Tags are everywhere...they tell us what things
are and where they’re from. identify who we are, what we are and
where we are. tags are essential in guiding us from here to there
and back again. at Zebra technologies, we’re in the business of help-
ing our customers tag their most valuable assets. By identifying,
tracking and managing products, transactions and people with
Zebra solutions, businesses and governments are able to improve
performance. our customers use Zebra on-demand thermal printers
and supplies, radio frequency identification (rfid) solutions and
real-time locating systems (rtls) to increase productivity,
strengthen security and deliver better customer service. our
commitment to global industry leadership, financial strength,
and growth enables Zebra to build long-term value for its
customers, partners and stockholders.
financial summary (in thousands, except per-share data and percentages)
o p e R a T i n g R e s u l T s
2010
% Change
2009
% Change
2008
net sales
Gross profit
operating income (loss)
net income (loss)
Basic earnings (loss) per share
diluted earnings (loss) per share
$ 956,848
460,869
143,852
101,778
1.78
1.77
19.1%
27.8
109.1
116.1
125.3
124.1
c a p i T a l i Z a T i o n
cash and cash equivalents,
restricted cash, investments and
marketable securities, and long-term
investments and marketable securities
Working capital
total assets
stockholders’ equity
$ 259,899
340,253
878,864
730,032
$ 803,585
360,721
68,802
47,104
0.79
0.79
$ 246,721
306,127
830,479
712,129
-17.7%
-24.7
•
•
•
•
$ 976,700
479,305
(15,346)
(38,421)
(0.60)
(0.60)
$ 224,886
271,831
850,878
710,738
fortified by the competitive advantages we have built
over the past 25 years, Zebra is positioned to deliver
attractive returns to shareholders. The unequalled depth
and breadth of our product lines enable us to meet more
of our customers’ automatic identification needs, with
solutions delivered via the industry’s most developed
go-to-market channels. Today, with the largest installed
base of thermal printers in the industry, the Zebra brand
is also the most preferred thermal printer globally.
S
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Zebra achieved record earnings of
$1.77 per share on 19 percent sales
growth to $956.8 million, highlighting
a year in which Zebra extended its
industry leadership, expanded its
international business, and further
strengthened its brand position.
during 2010, higher gross margins
and continued operating expense
control resulted in improved
profitability and capital returns.
We generated more than $100
million in free cash flow, while
maintaining investments in
activities supporting profitable
growth and returning $102 million
to shareholders by buying back
3.3 million shares of Zebra stock.
robust growth in all geographic
regions through industry-leading
go-to-market channels contributed
to these impressive results. a
growing number of customers
around the world turned to Zebra
as they stepped up their investments
in barcoding and other automatic
identification solutions to help
them manage their assets smarter
and gain greater visibility into
their supply chains. during the
year, Zebra added more sales
representatives in key regions
including china, Brazil and turkey,
where developing economies
and local wealth creation support
attractive growth.
sales of all major product categories
also increased as the depth and
breadth of our product line, an
important competitive advantage,
enabled us to better serve more of
our customers’ needs. in 2010, we
strengthened our product portfolio
and expanded the range of
applications we serve with the
introduction of several new
products including our new rXi4
radio frequency identification
printer/encoder and ZXp series 8
instant-issuance card printer. in
addition, we achieved record
rfid sales with shipments of
our proprietary rp4t mobile
rfid printer/encoder to support
adoption of rfid technology.
our record results reflect the
success of our supply chain
transformation as well. the transfer
of our printer manufacturing to
a global third-party electronics
manufacturer, which we completed
at the beginning of 2010, enabled
us to improve responsiveness to
customer demands, as we also
lowered product costs and
positioned Zebra with further
production capacity for growth.
Investing for Profitable Growth
in large measure, our commitment
to invest in our business over the
long term has served as the
foundation to Zebra’s enduring
success in meeting customer
needs, extending industry
leadership and generating high
returns. in 2011, we will continue
to prioritize our investments in
those areas that have the highest
risk-adjusted returns. We will
introduce more innovative
products, some of which are
under development in our china
engineering center which we
opened last year. We will also
maintain our global channel
expansion program to supplement
the efforts of the Zebra sales
representatives we added last
year. to capture more opportunities
in large, complex supply-chain
environments, new sales and
marketing initiatives will help
build stronger relationships with
system integrators and independent
software vendors in our
expanding network of go-to-market
channel partners.
our focus on delivering the highest
risk-adjusted returns also led us to
further align our operations with
our strategic goals. in January, we
entered into a definitive agreement
to sell navis and a related marine
terminal product line for approxi-
mately $190 million in cash. With
this divestiture, Zebra can more
effectively direct its resources to
core opportunities in specialty
printing, rfid, and location solutions.
Zebra’s multiple competitive
advantages and clear industry
leadership position us well to
benefit from attractive global
trends that drive greater demand
for tagging high-value assets.
End users want to gain increased
visibility into their supply chains.
the great diversity of our business
across products, channels and
geographies makes Zebra unique
in its ability to meet this need.
our financial strength provides us
significant flexibility in how we
manage the business and invest
in those areas that generate the
highest risk-adjusted returns. With
the continued commitment of our
more than 2,000 dedicated Zebra
employees, we look to 2011 and
beyond with optimism in our
capacity to build greater value
for all Zebra shareholders.
Anders Gustafsson Chief Executive Officer
Identify
track
Manage
Tag
Sourcing
Visibility
Accuracy
Security
Optimize
efficiency
Productivity
reduced costs
customer Satisfaction
ROI
inventory management
enable
access control
real time location
R f i d
tag
o n d e m a n d
barcoding
patient safety
right time
integrate
right place
r
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m
s
positive patient id using
barcoded wristbands
from Zebra helps to
save lives by reducing
medical errors.
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R f i d
tag i
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right asset
reliability
personal Id
presence
asset tracking
Big things. Little things. Precious things. Zebra tags them all. tagging
links the physical world to virtual systems. and because every asset has a story
to tell, Zebra solutions using bar codes, badges and rfid give our customers
the power to identify, track, and manage their most valued assets more quickly
and accurately. With Zebra tags, all is revealed, leading to higher productivity,
more effective security and greater customer satisfaction. simply put, when
it comes to tags, Zebra is “it.”
Real-time locating
systems give companies
the ability to better
manage their valuable
assets over wide areas.
routing
Increased visibility
integration
better sourcing
right time
e n h a n c e d a c c u R a c y
tighter time management
work flow
security
right place
passive radio frequency
identification (Rfid)
is giving retailers and
others greater visibility
into their inventories
for improved product
availability.
See it more clearly. Measure it more accurately. Run it more efficiently. By giving our customers deeper insight into their businesses, Zebra solutions enable them to manage their operations more effectively. More extensive, accurate information means improved decision-making, which in turn can lead to greater product availability, enhanced warehousing and manufacturing processes, faster package delivery, and better patient care. n
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A
f
integration
right place
R f i d
optimize
destination
supply chain
greater efficiency
chain of custody
tighter time management
e n h a n c e d a c c u R a c y
from the source, to the
consumer, manufacturers
and distributors rely on
barcoded labels using
Zebra thermal printers
and genuine Zebra
supplies to optimize the
flow of goods through
the supply chain.
fpo
tighter supply chain
ROIcustomer satisfaction
i m p R o v e d p R o f i T a b i l T y a n d c a s h f l o w
smart investment
productivity
efficiency
asset management
analysis
Higher productivity. Tighter security. Happier customers. Zebra delivers a
quick and measurable return on investment to companies that utilize our solutions
to improve their business processes. stronger cash flows, increased production
capacity, higher employee output and greater customer satisfaction are some of
the many benefits of investing in Zebra solutions. our customers continue to find
increased success in identifying, tracking and managing their assets, transactions
and people, across the supply chain and throughout their enterprises.
Happy customersreduced costsjust in timelower inventoriesmeasurement Zebra Technologies Corporation 2010 Annual Report
UNITED STATES
SECURITIES
AND EXCHANGE
COMMISSION
Washington, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION
REPORTS PURSUANT TO SECTIONS
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
X
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2010
OR
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
(State or other
jurisdiction of
incorporation
or organization)
36-2675536
(I.R.S. Employer
Identification No.)
475 Half Day Road, Suite 500,
Lincolnshire, IL 60069
(Address of principal (Zip Code)
executive offices)
Registrant’s telephone number, including
area code: (847) 634-6700
Securities registered pursuant to Section 12(b)
of the Act:
Name of Exchange
Title of Each Class
on which Registered
Class A Common Stock, The NASDAq Stock
par value $.01 per share Market, LLC
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a well-
known seasoned issuer (as defined in Rule 405 of
the Securities Act). Yes __X No __
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or
Section 15(d) of the Securities Act. Yes __ No __X
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes __X No __
Indicate by check mark whether the registrant
has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for
such shorter period that the registrant was required
to submit and post such files). Yes __X No __
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of the registrant’s knowledge, in definitive
proxy or information statements incorporated
by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting
company. See definitions of “accelerated filer,”
“large accelerated filer ” and “smaller reporting
company” in Rule 12b-2 of the Securities Act
(Check one): Large accelerated filer __X
Accelerated filer __ Non-accelerated filer __
Smaller reporting company __
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of
the Securities Act). Yes __ No __X
As of July 3, 2010, the aggregate market value of
each of the registrant’s Class A Common held by
non-affiliates was approximately $1,410,451,000.
The closing price of the Class A Common Stock on
July 2, 2010, as reported on the NASDAq Stock
Market, was $24.66 per share.
As of February 11, 2011, 55,758,784 shares of
Class A Common Stock, par value $.01 per share,
were outstanding.
Documents Incorporated by Reference
Certain sections of the registrant’s Notice of
Annual Meeting of Stockholders and Proxy
Statement for its Annual Meeting of Stockholders
to be held on May 19, 2011, are incorporated by
reference into Part III of this report.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
PART I
INDEX
PAGE
References in this document to “Zebra,” “we,” “us,” or “our” refer to Zebra Technologies
Corporation and its subsidiaries, unless the context specifically indicates otherwise.
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 12
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7A. quantitative and qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . 31
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . 34
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 13. Certain Relationships and Related Transactions,
and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 14. Principal Accounting Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SIGNATURES
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Index to Consolidated Financial Statements and Schedule . . . . . . . . . . . . . . . . . . . . . . . . F-1
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 expressed or implied in such forward looking statements. These forward-looking
statements are based on current expectations, forecasts and assumptions and are subject
to the risks and uncertainties inherent in Zebra’s industry, market conditions, general
domestic and international economic conditions, and other factors. These factors include:
• Market acceptance of Zebra’s printer and software products and competitors’
product offerings and the potential effects of technological changes,
• The effect of global market conditions, including North America, Europe, Middle East
and Africa and other regions in which we do business,
• Our ability to control manufacturing and operating costs,
• The availability of credit and the volatility of capital markets, which may affect our
suppliers and customers,
• Success of integrating acquisitions,
• Interest rate and financial market conditions because of our large investment portfolio,
• Foreign exchange rates due to the large percentage of our international sales and
operations, and
• The outcome of litigation in which Zebra is involved, particularly litigation or claims
related to infringement of third-party intellectual property rights.
When used in this document and documents referenced, 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, but are not the
exclusive means of identifying these statements. We encourage readers of this report to
review Item 1A, “Risk Factors,” in this report for further discussion of issues that could
affect Zebra’s future results. Zebra undertakes no obligation, other than as may be required
by law, 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 1. Business
Zebra Technologies Corporation is a Delaware corporation. Our principal offices are
located at 475 Half Day Road, Suite 500, Lincolnshire, Illinois 60069. Our main telephone
number is (847) 634-6700 and our primary Internet Web site address is www.zebra.com.
You can find all of Zebra’s filings with the SEC free of charge through the investor page on
this Web site, immediately upon filing.
The Company
Zebra delivers products and solutions that improve our customers’ ability to put their
critical assets to work smarter by identifying, tracking and managing assets, transactions
and people.
2
We design, manufacture and sell specialty printing devices that print variable information
on demand at the point of issuance. These devices are used worldwide by manufacturers,
service and retail organizations and governments for automatic identification, data
collection and personal identification in applications that improve productivity, deliver
better customer service and provide more effective security. Our product range consists
of direct thermal and thermal transfer label and receipt printers, passive radio frequency
identification (RFID) printer/encoders and dye sublimation card printers. We also sell a
comprehensive range of specialty supplies consisting of self-adhesive labels, thermal
transfer ribbons, thermal printheads, batteries and other accessories, including software
for label design and printer network management.
Sale of Navis Business and Marine Terminal Solution Software Product Line
In 2007 and 2008, we acquired WhereNet Corp., proveo AG, Navis Holdings, LLC and
Multispectral Solutions, Inc. These companies comprised the Zebra Enterprise Solutions
Group (ZES), through which we offered asset tracking and management solutions
to optimize the flow of goods in complex logistical operations. These acquisitions
provided us with new technologies to offer our customers, including active RFID,
global positioning systems (GPS), telematics and ultra wideband (UWB) technologies.
These solutions incorporate battery-powered wireless tags, fixed-position antennae,
transponder modules and application software. We also provide consulting services,
maintenance contracts and software licenses related to these solutions.
On January 28, 2011, we entered into a Securities Purchase Agreement with Cargotec
Corporation to sell all of our interest in the Navis business and WhereNet Marine Terminal
Solution software product line (MTS). Navis is a global solutions provider of operating
systems to coordinate and automate the planning and management of container and
equipment moves in marine terminals and other complex and demanding business
environments. We are retaining the real-time location solutions, tags and readers portion
of the WhereNet business, along with the WhereNet applications that are sold into non-
maritime industries. The sale is expected to close in the first quarter of 2011.
Beginning with the first quarter of 2011, Navis and other ZES assets will be reported as
assets/liabilities held for sale and the operating results will be reported as discontinued
operations. Our financial statements for the three-year period ended December 31,
2010 do not treat the Navis business as discontinued operations in accordance with the
appropriate accounting guidance. Our financial statements for the three-year period
ended December 31, 2010 reflect our Specialty Printing Group (SPG) and ZES segments,
including the management discussion and analysis of financial condition and results of
operations. Consequently, the remainder of this business description describes Zebra’s
business consistent with our historical financial statements, including a business
description of our SPG and ZES segments, while including comments to reflect the
proposed sale of the Navis business entity, including MTS.
Zebra Specialty Printer Group (SPG)
We design our printer products to operate at the point of issuance to produce high-
quality labels, tickets, receipts, and plastic cards on demand. The exceptional diversity
of applications using our printer products for barcoding and personal identification
includes routing and tracking, patient safety, transaction processing, and identification
and authentication. These applications require high levels of data accuracy, where speed,
reliability and durability are critical. They also include specialty printing for receipts and
tickets where improved customer service and productivity gains may be the primary
reason for using our on demand receipt printers. Plastic cards are used for secure,
reliable personal identification, access control and financial cards (credit, debit and ATM
cards) by financial institutions.
Applications for our printing technology span most industries and geographies. They
include inventory control, small package delivery, baggage handling, automated
warehousing, JIT (Just-In-Time) manufacturing, employee time and attendance records,
file management systems, patient barcode wrist banding, medical specimen labeling,
shop floor control, in-store product labeling, employee ID cards, driver’s licenses, and
access control systems. As of December 31, 2010, management estimates that Zebra has
sold more than 9,400,000 printers to customers around the world.
We believe competitive forces on businesses worldwide to strengthen security, reduce
costs, more effectively manage assets, improve quality, deliver better customer
service, and increase productivity support the adoption of the printing and automatic
identification applications that Zebra provides because these solutions deliver significant
and predictable economic benefits. Industry-mandated compliance requirements for
bar code labeling and RFID tagging are also important catalysts in the deployment of
these systems. Many of Zebra’s applications enhance the use of enterprise resource
planning (ERP) and other process improvement systems in manufacturing and service
organizations. Greater emphasis on supply chain management, the drive to reduce errors
in healthcare, and heightened concern over safety and security are also increasing the
use of automatic identification systems. Still other applications are taking advantage of
recent advances in wireless and hand-held computing technologies.
Concern for safety and security and personal identification contribute to demand for
our card printer products. This concern has heightened interest in systems that provide
personal identification and access control, including secure ID systems for driver’s
licenses, employee and visitor badges, national identification cards, event passes, club
membership cards and keyless entry systems. Financial institutions utilize card printers
for credit, debit and ATM cards.
Our printers are used to print bar code labels, receipts, plastic identification cards,
wristbands, and tags and to encode passive RFID “smart” labels and cards. We also sell
related specialty labeling materials, thermal ink ribbons, and bar code label design and
network management software. These products are used to support bar code labeling,
personal identification, and specialty printing solutions principally in the manufacturing
supply chain, retail, healthcare and government sectors of the economy. We work closely
with distributors, value-added resellers, kiosk manufacturers and end users of our
products to design and implement printing solutions that meet their technical demands.
To achieve this flexibility, we provide our customers with a broad selection of printer
models, each of which can be configured for a specific application. Additionally, we will
select and, if necessary, create appropriate labeling stock, ink ribbons and adhesives to
suit a particular application. In-house engineering personnel in software, mechanical,
electronic and chemical engineering participate in the creation and development of
printing solutions for particular applications.
We produce the industry’s broadest range of rugged, on-demand thermal transfer and
direct thermal printers. Our printing systems include hundreds of optional configurations
that can be selected to meet particular customer needs. We believe this breadth of
3
product offering is a unique and significant competitive strength, because it allows Zebra
to satisfy the widest variety of thermal printing applications and leverage our brand and
reputation as customers install new systems that require on demand printing.
Of the major printing technologies, which include ink jet, laser and impact dot matrix,
we believe that direct thermal and thermal transfer technologies are best suited for most
bar code labeling and other on-demand printing applications. Thermal transfer printing
produces durable dark, solid blacks and sharply defined lines that are important for
printing readily scannable bar codes. These images can be printed on a wide variety of
labeling materials, which enable users to affix bar code labels to virtually any object.
This capability is very important in the industrial and service sectors Zebra serves. Direct
thermal printing is best suited where ease of use, smaller size and cost are important
factors in the application. Accordingly, this technology is found principally in Zebra’s
mobile and desktop units.
As of December 31, 2010, we offered 54 thermal printer models with numerous variations,
in eight categories as follows:
• Performance tabletop printers for applications requiring continuous operation in
high output, mission-critical and industrial settings.
• Mid-range tabletop printers, which are designed for demanding commercial
applications.
• Desktop printers to deliver value and performance in applications with lower volume
or space restrictions.
• Mobile printers to meet the printing needs of workers in the field.
• Print engines, which are sold to manufacturers and integrators of high-speed automatic
label applicator systems and are available with or without RFID smart label capabilities.
• Kiosk and ticket printers for use in kiosks and other unattended printing applications.
• Card printers, which print and encode national identity cards, driver’s licenses,
employee identification badges, gift cards, personalized cards and financial cards
(credit, debit and ATM cards).
• RFID printer/encoders for passive high frequency and ultra-high frequency radio
frequency identification in the retail supply chain, for defense logistics, and other
applications. These units are used to print and encode “smart labels” in a single
pass. Smart labels are printable labels embedded with an ultra-thin radio frequency
transponder. Information encoded in these transponders can then be read and
modified by a radio frequency reader.
In addition to their use in on-demand automatic identification applications, our thermal
printers can also be used for on-site batch production of custom bar code labels and
other graphics. This capability results in shorter lead times, reduced inventory, and more
flexibility than can be provided with traditional off-site printing.
Printer Supplies
Supplies products consist of stock and customized thermal labels, wristbands, plastic
cards, card laminates and thermal transfer ribbons. Zebra promotes the use of genuine
Zebra brand supplies with its printing equipment.
