set forth in Sections 4, 5, 6 and 8 shall survive any termination of this Agreement.

IN WITNESS WHEROF, the Company and Employee have caused this Agreement to be duly executed and delivered as of the date, first written above.

“EMPLOYEE”:		“COMPANY”:


		ELTRON INTERNATIONAL, INC.


/s/Hugh K. Gagnier		By:	/s/Donald K. Skinner
HUGH K. GAGNIER		Name:	Donald K. Skinner
		Title:	Chairman, CEO


	“ZEBRA”

	ZEBRA TECHNOLOGIES CORPORATION


	By:	/s/Edward K. Kaplan
		Name:	Edward K. Kaplan
		Title:	CEO

APPENDIX I

EMPLOYMENT AGREEMENT

During the Employment Term, the additional compensation Employee is entitled to receive will be reviewed each December by the Compensation Committee of the Board of Directors and fixed effective January 1 of the coming year.

The following defines the criteria to be used for allocating the 1998 bonus program to Employee:

Most Important Tasks: (MIT) Employee shall be entitled to receive a maximum quarterly bonus equal to 75% of his quarterly salary. MIT’s will be created by Employee and approved by the Compensation Committee of the Board of Directors, prior to the beginning of each quarter. Each task will be assigned a numerical weighing for bonus allotment. At the end of each quarter, MIT’s will be reviewed by Employee and the Compensation Committee of the Board of Directors to assess task completion and to compute the amount of bonus to be awarded for the prior quarter.

The following defines the criteria to be used for allocating the 1999 and 2000 bonus program to Employee:

Most Important Tasks: (MIT) Employee shall be entitled to receive a maximum quarterly bonus equal to 75% of his quarterly salary. MIT’s will be created by Employee and approved by the Chairman and Chief Executive Officer of Zebra, prior to the beginning of each quarter. Each task will be assigned a numerical weighing for bonus allotment. At the end of each quarter, MIT’s will be reviewed by Employee and the Chairman and Chief Executive Officer of Zebra to assess task completion and to compute the amount of bonus to be awarded for the prior quarter.

EXHIBIT A

EMPLOYMENT AGREEMENT

The following is a list describing all inventions, original works of authorship, developments, improvements, and trade secrets of Employee:

ý No Inventions, improvements, etc., listed.

o Addition Sheets Attached

	/s/Hugh K. Gagnier
	Employee

EXHIBIT B

EMPLOYMENT AGREEMENT

California Labor Code Section 2870:

§2870. Employment agreements; assignment of rights.

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or

(2) Result from any work performed by the employee for the employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

EXHIBIT C

EMPLOYMENT AGREEMIENT

ZEBRA 1997 Stock Option Plan

EXHIBIT D

EMPLOYMENT AGREEMENT

List of Jurisdictions

Los Angeles, Los Angeles County, California

Simi Valley, Ventura County, California

Greenville, Outagamie County, Wisconsin

Camarillo, Ventura County, California

Offices:

Coral Gables, Florida

Marietta, Georgia

Rochelle Park, New Jersey

Schaumburg, Illinois

Chesire, Connecticut

Malvern, Pennsylvania

Bloomington, Minnesota

EX-31.1 4 a04-5565_1ex31d1.htm EX-31.1

Exhibit 31.1

CERTIFICATION

I, Edward L. Kaplan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zebra Technologies Corporation (the “Company”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

c) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2004	By:	/s/Edward L. Kaplan
		Edward L. Kaplan
		Chief Executive Officer

EX-31.2 5 a04-5565_1ex31d2.htm EX-31.2

Exhibit 31.2

CERTIFICATION

I, Charles R. Whitchurch, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zebra Technologies Corporation (the “Company”);

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2004	By:	/s/Charles R. Whitchurch
		Charles R. Whitchurch
		Chief Financial Officer

EX-32.1 6 a04-5565_1ex32d1.htm EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zebra Technologies Corporation (the “Company”) on Form 10-Q for the period that ended April 3, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward L. Kaplan, Chief Executive Officer of Zebra, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Zebra.

A signed original of this written statement required by Section 906, or another document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Zebra and will be retained by Zebra and furnished to the Securities and Exchange Commission or its staff upon request.

Date: May 5, 2004	By:	/s/Edward L. Kaplan
		Edward L. Kaplan
		Chief Executive Officer

EX-32.2 7 a04-5565_1ex32d2.htm EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zebra Technologies Corporation (the “Company”) on Form 10-Q for the period that ended April 3, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles R. Whitchurch, Chief Financial Officer of Zebra, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Zebra.

Date: May 5, 2004	By:	/s/Charles R. Whitchurch
		Charles R. Whitchurch
		Chief Financial Officer

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Commission File Number: 000-19406

Item 1. Consolidated Financial Statements

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

Note 1 – Basis of Presentation

Note 7—Earnings Per Share

Liquidity and Capital Resources

Significant Customer

Expectations

Safe Harbor

Item 4. Controls and Procedures

Item 6. Exhibits and Reports on Form 8-K