Zebra fully supports its printers, resellers and end users with an extensive line of superior
quality, high-performance supplies optimized to a particular user’s needs. Supplies are
chosen in consultation with the reseller and end user based on the specific application,
printer and environment in which the labeling system must perform. These printing
4
solutions frequently include proprietary ribbon and label formulations that are designed
to optimize image resolution and printer performance while meeting the most demanding
end user application performance criteria. Factors such as adhesion, resistance to
scratches, smudges and abrasion, and chemical and environmental exposures are all
taken into account when selecting the type of ribbon and labeling materials. The use of
supplies that are not carefully matched to specific printers can degrade image quality,
and decrease the part life of key printer components such as printheads.
Printer Related Software
Zebra has specialized printer management, label design and driver solutions to help
unlock the full potential of Zebra printers. The ZebraLink Solutions suite of networking,
software, firmware offerings, combined with the enhanced printer management
capabilities of ZebraNet™ Bridge, makes Zebra’s printers easy to use and integrate into
small, medium and enterprise-wide environments. Our goal is to provide software that
enables high levels of functionality to all major computer network and software systems.
Network systems include Ethernet, 802.11b/g and Bluetooth®.
Zebra offers label design and integration software specifically designed to optimize the
performance of Zebra bar code label printers. Zebra’s suite of label design and printer
configuration tools includes ZebraDesigner™, ZebraDesigner™ Pro, ZebraDesigner™ for
XML, and ZebraDesigner™ Label Design Software for use with mySAP™ Business Suite.
Zebra’s Enterprise Connector Solution for Oracle® Business Intelligence Publisher™,
delivers seamless integration between Oracle and Zebra printers, creating a versatile,
easily managed, cost-effective printing platform.
Printer Maintenance and Services
Zebra provides depot maintenance and repair services at repair centers in Vernon Hills,
Illinois; Etobicoke, Ontario, Canada; Mexico City, Mexico; Preston, U.K.; Singapore;
Shanghai, China; and Heerenveen, Netherlands. Zebra Authorized Service Providers
(ZASP) also provide repair services for most Zebra products at their locations. In addition,
Zebra offers on-site repair services for tabletop printers in the United States. Outside of
the United States, Zebra’s resellers may provide maintenance service, either directly as
ZASPs or through independent service agents. Zebra also provides technical support
from in-house support personnel located in the United States, the United Kingdom and
Singapore. For most Zebra products, Zebra provides interactive technical support via the
Internet at www.zebra.com, 24 hours per day, seven days per week.
Printer Warranties
In general, Zebra provides warranty coverage of one year on printers against defects in
material and workmanship. Printheads are warranted for nine months, and batteries are
warranted for twelve months. Zebra supplies are warranted against defects in material
and workmanship for their stated shelf life or twelve months, whichever ends first.
Defective equipment and supplies may be returned for repair or replacement during the
applicable warranty periods.
Zebra’s Printer Technology
Our customers rely on Zebra to provide products and systems to help identify,
authenticate, track or route both items and people, and then process the related
transactions. These products and systems use technologies that provide specific
benefits in each application.
All Zebra printers and print engines incorporate thermal printing technology, either direct
thermal printing, thermal transfer printing or dye-sublimation printing. This technology
creates an image by heating certain pixels of an electrical printhead to selectively image a
ribbon or heat-sensitive substrate.
Direct thermal printers apply the heat directly to a thermally-sensitive label, wristband, or
receipt to create an image. This form of thermal printing technology benefits applications
requiring simple and reliable operations such as shelf labeling, patient identification, and
kiosk receipts. Some desktop label printers, mobile printers and kiosk printers support
only direct thermal printing.
Thermal transfer printers apply heat to a ribbon to release ink onto labels or tags. This
form of thermal printing technology allows a wider range of specialty label materials
and associated inks to be used for applications such as circuit board labels, chemical
identification and product labels that require resistance to chemicals, temperature
extremes, abrasion, or labels requiring a long shelf life. Most of our printers in our high
performance, midrange, print engine, desktop and mobile categories use thermal transfer
printing but can also support direct thermal printing.
Dye-sublimation card printers apply heat to a ribbon to release a dye that is absorbed
into a plastic card, retransfer film or treated paper. This process creates full-color,
photographic quality images that are well-suited for driver’s licenses, access and
identification cards, transaction cards, on-demand photographs, and financial cards
(credit, debit and ATM cards).
Direct thermal and thermal transfer printers create crisp images at high speeds, making
them ideal for printing easily readable text and machine readable bar codes. Dye
sublimation thermal printers quickly create full-color images with visual characteristics
more similar to halide-based film than to pixel-based ink jet or laser printers, making
them ideal for high quality photographs and personalized plastic cards. Some printers
also include HF (13.56 MHz) or UHF (860-960 MHz) RFID technology that can encode data
into passive RFID transponders embedded in a label, card, or wristband.
Zebra’s printers integrate company-designed mechanisms, electrical systems, and
firmware. Enclosures of metal or high-impact plastic ensure the durability of our printers.
Special mechanisms optimize handling of labels, ribbons, and plastic cards. Fast, high-
current electrical systems provide consistent image quality. Mobile printers use NiMH
or LiIon batteries to optimize print quality over an extended operating shift. Firmware
supports serial, parallel, Ethernet, USB, infrared, Bluetooth, or 802.11b/g wireless
communications with appropriate security protocols. Printing instructions can be
received as a proprietary language such as Zebra Programming Language II (ZPL II®),
as a print driver-provided image, or as user-defined XML. These features make our
printers easy to integrate into virtually all common computer systems including those
operating on UNIX, Linux, MS/DOS®, or Microsoft® Windows® operating systems. Some
independent software vendors, including Adobe, Oracle and SAP, have included Zebra
printing support in applications for healthcare, warehouse management, manufacturing,
passenger transportation, and retailing.
directly to a select number of named customer accounts. For media and consumables, we
also sell directly to end users through the Internet and telesales operations. Distributors
and VARs purchase, stock and sell a variety of automatic identification components from
different manufacturers and customize systems for end-user applications using their
systems and application integration expertise. Because these sales channels provide
specific software, configuration, installation, integration and support services required
by end users within various market segments, these relationships allow Zebra to reach
end users throughout the world in a wide variety of industries. Zebra experiences a minor
amount of seasonality in sales, depending on the geographic region and industry served.
We functionally classify our direct VARs as Premier Partners, Advanced Partners, or
Associate Partners, depending on their business competencies, depth and breadth
of their sales teams, customer support capabilities, contributions to Zebra’s strategic
goals and sales commitment to Zebra. In addition, we offer VARs the opportunity to
earn certifications for mobile/wireless printers, supplies, services and RFID products in
specific industries. We also sell through distributors, which in turn sell to an extended
VAR community. All VARs, as well as OEMs and systems integrators, provide customers
with a variety of automatic identification components including scanners, accessories,
applications software and systems integration expertise, and, in the case of some OEMs,
resell the Zebra-manufactured products under their own brands as part of their own
product offering. We believe that the breadth of this indirect channel network, both
in terms of variety and geographic scope, enhances our ability to compete and more
effectively offer our solutions to a greater number of end users.
In some instances, we have designated a customer as a strategic account when
purchases of Zebra products reach specified levels and support requirements for the
account become highly customized. Zebra sales personnel, either alone or together with
our partners, manage these strategic accounts to ensure their needs are being met.
The sales function also encompasses a group that manages a small number of global
alliances. They direct the business development strategies for a limited number of third-
party relationships that are strategic to new demand creation for specific vertical markets
and/or specific applications.
Marketing. Marketing operations encompass corporate marketing, marketing
communications, product marketing, vertical marketing, solutions marketing, market
research and channel marketing functions. Corporate marketing conducts activities
to enhance the Zebra corporate brand, corporate public relations, internal corporate
communications and our Web site. The product marketing group identifies, evaluates and
recommends new product opportunities and manages product introductions, positioning
and demand creation. Product marketing also focuses on strategic planning and market
definition and analyzes Zebra’s competitive strengths and weaknesses.
Printer Production and Manufacturing
We design our products to optimize product performance, quality, reliability, durability
and versatility. These designs combine cost-efficient materials, sourcing and assembly
methods with high standards of workmanship.
Printer Sales and Marketing
Sales. We sell our printer products primarily through distributors, value-added resellers
(VARs), and original equipment manufacturers (OEMs). We also sell our printer products
In February 2008, we announced that final printer assembly would be transferred to a
third-party manufacturer, Jabil Circuit, Inc. We completed the transition of transferring
all printer lines to Jabil in 2010. This action has helped to reduce costs and optimize our
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global printer product supply chain and enabled us to be more responsive to customer
needs and increase Zebra’s flexibility to meet emerging business opportunities. See Note 9
to our Consolidated Financial Statements included in this Annual Report on Form 10-K for
further discussion of the transfer and transition process.
Jabil produces our printers to our design specifications in the quantities we order.
We maintain control over the supply chain including supplier selection and price
negotiations of key component parts. Jabil is responsible for the procurement of the
component parts and subassemblies used in the Zebra printers it produces. Zebra has a
subsidiary located in Guangzhou, China, and has an office located near the Jabil facility
in China where our products are assembled. This office is staffed with Zebra sourcing,
engineering and quality personnel to help ensure that we receive optimal pricing on
raw materials and the final printers meet our quality standards. The majority of Zebra
printers manufactured by Jabil are shipped to Zebra’s regional distribution centers. A
small percentage of products are reconfigured at Zebra’s distribution centers through
firmware downloads, packaging and some other customization before they are shipped
to customers. In addition, certain products are manufactured in accordance with federal
procurement regulations and various international trade agreements, and remain
eligible for sale to the United States government.
Printer Competition
Many companies are engaged in the design, manufacture and marketing of bar code label
printers, RFID printer/encoder and card personalization solutions.
We consider our direct competition in bar code label and receipt printing to be producers
of on-demand thermal transfer and direct thermal label printing systems, printer/
encoders, mobile printers and supplies. We also compete, however, with companies
engaged in the design, manufacture and marketing of printing systems that use
alternative technologies, such as ink-jet and laser printing. Many of these companies are
substantially larger than Zebra.
Dye sublimation, the technology used in our card printers, is only one of several
commercially available types of processes used to personalize cards. We also compete
with companies that produce identification cards using alternative technologies,
which include ink-jet, thermal transfer, embossing, film-based systems, encoders,
laser engraving and large-scale dye sublimation printers. These card personalization
technologies offer viable alternatives to Zebra’s card printers and provide effective
competition from a variety of companies, many of which are substantially larger than
Zebra. In addition, service bureaus compete for end user business and provide an
alternative to the purchase of our card printing equipment and supplies.
Our ability to compete effectively depends on a number of factors. These factors include
the reliability, quality and reputation of the manufacturer and its products; hardware
and software innovations and specifications; breadth of product offerings; information
systems connectivity; price; level of technical support; supplies and applications support
offered by the manufacturer; available distribution channels; and financial resources to
support new product design and innovation. We believe that Zebra presently competes
favorably with respect to these factors.
Cognitive TPG; Custom; Danaher; Datacard; Datamax-O’Neil, a unit of Dover Corporation;
Dymo, a Newell Rubbermaid Company; Epson; Evolis; Fargo Electronics, a unit of HID
Global; Godex; Hewlett-Packard; Hitachi; Intermec Inc.; Lexmark International; MagiCard;
Matica; Microcom; Mitsubishi; NBS Technologies; Nisca; Oki Data; Olympus; Practical
Automation; Printronix; Sato; Seiko Instruments; Song Woo Electronics; Sony; Star
Micronics; Taiwan Semiconductor; Toshiba TEC; Victor Data Systems; Woosim; and Xerox.
The supplies business is highly fragmented and competition is comprised of numerous
competitors of various sizes depending on the geographic area.
Alternative Printer Technologies
We believe thermal printing will be the preferred label, card and receipt printer
technology in Zebra’s target applications for the foreseeable future. Among the many
advantages of direct thermal and thermal transfer printing is the ability to print high-
resolution, durable images on a wide variety of label materials at relatively low costs
and high speeds compared with alternative printing technologies. We view passive RFID
smart label encoding and active RFID location systems as complementary technologies
to bar coded printing, offering growth opportunities to Zebra as the technologies become
more widely adopted.
If other technologies were to evolve or become available to Zebra, it is possible that those
technologies would be incorporated into our products. Alternatively, if such technologies
were to evolve or become available to our competitors, Zebra’s products may become
obsolete. This obsolescence would have a significant negative effect on Zebra’s business,
financial position, results of operations and cash flows.
Therefore, we continually assess competitive and complementary methods of bar code
printing and other means of automatic identification. Alternative print technologies
assessed include ink jet, laser and direct marking. While we cannot be sure that new
technology will not supplant thermal printing for labels, cards and receipts, we are not
aware of any developing technology that offers the advantages of thermal printing for
our targeted applications. We continually monitor and evaluate new RFID technologies,
support their standards development, and rapidly adopt RFID into new Zebra products
and systems as new markets and applications emerge.
Zebra Enterprise Solutions Group (ZES)
Zebra offers asset tracking and management solutions to optimize the flow of goods
within the supply chain. Whether managing parts for lean manufacturing or tracking and
managing vehicles through off-line processes during production, the automated asset
tracking and management solutions from Zebra improve business processes. Utilizing
the combined products offered by these businesses, Zebra provides greater asset
visibility and business efficiency for the aerospace and defense, aviation, automotive,
industrial manufacturing, maritime, petrochemical, and transportation and logistics
industries. Customers within these industries benefit by increasing productivity,
lowering operational costs, and improving safety and security throughout their logistics
operations. As noted previously, Zebra has entered into an agreement to sell the Navis
business and the WhereNet Marine Terminal Solution software product line. The sale is
expected to close in the first quarter of 2011.
We face competition from many competitors, including the following (listed in alphabetical
order): Argox; Avery Dennison; Boca Systems; Brother International; Canon; CIM; Citizen;
Zebra’s asset tracking and management solutions business consists of the sale of software
licenses and related services including maintenance, support and consulting services, and
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hardware including our proprietary real time asset management hardware. These products
and services may be bundled and sold together to customers or sold separately.
• Software Licenses. We sell perpetual software licenses on both a fixed fee basis
and for a fixed term. The amounts of the license fees are based primarily on the
scope and functionality of the licenses purchased by the customer. The solutions we
provide may also include third-party software.
• Hardware. We sell both proprietary real time asset management hardware and third-
party hardware. Most of our hardware products provide electronic tagging of assets
and real time information regarding the assets’ locations and telematics. We sell the
hardware as part of an integrated solution and also replacement parts.
• Consulting Services. We provide consulting services for the planning and
implementation of our solutions including initial installation and training. Our
professional services team works with customers who are implementing our
solutions for the first time, evaluating new technology automation solutions,
integrating with third-party systems or upgrading to new platforms. Services are
typically charged on a time and materials basis, although from time-to-time we may
enter into fixed fee contracts.
• Maintenance and Support. We offer support to our customers 24 hours a day, 7 days
a week, 365 days a year, usually for an annual fee, which entitles them to software
upgrades and technical support.
These products extend Zebra’s reach beyond passive RFID by employing technologically
advanced hardware and software solutions to locate, track, manage and optimize high-
value assets, equipment and people. We offer a wide range of scalable real time locating
systems (RTLS) technologies used to generate accurate, on-demand information about
the physical location and status of high-valued assets. Customers benefit by utilizing
the choice or combination of asset tracking products that can be “application matched”
based on ISO/IEC 24730-2, Cisco CCX Wi-Fi, precision global positioning systems (GPS),
and ultra wideband (UWB) technologies.
Our selection of RTLS asset tracking product offerings includes battery-powered active
RFID WhereTag™ tags, WhereCall™ button tags, precision WhereTrack™ products,
and Ultra-Wideband products from our Dart family of tags. These asset tags enable
organizations to access accurate, real-time information on the location and status of their
assets both indoors and outdoors.
In addition, we offer a selection of RTLS infrastructure products. These products receive
tag transmissions and forward the information to the Visibility Server Software™ (a
middleware application) which provides location calculations, database and system
management functions and asset visibility. The flexible infrastructure supports large tag
populations and coverage areas that can range from small to large.
We offer a broad set of software development tools for integrating ZES hardware,
middleware applications and software applications, with customer and third-party
applications. Our middleware application, Visibility Server Software, provides software
tools to design, configure, operate and troubleshoot our RTLS products. Visibility
Server Software serves as the central repository for all of the real-time location and
communication data captured by the ZES RTLS infrastructure.
ZES sells its products and services into the following major industries:
• Airport Operations. Our Airport Visualizer™ provides integrated aviation solutions
and helps to optimize motorized ground support equipment on the pavement
immediately adjacent to an airport terminal area or hangers (commonly referred to
as the “apron”). As of December 31, 2010, our Airport Visualizer solution helped to
optimize the processes of approximately 3,600 airport ground service vehicles at
over 20 leading airports.
• Distribution Operations. Our Yard Tracking and Management System (YTMS), is a
yard planning, management and execution solution that leverages wireless location
and communication technologies and configurable business rules to optimize yard
operations and the systems with which they interface.
• Personnel Safety and Security. Designed to automate the detection of potential
personnel safety risks, as well as improve the management of emergencies and
evacuations, the Personnel Safety Solution provides real-time visibility into locating
and tracking of valued assets both indoors and outdoors.
• Manufacturing Operations. We provide an integrated wireless infrastructure for real-
time location, digital messaging, telemetry, and wireless networking applications
to give manufacturers the ability to continuously manage the physical location
and status of their critical assets for improving lean processes within the core
manufacturing functions.
These products and services are primarily sold through a global direct sales force which
is organized around geographic and vertical markets. We complement our direct sales
through the use of other channels including systems integrators with particular vertical
market expertise.
ZES’s proprietary software and hardware are developed primarily by its internal team of
engineers. Generally, our software is warranted for 90 days after going live to function
consistently with its specifications, and our hardware is warranted to be free from
material defects in materials and workmanship for up to one year after purchase.
Customers
Zebra has sold more than 9,400,000 thermal printers to customers as of December 31, 2010.
ScanSource, Inc., is our most significant customer. Our net sales to ScanSource, a global
distributor of Zebra SPG products, as a percent of our total net sales, were as follows:
Percent of net sales
Year Ended December 31,
2010
18.5%
2009
16.1%
2008
15.4%
No other customer accounted for 10% or more of total net sales during these years.
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Sales
Net sales by product category for the last three years were (in thousands):
Product Category
Hardware
Supplies
Service and software
Subtotal
Shipping and handling
Total net sales
Year Ended December 31,
2010
2009
2008
$682,455
167,633
101,579
951,667
5,181
$956,848
$539,934
155,847
102,541
798,322
5,263
$ 803,585
$692,638
172,106
105,113
969,857
6,843
$ 976,700
Net sales to international customers, as a percent of total net sales, were as follows:
Percent of net sales
Year Ended December 31,
2010
57.4%
2009
54.9%
2008
54.5%
We believe that international sales have the long-term potential to increase faster than
domestic sales because of the lower penetration of automatic identification applications
outside North America and Western Europe and generally higher economic growth
rates in developing countries. As a result, Zebra has invested resources to support
our international growth and currently operates facilities and sales offices, or has
representation, in 30 different countries.
Research and Development
Zebra’s research and development expenditures for the last three years were as follows
(in thousands, except percentages):
Year Ended December 31,
2010
2009
2008
Research and development expenses – SPG
(excluding acquired in process technology)
Percent of SPG net sales
Research and development expenses – ZES
(excluding acquired in process technology)
Percent of ZES net sales
$69,605
8.0%
$32,325
37.7%
$55,614
7.7%
$30,776
38.0%
$ 63,142
7.2%
$32,658
34.7%
We devote significant resources to developing new printing solutions for our target
markets and ensuring that our products maintain high levels of reliability. Research and
development resources are also directed toward enhancing our ZES systems.
Intellectual Property Rights
Zebra relies on a combination of trade secrets, patents, employee and third party
nondisclosure agreements, copyright laws and contractual rights to establish and protect
its proprietary rights in its products. We have and actively protect many domestic and
international trademarks. We hold 375 United States and foreign patents and have 172
United States and foreign patent applications pending pertaining to products. The
duration of these patents ranges from 1 to 22 years. The expiration of any individual
patent would not have a significant negative impact on our business.
8
Despite our efforts to protect our intellectual property rights, it may be possible for
unauthorized third parties to copy portions of our products or to reverse engineer
or otherwise obtain and use some technology and information that we regard as
proprietary. Moreover, the laws of some countries do not afford Zebra the same
protection to proprietary rights, as do United States laws. There can be no assurance
that legal protections relied upon by Zebra to protect its proprietary position will be
adequate. While Zebra’s intellectual property is valuable and provides certain competitive
advantages, we do not believe that the legal protections afforded to our intellectual
property are fundamental to our success.
Other trademarks mentioned in this report are the property of their respective holders
and include IBM, a registered trademark of International Business Machines; UNIX, a
registered trademark of UNIX Systems Laboratories; MS/DOS and Windows, registered
trademarks of Microsoft; SAP, a registered trademark of SAP AG; and Linux, a registered
trademark of Linus Torvalds. Bluetooth is a trademark owned by Bluetooth SIG and used
by Zebra under license.
Employees
As of January 28, 2011, Zebra employed approximately 2,750 persons, of which 2,020 are
a part of SPG, 480 are a part of ZES and the remaining 250 are corporate employees. In
connection with the sale of our Navis business and WhereNet Marine Terminal Solution
software product line, we expect approximately 340 employees from ZES to become
employees of the purchaser of these businesses. None of our employees is a member of
a union. Some portions of our business, primarily in Europe, are subject to labor laws that
differ significantly from those in the United States. For example, it is common for a works
council to represent employees when discussing matters such as compensation, benefits
or terminations of employment. We consider our employee relations to be very good.
Additional Information
For financial information regarding Zebra, see Zebra’s Consolidated Financial Statements
and the related Notes, which are included in this Annual Report on Form 10-K. Zebra has two
reportable segments for our operations and products. Financial information about segments
and geographic areas is found in Note 19 to the Consolidated Financial Statements.
Item 1A. Risk Factors
Investors should carefully consider the risks, uncertainties and other factors described
below, as well as other disclosures in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, because they could have a material adverse effect on
Zebra’s business, financial condition, operating results, cash flows and growth prospects.
Final assembly of our thermal printers is performed by Jabil Circuit, a third-party
electronics manufacturer. We are now dependent on Jabil for the manufacture of such
printers. A failure by Jabil to provide manufacturing services to Zebra as Zebra now
requires, or any disruption in such manufacturing services, may adversely affect Zebra’s
business results. Because we rely on a third-party provider such as Jabil to manufacture
its products, Zebra may incur increased business continuity risks.
Zebra is no longer able to exercise direct control over the assembly or related operations
of its thermal printers Jabil produces. If Jabil experiences business difficulties or fails
to meet Zebra’s manufacturing needs, then Zebra may be unable to satisfy customer
product demands, lose sales and be unable to maintain customer relationships. Longer
production lead times may result in shortages of certain products and inadequate
inventories during periods of unanticipated higher demand. Without Jabil’s continuing
manufacture of Zebra’s products, Zebra will have no other means of final assembly of
its thermal printers until Zebra is able to secure the manufacturing capability at another
facility or develop an alternative manufacturing facility. This transition could be costly
and time consuming.
Although Zebra carries business interruption insurance to cover lost sales and profits in
an amount it considers adequate, in the event of supply disruption, this insurance does
not cover all possible situations. In addition, the business interruption insurance would
not compensate Zebra for the loss of opportunity and potential adverse impact, both
short term and long term, on relations with our existing customers.
A third-party provider such as Jabil will have access to Zebra’s intellectual property,
which increases the risk of infringement or misappropriation of this intellectual property.
Zebra has significant operations outside the United States and sells a significant portion
of its products internationally and purchases important components from foreign
suppliers. These circumstances create a number of risks. Zebra has significant operations
overseas which present added risks. In addition, Zebra sells a significant amount of its
products to customers outside the United States. Shipments to international customers
are expected to continue to account for a material portion of net sales.
Risks associated with operations, sales and purchases outside the United States include:
• Inadequately managing and overseeing operations that are distant and remote from
corporate headquarters,
• Fluctuating foreign currency rates could restrict sales, or increase costs of
purchasing, in foreign countries,
• Volatility in foreign credit markets may affect our customers and suppliers,
• Adverse changes in, or uncertainty of, local business laws or practices, including
the following:
• Foreign governments may impose burdensome tariffs, quotas, taxes, trade
barriers or capital flow restrictions,
• Restrictions on the export or import of technology may reduce or eliminate the
ability to sell in or purchase from certain markets,
• Political and economic instability may reduce demand for our products, or put our
foreign assets at risk,
• Potentially limited intellectual property protection in certain countries may limit
recourse against infringing products or cause Zebra to refrain from selling in certain
geographic territories,
• Staffing and turnover at international operations may be unusually difficult,
• A government controlled exchange rate and limitations on the convertibility of the
Chinese yuan, and
• Transportation delays that may affect production and distribution of Zebra’s products.
Zebra may not be able to continue to develop products to address user needs effectively
in an industry characterized by ongoing change. To be successful, Zebra must adapt
to rapidly changing technological and application needs by continually improving its
products as well as introducing new products and services to address user demands.
Zebra’s industry is characterized by:
• Evolving industry standards,
• Frequent new product and service introductions,
• Evolving distribution channels,
• Increasing demand for customized product and software solutions, and
• Changing customer demands.
Future success will depend on Zebra’s ability to cost effectively adapt in this evolving
environment. Zebra could incur substantial costs if it has to modify its business to adapt
to these changes, and may even be unable to adapt to these changes.
Customers have the right to return products that do not function properly within a limited
time after delivery. Zebra monitors and tracks product returns and records a provision for
the estimated future returns based on historical experience and any notification received
of pending returns. Zebra, however, cannot guarantee that it will continue to experience
return rates consistent with historical patterns.
Zebra may be a party to fixed-price contracts particularly for its ZES product lines
that could become unfavorable contracts. From time to time we may enter into contracts
to provide services to customers for fixed fees. Such a contract could result in material
loss to Zebra if the cost to perform such contract ultimately exceeds the fees earned on
such contract.
Zebra competes in a competitive industry, which may become more competitive.
Competitors may be able to respond more quickly to new or emerging technology and
changes in customer requirements. Zebra faces significant competition in developing
and selling its products and solutions. Some competitors have substantial marketing,
financial, development and personnel resources. To remain competitive, Zebra believes
it must continue to cost effectively provide:
• Technologically advanced systems that satisfy user demands,
• Superior customer service,
• High levels of quality and reliability, and
• Dependable and efficient distribution networks.
Zebra cannot assure it will be able to compete successfully against current or future
competitors. Increased competition in printers or supplies may result in price reductions,
lower gross profit margins and loss of market share, and could require increased
spending on research and development, sales and marketing and customer support.
Some competitors may make strategic acquisitions or establish cooperative relationships
with suppliers or companies that produce complementary products.
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Zebra is vulnerable to the potential difficulties associated with the rapid increase in the
complexity of its business. Zebra has grown rapidly over the last several years through
domestic and international growth and acquisitions. This growth has caused increased
complexities in the business. We believe our future success depends in part on our ability
to manage our growth and increased complexities of our business and the demands
from increased responsibility on our management personnel. The following factors could
present difficulties to us:
• Compliance with evolving laws and regulations,
• Managing our distribution channel partners,
• Manufacturing an increased number of products,
• Increased administrative and operational burden,
• Maintaining and improving information technology infrastructure to support growth,
• Increased logistical problems common to complex, expansive operations, and
• Managing increasing international operations.
Zebra could encounter difficulties in any acquisition it undertakes, including unanticipated
integration problems and business disruption. Acquisitions could also dilute stockholder
value and adversely affect operating results. Zebra may acquire or make investments
in other businesses, technologies, services or products. An acquisition may present
business issues which are new to Zebra. The process of integrating any acquired
business, technology, service or product into operations may result in unforeseen
operating difficulties and expenditures. Integration of an acquired company also may
consume considerable management time and attention, which could otherwise be
available for ongoing operations and development of the business. The expected benefits
of any acquisition may not be realized.
Acquisitions also may involve a number of risks:
• Difficulties and uncertainties in transitioning the customers or other business
relationships from the acquired entities to Zebra,
• The loss of key employees of acquired entities,
• The ability of acquired entities to fulfill obligations to their customers,
• The discovery of unanticipated issues or liabilities,
• The failure of acquired entities to meet or exceed expected returns, and
• The acquired entities’ ability to improve internal controls and accounting systems to be
compliant with requirements applicable to public companies subject to SEC reporting.
Future acquisitions could result in potentially dilutive issuances of equity securities or the
incurrence of debt and contingent liabilities.
Zebra sources some of its component parts from sole source suppliers. A disruption in
the supply of such component parts could have a material adverse effect on our ability to
meet customer demand and negatively affect our financial results.
Infringement by Zebra or Zebra suppliers on the proprietary rights of others could put
Zebra at a competitive disadvantage, and any related litigation could be time consuming
and costly. Third parties may claim that Zebra or Zebra suppliers violated their intellectual
property rights. To the extent of a violation of a third party’s patent or other intellectual
property right, Zebra may be prevented from operating its business as planned, and may
be required to pay damages, to obtain a license, if available, or to use a non-infringing
method, if possible, to accomplish its objectives. Any of these claims, with or without
10
merit, could result in costly litigation and divert the attention of key personnel. If such
claims are successful, they could result in costly judgments or settlements. Also, as new
technologies emerge, such as RFID, the intellectual property rights of parties in such
technologies can be uncertain. As a result, products involving such technologies may have
higher risk of claims of infringement of the intellectual proprietary rights of third parties.
The inability to protect intellectual property could harm Zebra’s reputation, and its
competitive position may be materially damaged. Zebra’s intellectual property is
valuable and provides Zebra with certain competitive advantages. Copyrights, patents,
trade secrets and contracts are used to protect these proprietary rights. Despite these
precautions, it may be possible for third parties to copy aspects of Zebra’s products or,
without authorization, to obtain and use information which Zebra regards as trade secrets.
Zebra may incur liabilities as a result of product failures due to actual or apparent design
or manufacturing defects. Zebra may be subject to product liability claims, which could
include claims for property or economic damage or personal injury, in the event our
products present actual or apparent design or manufacturing defects. Such design or
manufacturing defects may occur not only in Zebra’s own designed products but also in
components provided by third party suppliers. Zebra generally has insurance protection
against property damage and personal injury liabilities and also seeks to limit such risk
through product design, manufacturing quality control processes, product testing and
contractual indemnification from suppliers. However, due to the large and growing size
of Zebra’s installed printer base, a design or manufacturing defect involving this large
installed printer base could result in product recalls or customer service costs that could
have material adverse effects on Zebra’s financial results.
Zebra’s products are subject to U.S. and foreign regulations that pertain to electrical
and electronic equipment, which may materially adversely affect Zebra’s business.
These regulations influence the design, components or operation of such products.
New regulations and changes to current regulations are always possible and, in some
jurisdictions, regulations may be introduced with little or no time to bring related
products into compliance with these regulations. Zebra’s failure to comply with these
regulations may prevent Zebra from selling our products in a certain country. In addition,
these regulations may increase our cost of supplying the products by forcing us to
redesign existing products or to use more expensive designs or components. In these
cases, Zebra may experience unexpected disruptions in our ability to supply customers
with products, or we may incur unexpected costs or operational complexities to bring
products into compliance. This could have an adverse effect on Zebra’s revenues, gross
profit margins and results of operations and increase the volatility of our financial results.
Zebra is implementing a new company-wide enterprise resource planning (ERP) system.
The implementation process is complex and involves a number of risks that may
adversely affect Zebra’s business and results of operations. Zebra is currently replacing
its multiple legacy business systems at its different sites with a new company-wide,
integrated enterprise resource planning (ERP) system to handle various business,
operating and financial processes for Zebra and its subsidiaries. The new system will
enhance a variety of important functions, such as order entry, invoicing, accounts
receivable, accounts payable, financial consolidation, logistics, and internal and external
financial and management reporting matters.
ERP implementations are complex and time-consuming projects that involve substantial
expenditures on system hardware and software and implementation activities that often
continue for several years. Such an integrated, wide-scale implementation is extremely
complex and requires transformation of business and financial processes in order to
reap the benefits of the ERP system. Significant efforts are required for requirements
identification, functional design, process documentation, data conversion, user training
and post implementation support. Problems in any of these areas could result in
operational issues including delayed shipments or production, missed sales, billing and
accounting errors and other operational issues. System delays or malfunctioning could
also disrupt Zebra’s ability to timely and accurately process and report key components
of the results of its consolidated operations, its financial position and cash flows, which
could impact Zebra’s ability to timely complete important business processes such as the
evaluation of its internal controls and attestation activities pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002.
Until the new ERP system is fully implemented, Zebra expects to incur additional selling,
general and administrative expenses and capital expenditures to implement and test the
system, and there can be no assurance that other issues relating to the ERP system will
not occur or be identified. Zebra’s business and results of operations may be adversely
affected if it experiences operating problems and/or cost overruns during the ERP
implementation process or if the ERP system and the associated process changes, do not
function as expected or give rise to the expected benefits.
Zebra depends on the ongoing service of its senior management and ability to attract
and retain other key personnel. The future success of Zebra is substantially dependent
on the continued service and continuing contributions of senior management and other
key personnel.
The ability to attract, retain and motivate highly skilled employees is important to Zebra’s
long-term success. Competition for skill sets in certain functions within our industry is
intense, and Zebra may be unable to retain key employees or attract, assimilate or retain
other highly qualified employees in the future.
Terrorist attacks or war could lead to further economic instability and adversely affect
Zebra’s stock price, operations, and profitability. The terrorist attacks that occurred in the
United States on September 11, 2001, caused major instability in the U.S. and other financial
markets. The possibility of further acts of terrorism and current and future war risks could
have a similar impact. Any such attacks could, among other things, cause further instability
in financial markets and could directly, or indirectly through reduced demand, negatively
affect Zebra’s facilities and operations or those of its customers or suppliers.
Taxing authority challenges may lead to tax payments exceeding current reserves.
Zebra is subject to ongoing tax examinations in various jurisdictions. As a result, we
may record incremental tax expense based on expected outcomes of such matters. In
addition, we may adjust previously reported tax reserves based on expected results of
these examinations. Such adjustments could result in an increase or decrease to Zebra’s
effective tax rate.
Economic conditions and financial market disruptions may adversely affect Zebra’s
business and results of operations. Adverse economic conditions, in the United States
or internationally, or reduced information technology spending may adversely impact
our business. As widely reported, financial markets throughout the world experienced
extreme disruption in 2008 and 2009, including historically high volatility in security
prices, severely diminished liquidity and credit availability, rating downgrades of
certain investments and declining valuations of others, failure and potential failures
of major financial institutions and unprecedented government support of financial
institutions and corporations. A recurrence of these developments and a related general
economic downturn could adversely affect Zebra’s business and financial condition
through a reduction in demand for our products by our customers. If a slowdown
were severe enough, it could require further impairment testing and write-downs of
goodwill and other intangible assets. Cost reduction actions may be necessary and
lead to restructuring charges. A tightening of financial credit could adversely affect our
customers, suppliers, outsource manufacturer and channel partners (e.g., distributors
and resellers) from obtaining adequate credit for the financing of significant purchases.
Another economic downturn could also result in a decrease in or cancellation of orders
for Zebra’s products and services; negatively impact Zebra’s ability to collect its accounts
receivable on a timely basis; result in additional reserves for uncollectible accounts
receivable; and require additional reserves for inventory obsolescence. Higher volatility
and fluctuations in foreign exchange rates for the U.S. dollar against currencies such
as the euro, the British pound, the Chinese yuan, and the Brazilian real could negatively
impact product sales, margins and collections.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Zebra’s corporate headquarters are located in Lincolnshire, Illinois, a northern suburb of
Chicago. Zebra also conducts its sales, marketing, engineering and operations activities
from facilities in Vernon Hills, Illinois, and in Camarillo, California. In March 2011, our
operations that are located in Camarillo will be moved to a new facility located in Agoura
Hills, California, and the Camarillo facility will be closed.
11
Zebra’s principal facilities as of December 31, 2010, are listed below:
PART II
Location
Square Footage
Manufacturing, Administrative,
Production &
Warehousing
Research
& Sales
Total
Lease Expires
Vernon Hills, Illinois, USA (S)
111,676
113,429
225,105
June 2014
Camarillo, California, USA (S)
97,921
72,156
170,077
March 2011
Agoura Hills, California, USA (S)
—
Heerenveen, The Netherlands (S) 48,427
Greenville, Wisconsin, USA (S)
55,000
Oakland, California, USA (Z)*
Lincolnshire, Illinois, USA (C)
Lincoln, Rhode Island, USA (S)
Preston, UK (S)
Guangzhou, China (S)
—
—
—
30,450
—
Flowery Branch, Georgia, USA (S) 28,255
Bourne End, UK (S)
—
Otay Mesa, California, USA (S)
21,739
San Jose, California, USA (Z)
Chennai, India (Z)*
—
—
McAllen, Texas, USA (S)
15,500
Chennai, India (Z)*
Germantown, Maryland, USA (Z)
Warsaw, Poland (S)
Guangzhou, China (S)
Shanghai, China (S)
Mexico City, Mexico (S)
Singapore, Singapore (S)
—
—
7,750
—
—
3,488
—
75,077
46,145
5,000
47,210
46,339
40,116
8,600
32,655
2,145
27,251
4,900
24,630
19,234
2,500
15,095
13,134
3,875
11,624
7,524
3,400
5,360
75,077
94,572
60,000
March 2021
January 2012
January 2018
47,210
July 2013
46,339
June 2014
40,116
April 2016
39,050
32,655
30,400
Owned by Zebra
January 2014
April 2012
27,251
June 2014
26,639
24,630
19,234
18,000
15,095
13,134
11,625
11,624
7,524
6,888
5,360
September 2013
July 2015
March 2014
September 2011
November 2012
December 2015
June 2012
May 2011
January 2014
September 2012
February 2012
Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Stock Information: Price Range and Common Stock
Our Class A Common Stock is traded on The NASDAq Stock Market under the symbol
ZBRA. The following table shows the high and low trade prices for each fiscal quarter in
2010 and 2009, as reported by The NASDAq Stock Market.
2010
High
Low
2009
First quarter
Second quarter
Third quarter
Fourth quarter
$30.72 $26.10
24.32
24.14
33.14
31.00
34.13
39.31
Source: The NASDAQ Stock Market
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$21.70
24.55
27.67
28.87
$16.00
18.61
20.98
23.76
At February 11, 2011, the last reported price for the Class A Common Stock was $41.18 per
share, and there were 237 registered stockholders of record for Zebra’s Class A Common
Stock. In addition, we had approximately 16,000 stockholders who owned Zebra stock in
street name.
Dividend Policy
Since our initial public offering in 1991, we have not declared any cash dividends or
distributions on our capital stock. Zebra currently does not anticipate paying any cash
dividends in the foreseeable future.
Treasury Shares
During the fourth quarter of 2010, pursuant to our Rule 10b5-1 purchase plan, Zebra
purchased 900,000 shares of Zebra’s Class A Common Stock at a weighted average share
price of $38.56 per share, as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Total
number
of shares
purchased
Average
price paid
per share
Total number of
shares purchased
as part of publicly
announced program
Maximum number
of shares that may
yet be purchased
under the program
Total
420,206
627,399 1,047,605
S – Specialty Printing Group; Z – Zebra Enterprise Solution Group; C – Corporate
Period
* Lease will be transferred to the purchaser in connection with the sale of the Navis business and WhereNet Marine
Terminal Solution software product line, which is expected to close in the first quarter of 2011.
Zebra leases various other facilities around the world, which are dedicated to
administrative, research and sales functions. These other leases, solely or in aggregate,
are not material to Zebra.
October 2010
(October 3 – October 30)
November 2010
(October 31 – November 27)
December 2010
(November 28 – December 31)
0
$ 0.00
0
$ 0.00
0
0
2,750,000
2,750,000
900,000
$38.56
900,000
1,850,000
Item 3. Legal Proceedings
See Notes 11 and 20 in the Notes to the Consolidated Financial Statements included in
this Form 10-K.
(1) In July 2010, Zebra purchased the then remaining authorized shares under our stock repurchase program. On
August 3, 2010, Zebra’s Board authorized the purchase of up to an additional 3,000,000 shares under the same
terms as previous authorizations. The August 2010 authorization does not have an expiration date.
(2) During the fourth quarter, Zebra did not acquire any shares of Zebra Class A common stock through the
withholding of shares necessary to satisfy tax withholding obligations upon the vesting of restricted stock awards.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
12
Item 6. Selected Financial Data
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) DATA
(In thousands, except per share amounts)
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
Year Ended December 31,
December 31,
2010
2009
2008
2007
2006
2010
2009
2008
2007
2006
$ 956,848
$ 803,585
$ 976,700
$ 868,279
$ 759,524
Cash and cash equivalents,
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income (loss)
Income (loss) before income
taxes and cumulative effect
of accounting change
Income (loss) before
cumulative effect of
accounting change
Cumulative effect of
accounting change
495,979
442,864
497,395
460,869
317,017(1)
143,852
360,721
291,919(2)
68,802
479,305
494,651(3)
(15,346)
451,161
417,118
273,933
143,185
401,104
358,420
277,991(4)
80,429
144,935
70,523
(11,913)
167,375
101,642
101,778
47,104
(38,421)
110,113
69,627
restricted cash, investments
and marketable securities
(current and long-term)(6)
$ 259,899
$ 246,721
$ 224,886
$ 281,179
$ 559,189
Working capital
Total assets
Long-term obligations (7)
Stockholders’ equity
340,253
878,864
10,375
730,032
306,127
830,479
9,432
712,129
271,831
298,660
850,878
1,034,278
10,250
710,738
8,452
902,693
877,681
404,836
963,142
9,969
(1) Includes litigation settlement proceeds received of $1,082,000 and exit, restructuring and integration (ERI)
charges of $4,197,000.
(2) Includes asset impairment reversal of $1,058,000 and ERI charges of $12,191,000.
(3) Includes asset impairment charges of $157,600,000 and ERI charges of $20,009,000.
—
—
—
—
1,319(5)
(4) Includes litigation settlement paid of $53,392,000 and insurance receivable reserve of $12,543,000.
Net income (loss)
$ 101,778
$ 47,104
$ (38,421)
$ 110,113
$ 70,946
Earnings (loss) per share
before cumulative effect
of accounting change
Basic
Diluted
Earnings (loss) per share
Basic
Diluted
Weighted average
shares outstanding
Basic
Diluted
$
$
$
$
1.78
1.77
1.78
1.77
$
$
$
$
0.79
0.79
0.79
0.79
$
$
$
$
(0.60)
(0.60)
(0.60)
(0.60)
$
$
$
$
1.61
1.60
1.61
1.60
$
$
$
$
0.99
0.98
1.01
1.00
57,143
57,428
59,306
59,425
64,524
64,524
68,463
68,908
70,516
70,956
(5) Relates to the estimation of forfeitures on prior year compensation expense outstanding at the adoption date
of Accounting Standards Codification (“ASC”) 505 and ASC 718. See Note 15 in the Notes to the Consolidated
Financial Statements included in this Form 10-K.
(6) The decrease in 2007 and 2008 was principally the result of (i) our acquisitions of WhereNet, proveo AG, and
Navis during 2007 and our acquisition of Multispectral Solutions Inc., and (ii) purchase of our stock during
2008. See Note 20 in the Notes to the Consolidated Financial Statements included in this Form 10-K for further
discussion of the acquisitions.
(7) Long-term obligations include deferred compensation and unearned revenue. See Note 16 in the Notes to
the Consolidated Financial Statements included in this Form 10-K for further discussion of the Deferred
Compensation Plan.
13
Item 7. Management’s Discussion and Analysis of Financial Condition
Sales by product category were as follows (amounts in thousands, except percentages):
and Results of Operations
Results of Operations: Fourth Quarter of 2010 versus Fourth Quarter of 2009
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
2010
Net Sales
Tangible products
$223,071
$197,097
Service & software
25,104
25,425
Total net sales
Cost of Sales
248,175
222,522
Tangible products
113,191
110,611
Service & software
11,343
10,433
Total cost of sales
Gross profit
Operating expenses
Operating income
Other income (expense)
Income taxes
Net income
124,534
121,044
123,641
101,478
83,207
40,434
(211)
12,006
75,240
26,238
945
27,183
9,553
$ 28,217
$ 17,630
Income before income taxes
40,223
13.2
(1.3)
11.5
2.3
8.7
2.9
21.8
10.6
54.1
N/A
48.0
25.7
60.1
89.9
10.1
100.0
88.6
11.4
100.0
45.6
4.6
50.2
49.8
33.5
16.3
(0.1)
16.2
4.8
11.4
49.7
4.7
54.4
45.6
33.8
11.8
0.4
12.2
4.3
7.9
Diluted earnings per share
$ 0.50
$ 0.30
Consolidated Results of Operations – Fourth Quarter
Sales
Net sales for the fourth quarter of 2010 compared with the 2009 quarter increased
11.5% from a broad-based increase in demand for Zebra products, driven by the global
economic recovery. This was the fourth consecutive quarter of year-over-year growth.
The increase in sales was largely attributable to 14.8% growth in hardware sales
(including all printer categories and aftermarket parts). Printer unit volume increased
13.3% for the fourth quarter of 2010 compared to levels in 2009.
14
Product Category
2010
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Hardware
Supplies
Service and software
Subtotal
$179,956
$156,706
41,719
25,104
39,011
25,425
246,779
221,142
Shipping and handling
1,396
1,380
Total sales
$248,175
$222,522
14.8
6.9
(1.3)
11.6
1.2
11.5
72.5
16.8
10.1
99.4
0.6
70.4
17.5
11.4
99.3
0.7
100.0
100.0
Sales increased in all geographic territories due primarily to the global economic recovery.
The sales growth on a percentage basis was greatest in Latin America and Asia Pacific
because of higher rates of economic growth in those regions and increasing investment
in sales and marketing resources in those regions. Movements in foreign exchange rates
decreased sales by $6,364,000 in the Europe, Middle East and Africa regions for the
quarter due principally to a weaker euro against the dollar from the prior year.
Sales to customers by geographic region were as follows (in thousands, except percentages):
Geographic Region
2010
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Europe, Middle East
and Africa
Latin America
Asia-Pacific
$ 91,800
$ 82,377
23,215
34,458
20,196
21,984
Total International
149,473
124,557
North America
Total sales
98,702
97,965
$248,175
$222,522
11.4
14.9
56.7
20.0
0.8
11.5
37.0
9.4
13.9
60.3
39.7
37.0
9.1
9.9
56.0
44.0
100.0
100.0
Gross Profit
Gross profit increased 21.8% due to higher volumes and an improved product mix, with
increased sales primarily in mobile, high-performance, mid-range table top printers
and lower freight costs of $1,224,000 in 2010. Gross profit was affected by unfavorable
foreign currency movements which decreased fourth quarter gross profit by $5,628,000.
As a percentage of sales, gross margin improved from 45.6% to 49.8%. The benefit of
outsourcing printer production to a third party, higher volumes, improved product mix
and continued cost control contributed to the increase in gross margin.
Operating Expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating Expenses
2010
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Selling and marketing
$34,496
$ 28,543
Research and development
General and administrative
26,741
19,492
Amortization of intangible assets
2,426
21,838
19,514
2,608
Litigation settlement
(1,082)
—
Exit, restructuring and
integration costs
1,134
2,737
Total operating expenses
$83,207
$ 75,240
20.9
22.5
(0.1)
(7.0)
N/A
(58.5)
10.6
13.9
10.8
7.9
1.0
(0.4)
0.5
33.5
12.8
9.8
8.8
1.2
—
1.2
33.8
Operating expenses for the quarter increased 10.6% due mainly to greater selling and
marketing expenses and research and development expenses. Several categories
accounted for these increases, including compensation costs which include salaries,
benefits, bonuses and commissions. Business development, outside professional
services, project expenses, and travel and entertainment expenses all increased over
2009 levels. Litigation settlement relates to escrowed purchase funds received in 2010.
Exit, restructuring and integration costs decreased $1,602,000 in the fourth quarter of
2010 as compared to 2009. Zebra’s program for outsourcing its manufacturing operations
was completed in 2010. Integration costs associated with the Zebra Enterprise Solutions
(ZES) businesses were completed in 2009.
Other Income (Expense)
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
Investment income
Foreign exchange gain (loss)
Other net
Total other income (expense)
Three Months Ended
December 31, 2010
December 31, 2009
$ 570
(448)
(333)
$(211)
$695
795
(545)
$945
Investment income declined from lower short-term interest rates in the fourth quarter of
2010 compared with 2009. Zebra recorded a foreign exchange gain in the fourth quarter
of 2009 as the U.S. dollar strengthened against the euro.
Operating Income (Loss)
The increased operating income for the fourth quarter of 2010 over the same period in
2009 is the result of increased sales in a stronger economy as noted above.
Income Taxes
The effective income tax rate for the fourth quarter of 2010 was 29.8% compared with
35.1% for the same quarter last year. The tax rate decrease for the fourth quarter of
2010 versus 2009 reflects an extension of Federal R&D tax credits. The company’s
consolidated global tax rate has declined as Zebra’s business continued to expand more
rapidly in international regions that have lower tax rates.
Business Groups
Specialty Printing Group – Fourth Quarter
(Amounts in thousands, except percentages):
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
2010
Net Sales
Tangible products
$217,899 $ 194,566
Service & software
9,264
8,556
Total net sales
Cost of Sales
227,163
203,122
Tangible products
109,148
108,521
Service & software
6,128
4,732
Total cost of sales
Gross profit
Operating expenses
115,276
113,253
111,887
49,445
89,869
42,519
Operating income
$ 62,442
$ 47,350
12.0
8.3
11.8
0.6
29.5
1.8
24.5
16.3
31.9
95.9
4.1
100.0
48.1
2.7
50.7
49.3
21.8
27.5
95.8
4.2
100.0
53.5
2.3
55.8
44.2
20.9
23.3
Specialty Printing Group – Fourth Quarter
Net sales in our Specialty Printing Group (SPG) increased 11.8% with the highest
percentage growth in sales occurring in Latin America and Asia Pacific, and the highest
dollar growth occurring in Asia-Pacific and the Europe, Middle East and Africa region.
The increase in sales was largely attributable to increased hardware sales, with notable
increases in sales of high-performance and mid-range tabletop, desktop, mobile printers
and aftermarket parts.
Gross profit increased due to higher volumes and an improved product mix, with
increased sales primarily in mobile, high-performance, mid-range table top printers
and lower freight costs of $1,224,000 in 2010. Gross profit for SPG was affected by
unfavorable foreign currency movements which decreased fourth quarter gross profit by
$5,628,000. As a percentage of sales, gross margin increased. The benefit of outsourcing
printer production to a third party, higher volumes, improved product mix and continued
cost control contributed to the increase in gross margin.
15
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
Average selling price of printers shipped
Three Months Ended
December 31,
2010
276,597
$535
2009
244,100
$531
Percent
Change
13.3
0.8
For the fourth quarter of 2010, unit volumes increased in nearly all printer product
lines compared to the same period of 2009, with notable volume increases in high-
performance tabletop, desktop and mobile printers.
Operating expense changes for SPG in 2010, compared to the same periods in 2009, are
due to the following (in thousands):
Payroll and benefit costs
Business development
Project expenses
Travel and entertainment
Exit, restructuring and integration costs
Other changes
Three Months Ended December 31,
2009
2010
$ 30,419
$24,463
Increase/
(Decrease)
$ 5,956
4,843
2,302
2,266
—
9,615
4,094
1,163
1,698
1,817
9,284
749
1,139
568
(1,817)
331
Zebra Enterprise Solutions – Fourth Quarter
ZES sales increased 8.3% for the fourth quarter of 2010 compared to 2009 primarily due
to increased hardware revenue. The improved economic conditions helped increase ZES
sales primarily in the automotive and industrial manufacturing verticals. Increases were
offset by a reduction to installation services revenue associated with customer project
implementations delays. Gross margin dollars increased slightly in the fourth quarter
over 2009, yet the margin percentages for the 2010 quarter declined primarily driven
by revenue mix change and license revenue which was not recognized from customer
project implementation delays.
ZES operating expenses in the fourth quarter of 2010 compared to 2009 are summarized
below (in thousands):
Three Months Ended December 31,
2009
2010
$10,575
$ 9,951
Increase/
(Decrease)
$ 624
Payroll and benefit costs
Business development
Travel and entertainment
Exit, restructuring and integration costs
Litigation settlement
Amortization expense
Other changes
744
1,074
443
(1,082)
1,589
3,792
276
822
866
—
1,917
3,192
468
252
(423)
(1,082)
(328)
600
Total operating expenses
$49,445
$ 42,519
$ 6,926
Total operating expenses
$ 17,135
$17,024
$ 111
Operating expenses for SPG increased primarily due to greater selling and marketing
expenses from the higher level of business activity and expansion into new geographic
markets. Project expenses increased due to greater expenses related to bringing new
products to market. Exit and restructuring charges have declined as the activities related
to the outsourcing of our printer manufacturing began to ramp down in the fourth quarter
of 2009 and were completed by the second quarter of 2010.
ZES operating expenses for the fourth quarter of 2010 were higher than 2009 due to
increases in payroll and benefit costs, selling and marketing, consulting, project expenses
and travel and entertainment costs. These increases were offset by reductions to exit,
restructuring and integration costs and lower amortization expense due to an intangible
asset being fully amortized at the end of 2009. ZES received funds in the fourth quarter of
2010 from litigation settlements related to escrowed purchase funds.
Zebra Enterprise Solutions – Fourth Quarter
(Amounts in thousands, except percentages)
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
2010
Net Sales
Tangible products
Service & software
Total net sales
Cost of Sales
Tangible products
Service & software
Total cost of sales
Gross profit
Operating expenses
$ 5,172
$ 2,531
104.3
15,840
21,012
16,869
19,400
4,043
5,215
9,258
11,754
17,135
2,090
5,701
7,791
11,609
17,024
(6.1)
8.3
93.4
(8.5)
18.8
1.2
0.7
24.6
75.4
100.0
19.2
24.9
44.1
55.9
81.5
13.0
87.0
100.0
10.8
29.4
40.2
59.8
87.8
Operating loss
$(5,381)
$ (5,415)
(0.6)
(25.6)
(28.0)
16
Results of Operations: Year ended December 31, 2010 versus Year ended December 31, 2009
Sales by product category were as follows (amounts in thousands, except percentages):
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Three Months Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
2010
Net Sales
Tangible products
$855,269 $ 701,044
Service & software
101,579
102,541
Total net sales
Cost of Sales
956,848
803,585
Tangible products
455,007
401,727
Service & software
40,972
41,137
Total cost of sales
Gross profit
495,979
442,864
460,869
360,721
Operating expenses
317,017
291,919
22.0
(0.9)
19.1
13.3
(0.4)
12.0
27.8
8.6
Operating income
143,852
68,802
109.1
Other income
1,083
Income before income taxes 144,935
1,721
70,523
23,419
43,157
$ 101,778 $ 47,104
(37.1)
105.5
84.3
116.1
Income taxes
Net income
89.4
10.6
100.0
87.2
12.8
100.0
47.6
4.3
51.8
48.2
33.1
15.0
0.1
15.1
4.5
10.6
50.0
5.1
55.1
44.9
36.3
8.6
0.2
8.8
2.9
5.9
Diluted earnings per share
$ 1.77 $ 0.79
Consolidated Results of Operations – Year to date
Sales
Net sales for the year ended December 31, 2010 compared with 2009 increased 19.1%
from a broad-based increase in demand for Zebra products and global economic
recovery. The increase in sales was largely attributable to increased hardware sales with
notable volume increases in high-performance tabletop, desktop, mobile printers and
aftermarket parts. Supplies sales increased from greater shipments of labels and thermal
ribbons. Printer unit volume increased 24.4% for the 2010 year compared to levels in
2009. The average selling price increased from $522 in 2009 to $533 in 2010, or by 2.1%
due primarily to changes in product mix.
Product Category
2010
Year Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Hardware
Supplies
$682,455
$539,934
167,633
155,847
Service and software
101,579
102,541
Subtotal
951,667
798,322
Shipping and handling
5,181
5,263
Total sales
$956,848
$803,585
26.4
7.6
(0.9)
19.2
(1.6)
19.1
71.4
17.5
10.6
99.5
0.5
67.1
19.4
12.8
99.3
0.7
100.0
100.0
Sales increased in all geographic territories due primarily to the global economic
recovery. The sales growth on a percentage basis was greatest in Latin America and Asia
Pacific because of higher rates of economic growth in those regions and as a result of
greater investment in sales and marketing resources. Movements in foreign exchange
rates decreased sales in 2010 by $13,733,000 in the Europe, Middle East and Africa
regions principally due to a weaker euro against the dollar compared to 2009 levels.
Sales to customers by geographic region were as follows (in thousands, except percentages):
Geographic Region
2010
Year Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Europe, Middle East
and Africa
Latin America
Asia-Pacific
Total International
North America
Total sales
$338,573
$294,296
87,278
123,796
65,060
82,120
549,647
441,476
407,201
362,109
$956,848
$803,585
15.0
34.2
50.8
24.5
12.5
19.1
35.4
9.1
12.9
57.4
42.6
36.6
8.1
10.2
54.9
45.1
100.0
100.0
Gross Profit
Gross profit increased 27.8% due to higher volumes and an improved product mix, with
increased sales primarily in mobile, high-performance and mid-range table top printers,
partially offset by $13,552,000 in higher freight costs in 2010. Gross profit was affected by
unfavorable foreign currency movements which decreased gross profit by $12,172,000.
As a percentage of sales, gross margin improved from 44.9% to 48.2%. The benefit of
outsourcing printer production to a third party, higher volumes, a favorable product mix
and continued cost control contributed to the increase in gross margin.
17
Operating Expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating Expenses
2010
Year Ended
December 31,
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Selling and marketing
$122,689
$102,535
Research and development
101,930
General and administrative
79,710
Amortization of intangible assets
9,573
86,390
81,395
10,466
Litigation settlement
(1,082)
—
19.7
18.0
(2.1)
(8.5)
N/A
Asset impairment charges
—
(1,058)
(100.0)
Exit, restructuring and
integration costs
4,197
12,191
(65.6)
Total operating expenses
$ 317,017
$291,919
8.6
12.8
10.7
8.3
1.0
(0.1)
—
0.4
33.1
12.8
10.7
10.1
1.3
—
(0.1)
1.5
36.3
Operating expenses for the 2010 compared to 2009 increased 8.6% due to greater selling
and marketing expenses and research and development expenses. Several categories
accounted for these increases, including compensation costs, business development,
project expenses, outside professional services, travel and entertainment, and offsite
meeting expenses. Amortization of intangibles decreased $893,000 due to an intangible
asset being fully amortized at the end of 2009. Expenses in 2010 were reduced by the
receipt of an escrow claim litigation settlement received in the fourth quarter of 2010.
During the second quarter of 2009, $1,495,000 of the goodwill impairment charge
recorded at the end of 2008 was reversed and a $437,000 impairment charge was
recorded related to an intangible asset in our ZES segment.
Exit, restructuring and integration costs decreased in 2010 as compared to 2009 as
activities related to the shutdown of our production lines as part of the transition to
outsourcing and the integration of our ZES businesses have decreased substantially in
2010. Zebra’s program for outsourcing its manufacturing operations is complete and the
related restructuring costs for this program ended. In addition, integration costs associated
with integrating the Zebra Enterprise Solutions (ZES) businesses were completed in 2009.
Selling and Marketing Expenses
Selling and marketing expenses are summarized below (in thousands):
Payroll and benefit costs
Business Development
Travel and entertainment expenses
Other changes
Year Ended December 31,
2009
2010
$ 76,720
$ 64,491
Increase/
(Decrease)
$12,229
21,660
7,834
16,475
17,781
5,681
14,582
3,879
2,153
1,893
Selling and marketing expenses were higher in 2010 primarily due to increased payroll
and benefit costs related to expanding markets and increased sales volume. Payroll and
benefit cost increases include salaries, bonus, commissions, benefits and payroll taxes.
Other selling and marketing expense categories also increased over 2009 levels due to
higher expenses relating to the addition of Zebra sales representatives to expand Zebra’s
global reach into new developing geographic regions.
In 2009, comparable costs were lower due to a cost reduction program consisting
primarily of headcount reductions implemented during the second half of 2008 in
response to the difficult business environment. Expenditures for all types of advertising
and marketing costs were lower in 2009 as part of our corporate wide cost control efforts
in a challenging economy.
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 continue to make investments in research and development. In 2010 we introduced
an updated two inch “plus” light duty printer and a new Xi4 high-performance printer. In
the fourth quarter of 2009 we began shipping our first re-transfer card printer which has
photo-quality imaging for security and government use. We also introduced innovative
new Iq color labels which enables customers to print spot colors on predetermined areas
of a label using any Zebra thermal label printer. This breakthrough product enhances
readability, increases business efficiency and improves safety.
In 2010, Zebra Enterprise Solutions introduced new gate, vessel, billing, automation,
analytics and monitoring capabilities in its terminal operating system solution, support
for rack tracking, RFID support, and goods return for our manufacturing solution along
with a new tag form factor for parts replenishment and a new Ethernet enabled proximity
exciter. ZES also released enhancements to its equipment fleet management solution to
provide added visibility for operator safety and equipment maintenance.
quarterly product development expenses fluctuate widely depending on the status of
ongoing projects. We are committed to a long-term strategy of significant investment in
product development. Research and development costs are summarized below
(in thousands):
Year Ended December 31,
2009
2010
Payroll and benefit costs
$ 70,243
$ 63,036
Professional services expenses
Project expenses
Travel and entertainment expenses
Other changes
8,069
7,943
2,749
12,926
5,165
4,765
1,867
11,557
Increase/
(Decrease)
$ 7,207
2,904
3,178
882
1,369
Total research and development costs $101,930
$ 86,390
$15,540
Total selling and marketing expenses $122,689
$102,535
$20,154
The increases in research and development costs relate to increased payroll and benefit
costs, compliance and project expenses to bring new products to market.
18
General and Administrative Expenses
General and administrative expenses are summarized below (in thousands):
Year Ended December 31,
2009
2010
Increase/
(Decrease)
Payroll and benefit costs
$ 41,446
$ 38,351
Professional services expenses
Travel and entertainment expenses
Depreciation expense
Gain (loss) on equipment
Other changes
Total general and
administrative expenses
10,372
1,837
9,519
(61)
16,597
12,474
1,332
9,869
829
18,540
$ 3,095
(2,102)
505
(350)
(890)
(1,943)
$ 79,710
$ 81,395
$(1,685)
General and administrative expenses decreased slightly overall. Payroll and benefit costs
increased due to increased amounts in 2010 for bonus and benefits related to improved
operating results in 2010. Consulting expenses related to business improvement
initiatives in 2009 were reduced in 2010.
Amortization of Intangible Assets
Amortization of intangible assets decreased $893,000 during 2010 due to an intangible
asset being fully amortized at the end of 2009.
Litigation Settlement
In 2010 Zebra received litigation settlement proceeds related to our acquisition of MSSI in
2008. See Note 20 for further information related to the litigation settlement.
Asset Impairment Charges
During the fourth quarter of 2008, we determined that certain impairment indicators
existed related to identified intangible assets and conducted an additional impairment
test of intangibles. Due to the deterioration of the economy and a significant reduction in
the price of our stock, we determined that our goodwill and other intangible assets were
impaired requiring total estimated impairment charges of $157,600,000 at December 31,
2008. Upon completion of a detailed second step impairment analysis we recorded a credit
of $1,495,000 in the second quarter of 2009 to adjust a portion of our original goodwill
impairment. In 2009, we also recorded an impairment charge for an intangible asset of
$437,000. See Note 7 of the Consolidated Financial Statements included in this Annual
Report on Form 10-K for a more detailed discussion of the asset impairment charges.
Exit, Restructuring and Integration Charges
For 2010, exit and restructuring costs were $4,197,000. For 2009, exit and restructuring
costs were $8,985,000 and integration costs were $3,206,000. The reduction is due to
the completion of our production outsourcing. See Note 9 of the Consolidated Financial
Statements included in this Annual Report on Form 10-K for a more detailed discussion of
the exit, restructuring and integration charges.
Other Income
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
December 31, 2010
December 31, 2009
Year Ended
Investment income
Foreign exchange loss
Other, net
Total other income
Rate of Return Analysis:
$ 2,681
(213)
(1,385)
$ 1,083
Average cash and marketable securities balances
$253,310
Annualized rate of return
1.1%
$ 2,933
(45)
(1,167)
$ 1,721
$235,803
1.2%
Investment income for 2009 was $958,000 lower due to write-downs recorded in 2009
related to losses on equity investments. Investment income for 2009 was $2,933,000
compared to $2,681,000 in 2010. Excluding the 2009 write-downs, Zebra’s annualized rate
of return would have been 1.6% for 2009. Considering this item, investment income in
2010 actually declined primarily from lower short-term interest rates in 2010 compared
with 2009. Cash and marketable securities balances for 2010 have increased compared to
2009 as a result of increased cash from operations.
Operating Income
The operating income increase for 2010 was the result of increased sales and gross profit
as noted above.
Income Taxes
The effective income tax rate for 2010 was 29.8% compared with an income tax rate
of 33.2% for 2009. Zebra’s effective tax rate for 2010 included a $2,764,000 reduction
of federal taxes related to prior years’ adjustments for intercompany profit in ending
inventory which reduced our effective rate by 1.9%. The tax rate decrease for 2010 versus
2009 reflects an extension of Federal R&D tax credits. The company’s consolidated
global tax rate has declined as Zebra’s business continued to expand more rapidly in
international regions that have lower tax rates.
19
Business Groups
Specialty Printing Group – Year to date
(Amounts in thousands, except percentages)
Year Ended
December 31,
2010
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Net Sales
Tangible products
$834,392
$688,057
Service & software
36,644
34,499
Total net sales
Cost of Sales
871,036
722,556
Tangible products
437,936
392,298
Service & software
19,432
18,013
Total cost of sales
Gross profit
457,368
410,311
413,668
312,245
Operating expenses
183,770
164,124
Operating income (loss)
$229,898
$148,121
21.3
6.2
20.5
11.6
7.9
11.5
32.5
12.0
55.2
95.8
4.2
100.0
50.3
2.2
52.5
47.5
21.1
26.4
95.2
4.8
100.0
54.3
2.5
56.8
43.2
22.7
20.5
Specialty Printing Group – Year to date
Net sales for SPG increased 20.5% for 2010 as compared to 2009 with the highest
percentage growth in sales occurring in Latin America and Asia Pacific, and the highest
dollar growth occurring in North America, Latin America and the Europe, Middle East
and Africa region.
The increase in sales was largely attributable to increased hardware sales, with notable
increases in sales of high-performance and mid-range tabletop, desktop, mobile printers
and aftermarket parts. Supplies sales increased from higher shipments of labels and
thermal ribbons.
Gross profit for SPG increased from higher volumes and an improved product mix, with
increased sales primarily in mobile, high-performance and mid-range table top printers,
partially offset by $13,552,000 in higher freight costs in 2010. Gross profit was affected by
unfavorable foreign currency movements which decreased gross profit by $12,172,000.
As a percentage of sales, gross margin increased. The benefit of outsourcing printer
production to a third party, higher volumes, improved product mix and continued cost
control contributed to the increase in gross margin.
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
Average selling price of printers shipped
Year Ended
December 31,
2010
1,057,744
$533
2009
850,230
$522
Percent
Change
24.4
2.1
20
For 2010, product unit volumes increased in nearly all printer product lines compared
to the same periods of 2009, with notable volume increases in high-performance and
midrange table top, desktop, and mobile. These increases were offset by a reduction
in photo printers as this line was discontinued in 2009.
Operating expenses for SPG are summarized below (in thousands):
Year Ended December 31,
2009
2010
Payroll and benefit costs
$ 112,824
Business development
Project expenses
Travel & entertainment
I.S. expenses
Recruiting Fees
Sales meeting expenses
Exit and restructuring costs
Other changes
17,996
6,646
7,314
2,977
761
883
2,123
32,246
$ 97,010
15,530
4,411
5,416
2,278
272
441
7,819
30,947
Total operating expenses
$183,770
$164,124
Increase/
(Decrease)
$15,814
2,466
2,235
1,898
699
489
442
(5,696)
1,299
$19,646
Operating expenses for SPG increased primarily due to greater selling and marketing
expenses from the higher level of business activity and expansion into new markets.
Operating expenses are higher due to increases in payroll and benefit costs, advertising
and marketing costs, consulting fees, compliance costs, and travel and entertainment
expenses. Exit, restructuring and integration costs are being reduced as the outsourcing
project was completed in 2010.
Zebra Enterprise Solutions – Year to date
(Amounts in thousands, except percentages)
Year Ended
December 31,
2010
Percent
2009 Change
Percent of Percent of
Net Sales Net Sales
2009
2010
Net Sales
Tangible products
$ 20,877
$ 12,987
Service & software
Total net sales
Cost of Sales
Tangible products
Service & software
Total cost of sales
Gross profit
Operating expenses
64,935
85,812
68,042
81,029
17,071
21,540
38,611
47,201
66,772
9,429
23,124
32,553
48,476
63,730
Operating loss
$(19,571) $(15,254)
60.8
(4.6)
5.9
81.0
(6.9)
18.6
(2.6)
4.8
28.3
24.3
75.7
100.0
19.9
25.1
45.0
55.0
77.8
16.0
84.0
100.0
11.6
28.5
40.2
59.8
78.7
(22.8)
(18.9)
Zebra Enterprise Solutions – Year to date
ZES sales increased 5.9% for the year compared to 2009 primarily due to higher sales of
hardware related to bookings and steady license revenue. ZES sales increased primarily
in the automotive and industrial manufacturing verticals. Services remained steady in a
difficult economy. Margins declined as a result of the change in sales mix.
Comparison of Years Ended December 31, 2009 and 2008
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Year Ended
December 31,
Percent
2008 Change
Percent of Percent of
Net Sales Net Sales
2008
2009
ZES operating expenses are summarized below (in thousands):
2009
Year Ended December 31,
2009
2010
Increase/
(Decrease)
Payroll and benefit costs
Business development
Outside professional services
Project expenses
Travel & entertainment
Exit, restructuring and integration costs
Impairment charges
Amortization expense
Litigation settlements
Other changes
$40,944
$ 37,576
2,326
2,539
1,203
3,809
673
—
6,568
(1,082)
9,792
1,108
1,696
508
2,569
4,210
(1,059)
7,712
—
9,410
Total operating expenses
$ 66,772
$63,730
$3,368
1,218
843
695
1,240
(3,537)
1,059
(1,144)
(1,082)
382
$3,042
ZES operating expenses for the year were higher than the 2009 period due to increases
in payroll and benefit costs, consulting, project expenses and travel and entertainment
costs. These increases were offset due to lower provision required for receivables,
reduced integration costs, and lower amortization expense due to an intangible asset
being fully amortized at the end of 2009. Included in operating expenses for 2010
is a $1,082,000 in litigation settlement proceeds from escrow claims related to our
acquisitions. See Note 20 of the Notes to the Consolidated Financial Statements for
further information related to the escrow claim.
Net Sales
Tangible products
$701,044 $ 871,587
Service & software
102,541
105,113
Total net sales
Cost of Sales
803,585
976,700
Tangible products
401,727
452,208
Service & software
41,137
45,187
Total cost of sales
Gross profit
442,864
497,395
360,721
479,305
Operating expenses
291,919
494,651
Operating income (loss)
68,802
(15,346)
(19.6)
(2.4)
(17.7)
(11.2)
(9.0)
(11.0)
(24.7)
(41.0)
N/A
Other income
1,721
3,433
(49.9)
Income (loss) before
income taxes
Income taxes
70,523
(11,913)
23,419
26,508
Net income (loss)
$ 47,104 $ (38,421)
Diluted earnings (loss)
per share
$ 0.79 $ (0.60)
N/A
(11.7)
N/A
87.2
12.8
100.0
89.2
10.8
100.0
50.0
5.1
55.1
44.9
36.3
8.6
0.2
8.8
2.9
5.9
46.3
4.6
50.9
49.1
50.6
(1.5)
0.3
(1.2)
2.7
(3.9)
Consolidated Results of Operations – Year to date
Sales
Net sales for the year ended December 31, 2009 compared with 2008 decreased 17.7%,
due primarily to global economic conditions. Sales in each geographic region also were
down by similar percentages. The decreases in sales were largely attributable to a
decline in hardware sales volume. Hardware sales declined proportionally more for our
high-performance, midrange table top and desk top printers, which carry a higher sales
price and are more profitable. Notable weakness in sales from the economic downturn
began in the third quarter of 2008 and continued throughout 2009.
Cash flow hedging activities in 2009 increased revenues by $603,000 compared with
a decrease in revenues from cash flow hedging in 2008 of $12,354,000.
21
Lower overall operating expenses for 2009 compared to 2008 resulted from decreases
in several categories including payroll costs primarily from lower staffing levels, outside
commissions, project costs, and travel and entertainment expenses. Amortization of
intangibles decreased due to impairments recorded in the fourth quarter of 2008 for the
impairment of goodwill, intellectual property and other assets. Expenses in 2008 were
reduced by the receipt of an escrow claim litigation settlement received in the third
quarter of 2008. The above reductions were partially offset by increases in general and
administrative expenses for consulting and benefit costs in 2009.
During the fourth quarter or 2008, we took charges totaling $157,600,000 for the
impairment of goodwill, intellectual property and other assets. During the second quarter
of 2009, $1,495,000 of the goodwill impairment charge was reversed and a $437,000
impairment charge was recorded related to an intangible asset in our ZES segment.
Exit, restructuring and integration costs decreased in 2009 as compared to 2008 as
activities related to the ramp down of our production lines and the integration of our
ZES businesses have substantially decreased.
Selling and Marketing Expenses
Selling and marketing expenses are summarized below (in thousands):
Payroll and benefit costs
Advertising and market
development fund costs
Professional services expenses
Travel and entertainment expenses
Offsite meetings
Other changes
Year Ended December 31,
2008
2009
Increase/
(Decrease)
$ 64,920
$ 75,986
$(11,066)
17,781
2,826
5,681
418
10,909
23,078
3,434
8,133
3,659
12,035
(5,297)
(608)
(2,452)
(3,241)
(1,126)
Total selling and marketing expenses $102,535
$126,325
$(23,790)
Selling and marketing expenses decreased in 2009 due to a cost reduction program
consisting primarily of headcount reductions implemented during the second half of
2008 in response to the current difficult business environment. Expenditures for all
types of advertising and marketing costs were reduced in 2009 as part of our corporate
wide cost control efforts in a challenging economy. Zebra’s reduced sales volume also
resulted in lower commissions.
Sales by product category were as follows (amounts in thousands, except percentages):
Product Category
2009
Year Ended
December 31,
Percent
2008 Change
Percent of Percent of
Net Sales Net Sales
2008
2009
Hardware
Supplies
$539,934
$692,638
(22.0)
155,847
172,106
Service and software
102,541
105,113
Shipping and handling
5,263
6,843
Total sales
$803,585
$976,700
(9.4)
(2.4)
(23.1)
(17.7)
67.1
19.4
12.8
0.7
70.9
17.6
10.8
0.7
100.0
100.0
Sales to customers by geographic region were as follows (in thousands,
except percentages):
Geographic Region
2009
Year Ended
December 31,
Percent
2008 Change
Percent of Percent of
Net Sales Net Sales
2008
2009
Europe, Middle East
and Africa
Latin America
Asia-Pacific
Total International
North America
Total sales
$294,296
$353,273
65,060
76,489
82,120
102,672
441,476
532,434
362,109
444,266
$803,585
$976,700
(16.7)
(14.9)
(20.0)
(17.1)
(18.5)
(17.7)
36.6
8.1
10.2
54.9
45.1
36.2
7.8
10.5
54.5
45.5
100.0
100.0
Gross Profit
Gross profit in 2009 compared with 2008 decreased due to lower volumes and a less
favorable product mix. Higher freight costs were incurred in order to meet customer
demand in 2009, primarily in the fourth quarter. Unfavorable foreign exchange rates in
2009 decreased gross profit in 2009 by $16,745,000, net of hedges. These factors were
partially offset by the benefit of outsourcing and the full year effect of continued cost
containment efforts in 2009.
Operating Expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating Expenses
2009
Year Ended
December 31,
Percent
2008 Change
Percent of Percent of
Net Sales Net Sales
2008
2009
Selling and marketing
$102,535
$126,325
Research and development
General and administrative
86,390
81,395
Amortization of intangible assets 10,466
95,800
81,644
18,575
(18.8)
(10.0)
—
(43.7)
Litigation settlement
—
(5,302)
(100.0)
Asset impairment charges
(1,058)
157,600
N/A
Exit, restructuring and
integration costs
12,191
20,009
Total operating expenses
$291,919
$494,651
(39.1)
(41.0)
12.8
10.7
10.1
1.3
—
(0.1)
1.5
36.3
12.9
9.8
8.4
1.9
(0.5)
16.1
2.0
50.6
22
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 continue to make investments in research and development. In 2009 we introduced
an updated two inch “plus” light duty printer and a new Xi4 high-performance printer. In
the fourth quarter of 2009 we began shipping our first re-transfer card printer which has
photo-quality imaging for security and government use. We also introduced innovative
new Iq color labels which enables customers to print spot colors on predetermined areas
of a label using any Zebra thermal label printer. This breakthrough product enhances
readability, increases business efficiency and improves safety.
In 2009, Zebra Enterprise Solutions introduced new gate, vessel, billing, automation,
analytics and monitoring capabilities in its TOS solution, support for rack tracking, RFID
support, and goods return for our manufacturing solution along with a new tag form
factor for parts replenishment and a new Ethernet enabled proximity exciter. ZES also
released enhancements to its equipment fleet management solution to provide added
visibility for operator safety and equipment maintenance.
quarterly product development expenses fluctuate widely depending on the status of
ongoing projects. We are committed to a long-term strategy of significant investment in
product development. Research and development costs are summarized below
(in thousands):
Year Ended December 31,
2008
2009
Increase/
(Decrease)
Payroll and benefit costs
$63,323
$66,652
Professional services expenses
Project expenses
Travel and entertainment expenses
Other changes
5,165
4,765
1,867
11,270
7,144
8,341
2,445
11,218
$(3,329)
(1,979)
(3,576)
(578)
52
Total research and development costs $86,390
$95,800
$ (9,410)
The decreases are primarily related to cost reductions taken in 2008 which decreased
research and development costs for the full year of 2009. Expenditures in this area were
reduced as part of our corporate wide cost control efforts in a challenging economy.
General and Administrative Expenses
General and administrative expenses are summarized below (in thousands):
Year Ended December 31,
2008
2009
Payroll and benefit costs
Professional services expenses
Travel and entertainment expenses
Recruiting fees
Depreciation expense
$38,609
12,474
1,332
216
9,869
Gain/loss on sale of assets and equipment
810
Other changes
18,085
$40,394
10,626
2,172
2,888
8,101
(1,127)
18,590
Increase/
(Decrease)
$(1,785)
1,848
(840)
(2,672)
1,768
1,937
(505)
Total general and
administrative expenses
$ 81,395
$ 81,644
$ (249)
General and administrative expenses decreased due to a cost reduction program
consisting primarily of headcount reductions implemented during the second half of
2008 in response to the current difficult business environment. Offsetting the previously
mentioned cost reduction were increases in consulting expenses related to business
improvement initiatives and depreciation related to a worldwide enterprise resource
planning system implementation.
Amortization of Intangible Assets
Amortization of intangible assets decreased $8,109,000 during 2009 due to intangible
asset write-downs in the fourth quarter of 2008. See Asset impairment charges below
for more details.
Litigation Settlement
In 2008 Zebra received a litigation settlement related to our recent acquisition of
WhereNet. See Note 20 for further information related to the litigation settlement.
Asset Impairment Charges
During the fourth quarter of 2008, we determined that certain impairment indicators
existed related to identified intangible assets and conducted an additional impairment
test of intangibles. Due to the deterioration of the economy and a significant reduction in
the price of our stock, we determined that our goodwill and other intangible assets were
impaired requiring total estimated impairment charges of $157,600,000 at December 31,
2008. Upon completion of a detailed second step impairment analysis we recorded a credit
of $1,495,000 in the second quarter of 2009 to adjust a portion of our original goodwill
impairment. In 2009, we also recorded an impairment charge for an intangible asset or
$437,000. See Note 7 of the Consolidated Financial Statements included in this Annual
Report on Form 10-K for a more detailed discussion of the asset impairment charges.
23
Exit, Restructuring and Integration Charges
For 2009, exit and restructuring costs were $8,985,000 and integration costs were
$3,206,000. For 2008, exit and restructuring costs were $16,650,000 and integration costs
were $3,359,000. The reduction is due to the substantial completion of our production
outsourcing. See Note 9 of the Consolidated Financial Statements included in this
Annual Report on Form 10-K for a more detailed discussion of the exit, restructuring
and integration charges.
Business Groups
Specialty Printing Group – Year to date
(Amounts in thousands, except percentages)
Net Sales
2009
Year Ended
December 31,
Percent
2008 Change
Percent of Percent of
Net Sales Net Sales
2008
2009
Other Income
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
Tangible products
$688,057 $ 851,561
Service & software
34,499
30,898
(19.2)
11.7
Investment income
Foreign exchange gain (loss)
Other, net
Total other income
Rate of Return Analysis:
December 31, 2009
December 31, 2008
Year Ended
$ 2,933
$ 1,281
(45)
(1,167)
3,518
(1,366)
$ 1,721
$ 3,433
Average cash and marketable securities balances
$235,803
Annualized rate of return
1.2%
$253,033
0.5%
Investment income for 2009 would have been $958,000 higher due to write-downs
recorded in 2009 related to losses on equity investments. Investment income for 2008
would have been $7,271,000 higher due to losses related to the write-down of an auction
rate security of $4,374,000 and a long term equity investment in the amount of $2,897,000
in 2008. Excluding these write-downs, investment income for 2009 would have been
$3,891,000 compared to $8,552,000 in 2008. Excluding the 2008 write-downs, Zebra’s
annualized rate of return would have been 3.4% for 2008, while the 2009 rate of return
would have been 1.6%. The investment income for 2008 was higher due to interest rates
being higher in 2008 and Zebra’s cash balances also being higher throughout 2008. Cash
and marketable securities balances for 2009 have decreased compared to 2008 as a result
of payments for acquisitions and for the repurchase of Zebra Class A common stock.
Operating Income (Loss)
The increase in operating income for 2009 over 2008 is the result of cost containment
efforts, reduced exit, restructuring and integration costs and the impairment charge
recorded in 2008. The operating loss for 2008 is the result of the impairment charges
which totaled $157,600,000. See Note 7 of the Consolidated Financial Statements
included in this Annual Report on Form 10-K for a more detailed discussion of the asset
impairment charges. Also significantly contributing to the operating loss in 2008 were
exit, restructuring and integrations costs of $20,009,000, offset by the WhereNet litigation
settlement of $5,302,000.
Income Taxes
The effective income tax rate for 2009 was 33.2%. The effective income tax rate for 2008
was not meaningful because a substantial portion of the impairment charges recorded in
the fourth quarter of 2008 was not deductible for income tax purposes.
24
Net sales
Cost of Sales
722,556
882,459
(18.1)
Tangible products
392,298
439,471
(10.7)
Service & software
18,013
14,866
Cost of sales
Gross profit
410,311
454,337
312,245
428,122
Operating expenses
164,124
221,934
Operating income
$148,121 $ 206,188
21.2
(9.7)
(27.1)
(26.0)
(28.2)
95.2
4.8
100.0
54.3
2.5
56.8
43.2
22.7
20.5
96.5
3.5
100.0
49.8
1.7
51.5
48.5
25.1
23.4
Specialty Printing Group – Year to date
Net sales for SPG decreased 18.1% for 2009 as compared to 2008, with comparable
percentage declines in all regions, except for APAC which decreased modestly more than
the other regions. New printer products (defined as printers released within 18 months
prior to the end of the applicable fiscal period) accounted for 9.0% of printer sales during
2009, compared with 19.1% of printer sales for 2008.
Our international SPG sales are denominated in multiple currencies, primarily the U.S.
dollar, British pound and euro. This diversity causes our reported sales to be subject to
fluctuations based on changes in currency rates. The stronger U.S. dollar to the euro
and the pound had a negative impact of approximately $21,890,000, net of hedges, on
sales during 2009 compared with 2008. We typically hedge a portion of anticipated euro-
denominated sales to partially protect Zebra against exchange rate movements. For the
year, this program resulted in a gain on hedges of $603,000.
Gross profit margin for SPG was affected by unfavorable foreign currency rate
movements, which decreased year to date gross profit versus 2008 gross profit by
$16,745,000, net of hedges. Lower volume and a less favorable product mix reduced
gross margins. Outsourcing of our manufacturing operations resulted in favorable
improvement to gross margin in 2009.
Lower overall operating expenses resulted from decreases in payroll costs, business
development costs, recruiting and relocation costs, outside commissions, project costs,
travel and entertainment expenses, and offsite meetings. Much of the decreased payroll
and benefit costs were a result of lower staffing levels and cost reduction initiatives.
Amortization of intangibles was reduced by $3,010,000 for 2009 as compared to 2008 due
to asset write-downs taken in 2008.
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
Average selling price of printers shipped
Year Ended
December 31,
2009
850,230
$522
2008
972,478
$603
Percent
Change
(12.6)
(13.4)
For 2009, unit volumes decreased in nearly all printer product lines compared to the same
periods of 2008, with notable volume decreases in high-performance and midrange table
top, partially offset by an increase in kiosk volumes.
Operating expenses for SPG are summarized below (in thousands):
Payroll and benefit costs
Business development
Project expenses
Travel & entertainment
Sales meeting expenses
Exit and restructuring costs
Impairment charges
Loss (gain) on sale of assets & equipment
Facility relocation costs
Amortization expense
Stock options
Other changes
4,411
5,416
441
7,819
—
802
5
2,754
3,787
26,149
Total operating expenses
$164,124
Year Ended December 31,
2008
2009
$ 97,010
15,530
$ 115,461
22,395
Increase/
(Decrease)
$(18,451)
(6,865)
(2,198)
(1,782)
(2,668)
(8,669)
(14,680)
1,903
(1,087)
(3,010)
(1,364)
1,061
$(57,810)
6,609
7,198
3,109
16,488
14,680
(1,101)
1,092
5,764
5,151
25,088
$221,934
Zebra Enterprise Solutions – Year to date
(Amounts in thousands, except percentages)
Year Ended
December 31,
2009
Percent
2008 Change
Percent of Percent of
Net Sales Net Sales
2008
2009
Net Sales
Tangible products
$ 12,987 $ 20,025
Service & software
Net sales
Cost of Sales
Tangible products
Service & software
Cost of sales
Gross profit
68,042
81,029
74,216
94,241
9,429
23,124
32,553
48,476
12,737
30,321
43,058
51,183
Operating expenses
63,730
217,149
Operating loss
$(15,254) $(165,966)
(35.1)
(8.3)
(14.0)
(26.0)
(23.7)
(24.4)
(5.3)
(70.7)
(90.8)
16.0
84.0
100.0
11.6
28.5
40.2
59.8
78.7
21.2
78.8
100.0
13.5
32.2
45.7
54.3
230.4
(18.9)
(176.1)
Zebra Enterprise Solutions – Year to date
ZES sales decreased 14.0% for 2009 as compared to 2008 primarily due to the severely
challenging economic conditions of ZES’ key markets, namely maritime and automotive
markets. Sales declined in hardware and services but remained steady in license fees
and maintenance support. Margins improved in services provided to customers due to
reduced service costs.
ZES operating expenses are summarized below (in thousands):
Payroll and benefit costs
$ 37,576
$ 36,841
Year Ended December 31,
2008
2009
Lower operating expenses for 2009 compared to 2008 resulted from decreases in payroll
costs primarily from lower staffing levels and reduced spending as part of a corporate
wide initiative to reduce costs in a challenging economy.
Exit and restructuring costs decreased in 2009 as compared to 2008 due to the reduction
in activities associated with the transfer of our printer manufacturing to a third-
party manufacturer and the closure in 2008 of our Warwick, Rhode Island, supplies
manufacturing facility. Restructuring costs relate to organizational changes made in
December 2008. Facility relocation costs relate to the move of our UK facility into a
new location. Amortization of intangibles decreased due to impairments recorded in
the fourth quarter of 2008. Impairment charges relate to the write-down of intellectual
property from changes in valuations related to current economic conditions and the
business outlook. The above reductions were partially offset by increases in general and
administrative expenses for consulting and benefit costs in 2009.
Outside professional services
Research & development
Travel & entertainment
Office services and supplies
Offsite meetings
Building allocation
Bad debt expense
Exit and restructuring
ZES integration
Impairment charges
Amortization expense
WhereNet escrow claim net settlement
Other changes
Total increase (decrease)
1,696
149
2,569
599
(16)
(1,696)
(74)
1,004
3,206
(1,059)
7,712
—
12,064
$63,730
Increase/
(Decrease)
$ 735
(4,173)
(1,678)
(1,941)
1,651
(689)
(1,124)
(1,011)
1,004
(153)
(143,979)
(5,099)
5,302
(2,264)
5,869
1,827
4,510
(1,052)
673
(572)
937
—
3,359
142,920
12,811
(5,302)
14,328
$217,149
$(153,419)
25
ZES operating expenses for 2009 were lower than the 2008 level due to lower staffing
levels which were offset by increased benefit costs and contract employees. Other
operating expenses reductions resulted from cost containment efforts, collection of
previously reserved accounts, reduced outside service costs, and lower amortization
of intangibles due to asset write-downs in the fourth quarter of 2008. Amortization
of intangibles was reduced by $5,099,000 for 2009 as compared to 2008. Included in
operating expenses for 2008 is a $5,302,000 expense reduction related to a payment
received from an escrow claim settlement related to our prior acquisition of WhereNet.
See Note 20 of the Notes to the Consolidated Financial Statements for further information
related to the WhereNet escrow claim net settlement and Note 7 for further information
related to the impairment charges.
Critical Accounting Policies and Estimates
Management prepared the consolidated financial statements of Zebra under accounting
principles generally accepted in the United States of America. These principles require the
use of estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions we used 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
Product revenue is recognized once four criteria are met: (1) we have persuasive
evidence that an arrangement exits; (2) delivery has occurred and title has passed to the
customer, which happens at the point of shipment (except in Asia where the terms are
FOB destination) provided that no significant obligations remain; (3) the price is fixed
and determinable; and (4) collectability is reasonably assured. 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. Historically,
our product returns have not been significant. However, if a significant issue should
arise, it could have a material impact on our financial statements.
Growth Rebates
Some of our channel program partners are offered incentive rebates based on the
attainment of specific growth targets related to products 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 rebates and establish a reserve for them based on
shipment history. Historically, actual 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 result, the amounts
paid under these plans have been minimal.
Software Revenue
We sell four types of software and record revenue as follows:
• ZES has fixed fee software implementation projects, or which we use the
percentage of completion method for revenue recognition. Under this method
of accounting, we recognize revenue based on the ratio of costs incurred to total
estimated costs. If increases in projected costs-to-complete are sufficient to create
a loss contract, the entire estimated loss is charged to operations in the period the
loss first becomes known.
• Our printers contain embedded firmware, which is 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 at the time 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.
• We recognize license revenue under Accounting Standards Codification (“ASC”)
985 (formerly Statement of Position No. 97-2, “Software Revenue Recognition”,
as amended by Statement of Position No. 98-9, “Software Revenue Recognition,
With Respect to Certain Transactions”), when (1) a signed contract is obtained;
(2) delivery of the product has occurred; (3) the license fee is fixed or determinable;
and (4) collection is probable.
Maintenance and Support Agreements
We enter into post-contract maintenance and support agreements. Revenues are
recognized ratably over the service period and the cost of providing these services
is expensed as incurred.
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.
26
Zebra enters into sales transactions that include more than one product type. This
bundle of products might include printers, current or future supplies, and services.
When this type of transaction occurs, we allocate the purchase price to each product
type based on the fair value of the individual products determined by vendor specific
objective evidence. The revenue for each individual product is then recognized when
the recognition criteria for that product is fully met.
Investments and Marketable Securities
Investments and marketable securities at December 31, 2010, consisted of the following:
U.S. Government and agency securities
Obligations of government sponsored enterprises (1)
State and municipal bonds
Corporate securities
10.1%
2.7%
63.7%
23.5%
(1) Includes investments in notes issued by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association and the Federal Home Loan Bank.
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
debt 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. As of December 31, 2010, Zebra’s
investments in marketable debt securities are classified as available-for-sale. In addition,
as of December 31, 2010, all of our investments in marketable debt securities with
maturities greater than one year are classified as long-term investments on the balance
sheet due to our ability to hold them until maturity.
See Note 3 in the Notes to the Consolidated Financial Statements included in this
Form 10-K for the fair value discussion of auction rate security investment valuations.
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,
• An active collection effort by regional credit functions, reporting directly to the
corporate financial officers, and
• Limited credit insurance on the majority of our international revenues.
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 1.3% to 3.0% of total accounts receivable. Accounts receivable reserves
as of December 31, 2010, were $2,161,000, or 1.4% of the balance due. We believe this
reserve level is appropriate considering the quality of the portfolio as of December 31,
2010. 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.
Over the last three years, our inventory reserves have ranged from 6.8% to 11.0% of gross
inventory. As of December 31, 2010, inventory reserves were $9,837,000, or 8.0% of gross
inventory. We believe this reserve level is appropriate considering the quantities and
quality of the inventories as of December 31, 2010.
Valuation of Goodwill
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
annual assessment during June 2010 and determined that our goodwill was not impaired
as of the end of May 2010.
Goodwill of a reporting unit should be tested for impairment between annual tests if
an event occurs or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Examples of such events or
circumstances include:
• Significant adverse change in legal factors or in the business climate,
• Adverse action or assessment by a regulator,
• Unanticipated competition,
• Loss of key personnel,
• More-likely-than-not expectation that a reporting unit or a significant portion of a
reporting unit will be sold or otherwise disposed of,
• Testing for recoverability under ASC 360 (formerly SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets) of a significant asset group within a
reporting unit,
• Recognition of a goodwill impairment loss in the financial statement of a subsidiary
that is a component of a reporting unit, or
• Allocation of a portion of goodwill to a business to be disposed of.
Due to the deterioration of the economy in 2008 and a significant reduction in the price of
our stock, we performed an interim test of our goodwill in the fourth quarter of 2008 and
determined that the goodwill associated with our ZES segment was impaired. See Note 7
of the Consolidated Financial Statements for further discussion of this impairment charge.
27
If we believe that one or more of the above indicators of impairment have occurred, we
perform an impairment test. The performance of the test involves a two-step process.
The first step of the impairment test involves comparing the fair values of the applicable
reporting units with their aggregate carrying values, including goodwill. We generally
determine the fair value of our reporting units using three valuation methods: Income
Approach – Discounted Cash Flow Analysis, Market Approach – Guideline Public
Company Method, and Market Approach – Comparative Transactions Method.
Under the “Income Approach – Discounted Cash Flow Analysis” the key assumptions
consider sales, cost of sales and operating expenses projected through the year 2015.
These assumptions were determined by management utilizing our internal operating
plan and assuming growth rates for revenues and operating expenses, and margin
assumptions. The fourth key assumption under this approach is the discount rate which
is determined by looking at current risk-free rates of capital, current market interest rates
and the evaluation of risk premium relevant to the business segment. If our assumptions
relative to growth rates were to change or were incorrect, our fair value calculation may
change which could result in impairment. The company’s risk factors are discussed under
Item 1A of this Form 10-K.
Under the “Market Approach – Guideline Company Method” we identified 12 publicly
traded companies, including Zebra, which we believe have significant relevant
similarities. For these 12 companies we calculated the mean ratio of invested capital
to revenues and invested capital to EBITDA. Similar to the Income approach discussed
above, sales, cost of sales, operating expenses and their respective growth rates were the
key assumptions utilized. The market prices of Zebra and other guideline company shares
are key assumptions. If these market prices increase, the estimated market value would
increase. If the market prices decrease, the estimated market value would decrease.
Under the “Market Approach – Comparative Transactions Method” we looked at 22
market based transactions for companies that have similarities to our business segment,
including similarities to one or more of the business lines, markets, growth prospects,
margins and size. We calculated mean revenue and EBITDA multiples for the selected
transactions. These multiples were applied to forecasted Zebra results for that segment to
estimate market value. The key assumptions and impact to changes to those assumptions
would be similar to those assumptions under the “Income Approach – Discounted Cash
Flow Analysis” and the “Market Approach – Guideline Company Method”.
The results of these three methods are weighted based upon managements’
determination with more weight attached to the Income approach because it considers
anticipated future financial performance. The Market approaches are based upon
historical and current economic conditions which might not reflect the long term
prospects or opportunities for our business segment being evaluated.
If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we
perform the second step of the goodwill impairment test to determine the amount of
impairment loss. The second step of the goodwill impairment test involves comparing
the implied fair value of the affected reporting unit’s goodwill with the carrying value of
that goodwill.
Due to the deterioration of the economy and a significant reduction in the price of our
stock, we determined that our goodwill from our 2007 and 2008 ZES acquisitions was
impaired requiring total estimated goodwill impairment charges of $113,679,000 at
December 31, 2008. Upon completion of a detailed second step impairment analysis we
recorded a credit of $1,495,000 in the second quarter of 2009 to adjust a portion of the
original estimated goodwill impairment for ZES.
Valuation of Long-Lived and Other Intangible Assets
We evaluate the impairment of identifiable intangibles and other 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
and the undiscounted cash flow test has failed in the case of amortizable assets, we
measure impairment based on projected discounted cash flows using a discount rate that
incorporates the risk inherent in the cash flows.
During the fourth quarter of 2008, we determined that certain impairment indicators
related to identified intangible assets existed and conducted an additional impairment
test of intangibles. Due to the deterioration of the economy and a significant reduction
in the price of our stock, we determined that our other intangible assets consisting of
our 2007 and 2008 ZES acquisitions and intellectual property were impaired requiring
total estimated impairment charges of $43,921,000 at December 31, 2008. The intangible
asset impairment charges in our SPG segment were related primarily to radio frequency
identification patents and patent rights. The intangible asset impairment charges in our
ZES segment were related to customer relationships, technology, third party technology
licenses and non-competition agreements. We recorded an impairment charge to a ZES
intangible asset of $437,000 in 2009. No impairment charges were recorded in 2010.
Net intangible assets, long-lived assets and goodwill amounted to $290,622,000 as of
December 31, 2010.
28
Income Taxes
On January 1, 2007, we adopted ASC 740 (formerly FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement
No. 109). According to ASC 740, we identified, evaluated, and measured the amount of
income tax benefits to be recognized for all of our income tax positions. During 2008, we
recognized an increase of approximately $4,000,000 in the liability for unrecognized tax
benefits related to an acquisition.
Equity-Based Compensation
As of December 31, 2010, Zebra had an active equity-based compensation plan and
a stock purchase plan available for future grants. We accounted for these plans in
accordance with ASC 505 and ASC 718 (formerly SFAS No. 123(R), Share-Based
Payments). Zebra recognizes compensation costs using the straight-line method over the
vesting period of 1 month to 5 years. See Notes 2 and 15 to the Consolidated Financial
Statements included in the Form 10-K for further information.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
Liquidity and Capital Resources
(Amounts in thousands, except percentages):
Balance at January 1, 2008
Additions based on tax positions related to 2008
Additions based on tax positions related to 2009
Additions based on tax positions related to 2010
Balance at December 31, 2010
$ —
4,000
—
—
$ 4,000
Zebra’s continuing practice is to recognize interest and penalties related to income tax
matters as part of income tax expense. For the years ended December 31, 2010 and
December 31, 2009, we did not accrue any interest or penalties into income tax expense.
Zebra has concluded all U.S. federal income tax audits for years through 2006. The
tax years 2006 through 2009 remain open to examination by multiple state taxing
jurisdictions. Tax authorities in the United Kingdom have completed income tax audits for
tax years through 2006.
Included in deferred tax assets are amounts related to federal and state net operating
losses that resulted from our acquisition of WhereNet Corp. As of December 31, 2010,
we had approximately $21,932,000 of federal net operating loss carryforwards available
to offset future taxable income which expire in 2022 through 2027. As of December 31,
2010, we also had approximately $27,134,000 of state net operating loss carryforwards
which expire in 2012 through 2020. Zebra’s intention is to utilize these net operating loss
carryforwards to offset future income tax expense. Under the United States Tax Reform Act
of 1986, the amounts of benefits from net operating loss carryforwards may be impaired
or limited in certain circumstances, including significant changes in ownership interests.
In addition, as of December 31, 2010 Zebra had approximately $8,832,000 of foreign net
operating loss carryforwards which currently can be carried forward indefinitely.
The effective income tax rate for the year ended December 31, 2010 was 29.8%.
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.
For further information regarding material pending legal proceedings, see Note 11 in the
Notes to the Consolidated Financial Statements included in the Form 10-K.
Rate of Return Analysis:
2010
Average cash and marketable securities balances
$253,310
Annualized rate of return
1.1%
2009
$235,803
1.2%
Year Ended December 31,
Average cash and marketable securities balances for the year of 2010 increased compared
to 2009 as a result of increased cash provided by operations in 2010 versus 2009.
As of December 31, 2010, Zebra had $259,899,000 in cash, restricted cash, investments
and marketable securities, compared with $246,721,000 at December 31, 2009. Factors
affecting cash and investment balances during 2010 include the following (changes below
include the impact of foreign currency):
• Operations provided cash in the amount of $140,459,000, primarily from net income.
• Accounts receivable increased $4,603,000 because of higher sales.
• Inventories increased $33,884,000 due to increases in raw materials and
finished goods.
• Accounts payable increased $6,619,000, due to the timing of vendor payments and
increased purchasing as a result of higher demand.
• Accrued liabilities increased $15,386,000, due to increased bonus and benefit accruals.
• Taxes payable increased $16,980,000 due to increased earnings.
• Purchases of property and equipment totaled $30,721,000.
• Net sales of investments totaled $102,485,000.
• Purchases of treasury shares totaled $102,091,000. Zebra made open market
repurchases of our shares under authorizations of the Board of Directors announced
October 27, 2008 and August 3, 2010.
• Stock option exercises and purchases under the stock purchase plan contributed
$8,975,000.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
29
Contractual Obligations
Zebra’s contractual obligations as of December 31, 2010 were (in thousands):
Payments due by period
Less than
1 year
Total
1-3 years
3-5 years
More than
5 years
Operating lease obligations $ 48,017
$ 12,269
$19,354
$7,908
$ 8,486
Deferred compensation
liability
Deferred revenue
Purchase obligations
3,427
33,521
69,742
—
26,757
69,742
—
6,764
—
—
—
—
3,427
—
—
Total
$154,707
$108,768
$ 26,118
$7,908
$11,913
Purchase obligations are for purchases made in the normal course of business to meet
operational requirements, primarily raw materials.
On August 14, 2008, Zebra entered into a revolving credit agreement for a five-year $100
million revolving credit facility. The funds under this credit agreement are available
for general corporate purposes of Zebra and its subsidiaries in the ordinary course of
business and other purposes permitted by the agreement. As of December 31, 2010,
we had established letters of credit amounting to $3,858,000, which reduce the funds
available for borrowing under the agreement. No amounts were outstanding under the
credit agreement as of December 31, 2010.
On January 28, 2011, we entered into a Securities Purchase Agreement with Cargotec
Corporation to sell all of our interest in the Navis business and MTS for approximately
$190 million in cash. We are retaining the real time location, tags and readers portion of
the WhereNet business, along with the WhereNet applications that are sold into non-
maritime industries. The sale is expected to close in the first quarter of 2011.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
Recently Issued Accounting Pronouncements
In October 2009, the FASB issued update 2009-13, ASC 605, Revenue Recognition:
Multiple –Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues
Task Force. The revised guidance provides for two significant changes to existing
multiple element arrangement guidance. The first relates to the determination of when
the individual deliverables included in a multiple-element arrangement may be treated
as separate units of accounting. This change is significant as it will likely result in the
requirement to separate more deliverables within an arrangement, ultimately leading to
less revenue deferral. The second change modifies the manner in which the transaction
consideration is allocated across the separately identifiable deliverables. These changes
are likely to result in earlier recognition of revenue for multiple-element arrangements
than under previous guidance. This standard is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. This standard did not have a material effect upon our consolidated
financial statements.
In October 2009, the FASB issued update 2009-14, ASC 985, Software: Certain Revenue
Arrangements That Include Software Elements – a consensus of the FASB Emerging
Issues Task Force. This updated guidance is expected to significantly affect how entities
account for revenue arrangements that contain both hardware and software elements.
This standard is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. This standard did
not have a material effect upon our consolidated financial statements.
In January 2010, the FASB issued update 2010-06, ASC 820, Fair Value Measurements
and Disclosures: Improving Disclosures about Fair Value Measurements. This updated
guidance requires new disclosures related to transfers in and out of Levels 1 and 2.
The standard also provides guidance on the disclosures related to Level 3 activities. In
addition, existing disclosures related to disaggregation levels and disclosures about
inputs and valuation techniques are clarified. This standard is effective for interim and
annual periods beginning after December 15, 2009. This standard did not have a material
effect upon our consolidated financial statements.
In December 2010, the FASB issued update 2010-28, ASC 350, Intangibles – Goodwill
and Other: When to Perfrom Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task
Force). This updated guidance requires entities with reporting units with zero or negative
carrying amounts to perform and additional test to determine if goodwill has been
impaired and to calculate the amount of impairment (Step 2). This standard is effective
for interim and annual periods beginning after December 15, 2010. This standard will not
have a material effect upon our consolidated financial statements.
In December 2010, the FASB issued update 2010-29, ASC 805, Business Combinations:
Disclosure of Supplementary Pro Forma Information for Business Combinations (a
consensus of the FASB Emerging Issues Task Force). The standard provides updated
guidance on the disclosures related to business combinations. This standard is effective
for interim and annual periods beginning after December 15, 2010. This standard will not
have a material effect upon our consolidated financial statements.
30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Zebra is exposed to the impact of changes in interest rates because of our large
investment portfolio. As stated in our written investment policy, the investment portfolio
is viewed as a strategic resource that will be managed to achieve above market rates of
return in exchange for accepting a prudent amount of incremental risk, which includes
the risk of interest rate movements. Risk tolerance is constrained by an overriding
objective to preserve capital across each quarterly reporting cycle.
Zebra mitigates interest rate risk with an investment policy that requires the use of
outside professional investment managers, specified investment liquidity levels,
and broad diversification across investment strategies, and which limits the types of
investments that may be made. Moreover, the policy requires due diligence of each
investment manager both before employment and on an ongoing basis.
The following table sets forth the full year impact of a one-percentage point movement
in interest rates on the value of Zebra’s investment portfolio (in thousands, except per
share data).
Interest rate sensitive instruments
+1 percentage point movement
Effect on Pretax Income
Effect on Diluted EPS (after tax)
-1 percentage point movement
Effect on Pretax Income
Effect on Diluted EPS (after tax)
As of December 31,
2009
2010
$ (1,974)
$ (0.02)
$ (2,284)
$ (0.03)
$ 1,974
$ 0.02
$ 2,284
$ 0.03
Because these securities are classified as available-for-sale under ASC 320 (formerly
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities), the
impact of a one-percentage point movement in interest rates occurs over an extended
period of time as investments are sold and the funds are subsequently reinvested.
Foreign Exchange Risk
We conduct business in over 100 countries throughout the world and, therefore, at
times are exposed to risk based on movements in foreign exchange rates. On occasion,
we invoice customers in their local currency and have a resulting foreign currency
denominated revenue transaction and accounts receivable. We also purchase certain raw
materials and other items in foreign currencies. We manage these risks using derivative
financial instruments. See Note 10 of the Notes to the Consolidated Financial Statements
included in this form 10-K for further discussions of hedging activities.
The following table sets forth the impact of a ten percent movement in the dollar/pound
and dollar/euro rates measured as if Zebra did not engage in the selective hedging
practices described above and in Note 10. It is based on the dollar/euro and dollar/pound
exchange rates and euro and pound denominated assets and liabilities (in thousands,
except per share data).
Foreign exchange
Dollar/pound
Effect on Pretax Income
Effect on Diluted EPS (after tax)
Dollar/euro
Effect on Pretax Income
Effect on Diluted EPS (after tax)
Euro/pound
Effect on Pretax Income
Effect on Diluted EPS (after tax)
As of December 31,
2009
2010
$1,233
$ 0.02
$5,585
$ 0.07
$
0
$ 0.00
$ 575
$ 0.01
$ 2,805
$ 0.03
$ 1,971
$ 0.02
Equity Price Risk
Zebra’s investment manager uses a variety of investment strategies, some of which
involve the use of equity securities. Zebra utilizes a Value-at-Risk (VaR) model to
determine the maximum potential one-day loss in the fair value of its interest rate,
foreign exchange and equity price sensitive instruments.
From time to time, Zebra has taken direct equity positions in companies. These
investments relate to potential acquisitions and other strategic business opportunities.
To the extent that it has a direct investment in the equity securities of another company,
Zebra is exposed to the risks associated with such investments. However, at the end of
2010 and 2009, Zebra held no equity positions.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedule of Zebra are annexed to this report as pages F-2
through F-30. An index to such materials appears on page F-1.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Not applicable.
31
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered
by this Form 10-K. The evaluation was conducted under the supervision of our Disclosure
Committee, and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and procedures
were effective to provide reasonable assurance that (i) the information required to be
disclosed by us in this Form 10-K was recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and (ii) information
required to be disclosed by us in our reports that we file or furnish under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our management assessed
the effectiveness of our internal control over financial reporting as of December 31, 2010.
In making this assessment, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Based on this assessment and those criteria, our management believes
that, as of December 31, 2010, our internal control over financial reporting is effective.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an
attestation report on Zebra’s internal control over financial reporting. Ernst & Young LLP’s
report is included on page 33 of this report on Form 10-K.
Changes in Internal Control over Financial Reporting
In January 2008, Zebra began a program to update substantially all of its key financial
systems. As portions of these systems are completed, they will be subject to the
requirements related to internal control over financial reporting. The requirements for
internal control over financial reporting are a fundamental element of the design and
implementation of these systems. As of January 1, 2010, we changed the functional
currency of our UK subsidiary from the pound to the U.S. dollar. As a result we modified
and enhanced our reconciliation and management review controls over this subsidiary.
The modified controls have been in effect since the conversion date. During 2010, we made
additional changes to our controls and procedures as part of our ongoing monitoring of
our controls. However, none of these changes has materially affected, or is reasonably
likely to materially affect, and there were no other changes that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal controls will
prevent or detect all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if any, within Zebra
have been prevented or detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on certain assumptions
about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Projections of
any evaluation of controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
32
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
of Zebra Technologies Corporation:
We have audited Zebra Technologies Corporation internal control over financial reporting
as of December 31, 2010, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Zebra Technologies Corporation’s management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, Zebra Technologies Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on the
COSO criteria.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Zebra Technologies Corporation as of December 31, 2010 and 2009, and the related
consolidated statements of earnings (loss), comprehensive income (loss), stockholders’
equity, and cash flows for each of the three years in the period ended December 31,
2010 and the schedule listed in the index at Item 15, our report dated February 24, 2011
expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Chicago, Illinois
February 24, 2011
33
Item 9B. Other Information
PART IV
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics for Senior Financial Officers that applies to Zebra’s
Chief Executive Officer, Chief Financial Officer and the Vice President, Finance. The Code
of Ethics is posted on the Investor Relations – Corporate Governance page of Zebra’s
Internet Web site, www.zebra.com, and is available for download. Any waiver from the
Code of Ethics and any amendment to the Code of Ethics will be disclosed on such page
of Zebra’s Web site.
All other information in response to this item is incorporated by reference from the Proxy
Statement sections entitled “Corporate Governance,” “Election of Directors,” “Board and
Committees of the Board,” “Executive Officers,” “Section 16(a) Beneficial Ownership
Reporting Compliance.”.”
Item 11. Executive Compensation
The information in response to this item is incorporated by reference from the Proxy
Statement sections entitled “Executive Compensation,” “Compensation Discussion and
Analysis,” “Director Compensation,” “Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee Report.”
Item 15. Exhibits, Financial Statement Schedules
The financial statements and schedule filed as part of this report are listed in the
accompanying Index to Financial Statements and Schedule. The exhibits filed as a part
of this report are listed in the accompanying Index to Exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 24th day of February 2011.
ZEBRA TECHNOLOGIES CORPORATION
By: /s/Anders Gustafsson
Anders Gustafsson
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, the report has
been signed below by the following persons in the capacities and on the dates indicated.
Signature
Title
/s/Anders Gustafsson
Anders Gustafsson
Chief Executive Officer and Director
(Principal Executive Officer)
/s/Gerhard Cless
Gerhard Cless
Executive Vice President,
Director
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
/s/Michael C. Smiley
Michael C. Smiley
Chief Financial Officer
(Principal Financial Officer)
The information in response to this item is incorporated by reference from the
Proxy Statement sections entitled “Ownership of our Common Stock” and “Equity
Compensation Plan Information.”
/s/Todd R. Naughton
Todd R. Naughton
Vice President, Finance
(Principal Accounting Officer)
/s/Michael A. Smith
Michael A. Smith
Director and Chairman of the
Board of Directors
Item 13. Certain Relationships and Related Transactions,
and Director Independence
The information in response to this item is incorporated by reference from the Proxy
Statement section entitled “Corporate Governance.”
Item 14. Principal Accounting Fees and Services
The information in response to this item is incorporated by reference from the Proxy
Statement section entitled “Fees of Independent Auditors.”
/s/Andrew Ludwick
Andrew Ludwick
/s/Ross W. Manire
Ross W. Manire
/s/Robert J. Potter
Robert J. Potter
/s/Richard Keyser
Richard Keyser
Director
Director
Director
Director
34
Date
February 24, 2011
February 24, 2011
February 24, 2011
February 24, 2011
February 24, 2011
February 24, 2011
February 24, 2011
February 24, 2011
February 24, 2011
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
The Board of Directors and Stockholders
of Zebra Technologies Corporation:
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Earnings (Loss) for the years ended
December 31, 2010, 2009, and 2008
Consolidated Statements of Comprehensive Income (Loss)
for the years ended December 31, 2010, 2009, and 2008
Consolidated Statements of Stockholders’ Equity
for the years ended December 31, 2010, 2009, and 2008
Consolidated Statements of Cash Flows
for the years ended December 31, 2010, 2009, and 2008
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-3
F-3
F-4
F-5
F-6
Financial Statement Schedule
The following financial statement schedule is included herein:
Schedule II - Valuation and qualifying Accounts
F-28
All other financial statement schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or related notes.
We have audited the accompanying consolidated balance sheets of Zebra Technologies
Corporation (the Company) as of December 31, 2010 and 2009, and the related
consolidated statements of earnings (loss), comprehensive income (loss), stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2010.
Our audits also included the financial statement schedule listed in the Index referenced in
Item 15. These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Zebra Technologies
Corporation at December 31, 2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31, 2010,
in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Zebra Technologies Corporation’s internal
control over financial reporting as of December 31, 2010, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 24, 2011
expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Chicago, Illinois
February 24, 2011
F-1
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Investments and marketable securities
Accounts receivable, net of allowances of
$2,161 in 2010 and $2,186 in 2009
Inventories, net
Deferred income taxes
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment at cost, net of
accumulated depreciation and amortization
Long term deferred income taxes
Goodwill
Other intangibles, net
Long term investments and marketable securities
Other assets
Total assets
December 31,
2010
December 31,
2009
December 31,
2010
December 31,
2009
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
47,476
$ 38,943
1,378
125,567
154,146
113,742
19,162
—
14,833
476,304
88,983
21,254
151,933
49,706
85,478
5,206
1,725
114,064
150,992
79,926
10,792
4,724
9,771
410,937
77,589
35,842
153,225
55,982
91,989
4,915
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes payable
Total current liabilities
Deferred rent
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock
Class A Common Stock
Additional paid-in capital
Treasury stock
Retained earnings
Accumulated other comprehensive income (loss)
$ 878,864
$ 830,479
Total stockholders’ equity
$ 35,304
$
28,137
68,090
26,757
5,900
136,051
2,406
10,375
148,832
—
722
129,715
(462,029)
1,070,973
(9,349)
730,032
52,591
24,082
—
104,810
4,108
9,432
118,350
—
722
136,104
(385,831)
969,195
(8,061)
712,129
Total liabilities and stockholders’ equity
$ 878,864
$ 830,479
See accompanying notes to consolidated financial statements.
F-2
ZEBRA TECHNOLOGIES CORPORATION
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Amounts in thousands, except per share data)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
Net sales
Net income (loss)
$ 101,778
$ 47,104
$ (38,421)
Net sales of tangible products
$855,269
$701,044
$871,587
Other comprehensive income (loss):
Year Ended December 31,
2009
2010
2008
Year Ended December 31,
2009
2010
2008
Revenue from services and software
Total net sales
Cost of sales
Cost of sales of tangible products
Cost of services and software
Total cost of sales
Gross profit
Operating expenses:
Selling and marketing
Research and development
General and administrative
Amortization of intangible assets
Litigation settlement
Exit, restructuring and integration costs
Asset impairment charges
Total operating expenses
Operating income (loss)
Other income (expense):
Investment income
Foreign exchange gain (loss)
Other, net
Total other income
Income (loss) before income taxes
Income taxes
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
101,579
956,848
455,007
40,972
495,979
460,869
122,689
101,930
79,710
9,573
(1,082)
4,197
—
317,017
143,852
2,681
(213)
(1,385)
1,083
144,935
43,157
102,541
803,585
401,727
41,137
442,864
360,721
105,113
976,700
452,208
45,187
497,395
479,305
102,535
126,325
86,390
81,395
10,466
—
12,191
(1,058)
291,919
68,802
2,933
(45)
(1,167)
1,721
70,523
23,419
95,800
81,644
18,575
(5,302)
20,009
157,600
494,651
(15,346)
1,281
3,518
(1,366)
3,433
(11,913)
26,508
$ 101,778
$ 1.78
$ 1.77
$ 47,104
$ 0.79
$ 0.79
$ (38,421)
$ (0.60)
$ (0.60)
Basic weighted average shares outstanding
57,143
59,306
64,524
Diluted weighted average and
equivalent shares outstanding
57,428
59,425
64,524
See accompanying notes to consolidated financial statements.
Unrealized gain/(loss) on hedging
transactions, net of income taxes
Unrealized holding gains/(losses)
on investments, net of income taxes
Foreign currency translation adjustment
(949)
(406)
67
19
5,750
737
3,972
Comprehensive income (loss)
$100,490
$51,832
See accompanying notes to consolidated financial statements.
(543)
(22,991)
$(56,205)
F-3
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance at December 31, 2007
Repurchase of 6,008,232 shares of Class A Common Stock
Issuance of 499,576 treasury shares upon exercise of stock options,
purchases under stock purchase plan and grants of restricted stock awards
Additional tax benefit resulting from exercise of options
Equity-based compensation
Net loss
Unrealized holding loss on investments (net of income taxes)
Unrealized holding gain on hedging transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2008
Repurchase of 3,173,182 shares of Class A Common Stock
Issuance of 691,176 treasury shares upon exercise of stock options,
purchases under stock purchase plan and grants of restricted stock awards
Additional tax benefit resulting from exercise of options
Equity-based compensation
Net income
Unrealized holding gain on investments (net of income taxes)
Unrealized holding gain on hedging transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2009
Repurchase of 3,349,286 shares of Class A Common Stock
Issuance of 765,078 treasury shares upon exercise of stock options,
purchases under stock purchase plan and grants of restricted stock awards
Additional tax benefit resulting from exercise of options
Equity-based compensation
Net income
Unrealized holding loss on investments (net of income taxes)
Unrealized holding loss on hedging transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2010
See accompanying notes to consolidated financial statements.
F-4
Class A
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Retained Comprehensive
Earnings
Income (Loss)
Total
$722
$ 141,522
$(205,058)
$ 960,512
$ 4,995
$902,693
—
—
—
—
—
—
—
—
—
(157,582)
(11,348)
(275)
14,962
—
—
—
—
18,493
—
—
—
—
—
—
—
—
—
—
(38,421)
—
—
—
—
—
—
—
—
(543)
5,750
(157,582)
7,145
(275)
14,962
(38,421)
(543)
5,750
(22,991)
(22,991)
$722
$144,861
$ (344,147)
$ 922,091
$(12,789)
$ 710,738
—
—
—
—
—
—
—
—
—
(65,445)
(18,789)
(1,435)
11,467
—
—
—
—
23,761
—
—
—
—
—
—
—
—
—
—
47,104
—
—
—
—
—
—
—
—
737
19
3,972
(65,445)
4,972
(1,435)
11,467
47,104
737
19
3,972
$722
$ 136,104
$(385,831)
$ 969,195
$ (8,061)
$ 712,129
—
—
—
—
—
—
—
—
—
(102,091)
(16,918)
(1,342)
11,871
—
—
—
—
25,893
—
—
—
—
—
—
—
—
—
—
101,778
—
—
—
—
—
—
—
—
(406)
(949)
67
(102,091)
8,975
(1,342)
11,871
101,778
(406)
(949)
67
$722
$ 129,715
$(462,029)
$1,070,973
$ (9,349)
$730,032
ZEBRA TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities:
Cash flows from investing activities:
Net income (loss)
$101,778
$47,104
$(38,421)
Purchases of property and equipment
(30,721)
(24,890)
(40,889)
Year Ended December 31,
2010
2009
2008
Year Ended December 31,
2010
2009
2008
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization
Equity-based compensation
Asset impairment charges
Impairment of investments
Excess tax benefit from
share-based compensation
Loss (gain) on sale of assets
31,209
11,871
—
—
(244)
(58)
32,913
11,467
(1,058)
958
(13)
829
38,581
14,962
157,600
7,271
(192)
(1,121)
Proceeds from sale of asset
Acquisition of businesses,
net of cash acquired
—
—
—
—
Acquisition of intangible assets
(3,497)
(425)
14,796
(18,588)
(1,384)
Purchases of investments
(382,091)
(329,292)
(723,791)
Maturities of investments
Proceeds from sales of investments
274,208
102,485
257,936
56,020
592,749
198,541
Net cash provided by (used in)
investing activities
(39,616)
(40,651)
21,434
Deferred income taxes
(1,347)
12,550
(23,138)
Cash flows from financing activities:
Changes in assets and liabilities,
net of businesses acquired:
Accounts receivable, net
Inventories, net
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes payable
Other operating activities
Net cash provided by
operating activities
(4,603)
(33,884)
(3,993)
6,619
15,386
3,414
16,980
(2,669)
8,747
22,315
(733)
(16,105)
(16,315)
4,966
(2,008)
81
(21,891)
(26,222)
(2,758)
17,891
1,429
11,281
(1,002)
4,012
140,459
105,698
138,282
Purchase of treasury shares
(102,091)
(65,445)
(157,582)
Proceeds from exercise of stock options
and stock purchase plan purchases
8,975
4,972
7,145
Excess tax benefit from
share-based compensation
244
13
192
Net cash used in financing activities
(92,872)
(60,460)
(150,245)
Effect of exchange rate changes on cash
562
1,089
(14,415)
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents
at beginning of year
Cash and cash equivalents at end of year
8,533
5,676
(4,944)
38,943
$ 47,476
33,267
$38,943
38,211
$33,267
Supplemental disclosures of cash flow information:
Income taxes paid
$26,563
$ 10,742
$49,092
See accompanying notes to consolidated financial statements.
F-5
ZEBRA TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description of Business
Zebra Technologies Corporation and its wholly-owned subsidiaries (Zebra) design,
manufacture, sell and support a broad range of direct thermal and thermal transfer label
printers, radio frequency identification printer/encoders, dye sublimation card printers,
real-time locating solutions, related accessories and support software. These products
are used principally in automatic identification (auto ID), data collection and personal
identification applications and are distributed world-wide through a network of resellers,
distributors and end users representing a wide cross-section of industrial, service and
government organizations.
In 2008 and 2007, we acquired WhereNet Corp., proveo AG, Navis Holdings, LLC and
Multispectral Solutions Inc., which we refer to as Zebra Enterprise Solutions Group
(ZES). In 2009 and 2008, we integrated these businesses into a single business group
and are reporting their results separately from our specialty printing business. Together,
these ZES companies give Zebra the ability to deliver more high-value applications that
help our customers identify, track and manage assets, transactions and people. The
solutions these companies provide are sold on a contract basis and are typically installed
over several quarters. These contracts cover a range of services, including design,
installation and ongoing maintenance services. On January 31, 2011, we announced a
definitive agreement to sell the Navis operations and certain other assets of ZES. Upon
completion of the transaction, which is expected to occur in the first quarter of 2011, we
will consolidate the remaining operations of ZES into Zebra’s SPG segment and no longer
report ZES as a separate segment, as the remaining ZES entities will not be material.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation. These consolidated financial statements were prepared on a
consolidated basis to include the accounts of Zebra and its wholly owned subsidiaries.
All significant intercompany accounts, transactions and unrealized profit were
eliminated in consolidation.
Fiscal Calendar. Zebra operates on a 4 week/4 week/5 week fiscal quarter, and each fiscal
quarter ends on a Saturday. The fiscal year always begins on January 1 and ends on
December 31. This fiscal calendar results in some fiscal quarters being either greater than
or less than 13 weeks, depending on the days of the week those dates fall. During the 2010
fiscal year, our quarter end dates were as follows:
• April 3,
• July 3,
• October 2, and
• December 31.
Use of Estimates. These consolidated financial statements were prepared using estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-6
Cash and Cash Equivalents. Cash consists primarily of deposits with banks. In addition,
Zebra considers highly liquid short-term investments with original maturities of less than
seven days to be cash equivalents.
Restricted Cash. Zebra has two types of restricted cash. In the Netherlands, we have an
agreement with the import authorities to place 1,000,000 in a bank deposit account, which
acts as security for the VAT payable. This deferment agreement allows Zebra to simply
quote our deferment number at import and quickly clear customs without the need to
pay VAT. The bank deposit account cannot be accessed or used without cancelling the
deferment agreement. The remaining restricted cash primarily collateralizes payroll
guarantees in a foreign jurisdiction.
Investments and Marketable Securities. Investments and marketable securities at
December 31, 2010, consisted of U.S. government and agency securities, state and
municipal bonds, corporate bonds, and other interests. Zebra classifies its debt and
marketable equity securities in one of three categories: trading, available-for-sale or held-
to-maturity. Trading securities are bought and held principally for the purpose of selling
them in the near term. Held-to-maturity securities are those debt 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. As of December 31, 2010,
our investments and marketable securities are classified as available-for-sale securities
except for those securities held in the deferred compensation plan which would be
considered trading securities. In addition, all investments in marketable debt securities
with maturities greater than one year are classified as long-term in the balance sheet due
to our ability and intent to hold them until maturity.
Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable consist
primarily of amounts due to us from our normal business activities. Collateral on trade
accounts receivable is generally not required. Zebra maintains an allowance for doubtful
accounts for estimated uncollectible accounts receivable. The allowance is based on
our assessment of known delinquent accounts. Accounts are written off against the
allowance account when they are determined to be no longer collectible.
Inventories. Inventories are stated at the lower of cost or market, and cost is determined
by the first-in, first-out (FIFO) method. Manufactured inventories consist of the following
costs: component, direct labor and manufacturing overhead. Purchased inventories
consist of purchased costs and purchasing overhead.
Property and Equipment. Property and equipment is stated at cost. Depreciation and
amortization is computed primarily using the straight-line method over the estimated
useful lives of the various classes of property and equipment, which are 30 years for
buildings and range from 3 to 10 years for other property. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or estimated
useful life of the asset.
Income Taxes. During 2008, we recognized an increase of approximately $4,000,000 in the
liability for unrecognized tax benefits related to an acquisition.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
Balance at January 1, 2008
Additions based on tax positions related to 2008
Additions based on tax positions related to 2009
Additions based on tax positions related to 2010
$ —
4,000
—
—
We evaluate the impairment of identifiable intangibles 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, and
Balance at December 31, 2010
$ 4,000
• Significant decline in market capitalization relative to net book value.
Zebra’s continuing practice is to recognize interest and penalties related to income tax
matters as part of income tax expense. For the years ended December 31, 2010 and
December 31, 2009, we did not accrue any interest or penalties into income tax expense.
Goodwill and Other Intangibles. Goodwill represents the unamortized excess of the
cost of acquiring a business over the fair values of the net assets received at the date of
acquisition. Goodwill is no longer being amortized, as required by ASC 350.
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 annual assessment during June 2010. At that time, no adjustment to goodwill was
necessary due to impairment. Due to economic conditions in late 2008, we performed an
additional assessment of our goodwill during December 2008 and found the goodwill of
our Zebra Enterprise Solutions Group to be impaired. See Note 7 for further information
related to goodwill impairment charges.
Goodwill of a reporting unit should be tested for impairment between annual tests if
an event occurs or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Examples of such events or
circumstances include:
• Significant adverse change in legal factors or in the business climate,
• Adverse action or assessment by a regulator,
• Unanticipated competition,
• Loss of key personnel,
• More-likely-than-not expectation that a reporting unit or a significant portion of a
reporting unit will be sold or otherwise disposed of,
• Testing for recoverability under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, of a significant asset group within a reporting unit,
• Recognition of a goodwill impairment loss in the financial statement of a subsidiary
that is a component of a reporting unit, or
• Allocation of a portion of goodwill to a business to be disposed of.
If we believe that one or more of the above indicators of impairment have occurred and
the undiscounted cash flow test has failed in the case of amortizable assets, we measure
impairment by comparing the carrying value of the asset group to its fair value, which
is estimated by using projected discounted cash flows and using a discount rate that
incorporates the risk inherent in the cash flows. Due to economic conditions in 2008,
we performed an assessment of our identifiable intangibles during December 2008 and
found that several of our identifiable intangible assets were impaired. See Note 7 for
further information related to asset impairment charges.
Other intangible assets capitalized consist primarily of current technology, customer
relationships and patents and patent rights. These assets are recorded at cost and
amortized on a straight-line basis over a weighted-average life of 5.0 years, which
approximates the estimated useful lives. Weighted average lives remaining by intangible
asset class are as follows: Current technology 3.1 years; Patent and patent rights 2.9
years; Customer relationships 9.5 years.
Revenue Recognition. Revenue includes sales of hardware, supplies, software and
services (including repair services, extended service contracts, and professional
services). Product revenue is recognized once four criteria are met: (1) we have
persuasive evidence that an arrangement exits; (2) delivery has occurred and title
has passed to the customer, which happens at the point of shipment provided
that no significant obligations remain; (3) the price is fixed and determinable; and
(4) collectability is reasonably assured. We provide for an estimate of product returns
based on historical experience. Revenue related to extended warranty and service
contracts is recorded as deferred revenue and recognized over the life of the contract.
Professional services revenue is recorded when performed. Zebra enters into sales
transactions that include more than one product type. This bundle of products might
include printers, current or future supplies, and services. When this type of transaction
occurs, we allocate the purchase price to each product type based on the fair value of the
individual products determined by vendor specific objective evidence. The revenue for
each individual product is then recognized when the earning process for that product is
complete. We enter into post-contract maintenance and support agreements. Revenues
are recognized ratably over the service period and the cost of providing these services is
expensed as incurred.
F-7
Zebra records payments to resellers of its product as reductions to revenue unless these
payments meet the requirements for operating expense treatment under ASC 605. See
the market development funds accounting policy for further details.
Revenue includes all customer billings for shipping and handling charges. The related
costs of shipping and handling revenue are recorded as cost of goods sold.
ZES has fixed fee software implementation projects, for which we use the percentage
of completion method for revenue recognition. Under this method of accounting, we
recognize revenue based on the ratio of costs incurred to total estimated costs. Contract
terms generally provide for progress billings on advance terms or based on completion
of certain phases of the work. At December 31, 2010, unbilled revenue was $7,401,000 and
receivables for contracts in progress included in accounts receivable were $12,291,000.
At December 31, 2009, unbilled revenue was $8,480,000 and receivables for contracts in
progress included in accounts receivable were $14,682,000.
Research and Development Costs. Research and development costs are expensed as
incurred. These costs include:
• Salaries, benefits, and other R&D personnel related costs,
• Consulting and other outside services used in the R&D process,
• Engineering supplies,
• Engineering related information systems costs, and
• Allocation of building and related costs.
Advertising. Advertising costs are expensed as incurred. Advertising expenses for
the years ended December 31, 2010, 2009 and 2008 totaled $7,115,000, $6,118,000 and
$7,318,000, respectively.
Market Development Funds. Zebra makes market development funds available to its
resellers to support demand generation activity by the resellers. These funds require the
reseller to provide specific services or benefits to Zebra and substantiate the fair value
of such services rendered. Zebra reimburses resellers for agreed activities up to the
amounts approved by Zebra. These payments are treated as marketing costs consistent
with the requirements of ASC 605. Any payments to resellers that do not meet these
requirements are recorded as reductions to revenue.
Warranty. In general, Zebra provides warranty coverage of one year on SPG printers
against defects in material and workmanship. SPG printheads are warranted for nine
months and batteries are warranted for twelve months. Warranty coverage for most ZES
hardware products is similar, with coverage periods ranging from 90 days to one year
depending on the nature of the product. Battery based products, such as location tags,
are covered by a 30 day warranty. For ZES software products, the warranty period is
generally 90 days and provides coverage against defects in material and workmanship
as well as performance materially in compliance with the accompanying documentation.
A provision for warranty expense is recorded at the time of shipment and adjusted
F-8
quarterly based on historical warranty experience. The following table is a summary of
Zebra’s accrued warranty obligation (in thousands):
Warranty Reserve
Balance at the beginning of the year
Warranty expense
Warranty payments
Balance at the end of the period
2010
$ 3,813
6,427
(5,686)
$ 4,554
Year Ended December 31,
2009
2008
$ 2,814
4,629
(3,630)
$ 3,813
$ 3,411
4,094
(4,691)
$ 2,814
In the European Union, we have an obligation to recycle printers. We reserve for this
obligation based on the number of new printers sold after August 13, 2005, and printers
sold prior to that date that are returned to us upon our sale of a new printer to a customer.
The following is a summary of Zebra’s accrued recycling obligation (in thousands):
Recycling Reserve
Balance at the beginning of the year
Recycling expense
Reserve adjustment
Recycling payments
Other adjustments
2010
$ 1,001
114
—
(8)
6
Year Ended December 31,
2009
2008
$ 1,207
324
(640)
(13)
123
$ 3,706
1,664
(3,757)
(3)
(403)
Balance at the end of the period
$ 1,113
$ 1,001
$ 1,207
During the second quarter of 2009 and 2008 we reviewed the environmental recycling
reserves based on our experience of providing for such reserves and decreased our
estimates as noted in the above schedule.
Fair Value of Financial Instruments. Zebra estimates the fair value of its financial
instruments as follows:
Instrument
Method for determining fair value
Cash, cash equivalents, restricted cash,
accounts receivable and accounts payable
Cost, which approximates fair value due to
the short-term nature of these instruments
Investments in marketable
debt securities
Investments in auction rate securities
Foreign currency forward contracts
Foreign currency option contracts
Market quotes from independent pricing
services
Broker quotations, discounted cash
flow analysis or other types of valuation
adjustment methodologies
Estimated using market quoted rates for
foreign currency at the balance sheet date
Estimated using market quoted rates for
foreign currency at the balance sheet date
and application of such rates subject to the
option terms
In accordance with ASC 815 we recognize derivative instruments and hedging activities
as either assets or liabilities on the balance sheet and measure them at fair value. Gains
and losses resulting from changes in fair value are accounted for depending on the use of
the derivative and whether it is designated and qualifies for hedge accounting. See Note
10 for additional information on our derivatives and hedging activities.
Equity-Based Compensation. At December 31, 2010, Zebra had a general equity-based
compensation plan and a stock purchase plan under which shares of our common stock
was available for future grants and sales, and which are described more fully in Note 15.
We account for these plans in accordance with ASC 505 and ASC 718. Zebra recognizes
compensation costs using the straight-line method over the vesting period of 1 month
to 5 years.
The compensation expense and the related income tax benefit for share-based payments
were included in the Consolidated Statement of Earnings (Loss) as follows (in thousands):
Compensation costs and
related income tax benefit:
Cost of sales
Selling and marketing
Research and development
General and administration
Acquisition integration expenses
Total compensation expense
Income tax benefit
Year Ended December 31,
2009
2010
2008
$ 1,216
$ 1,198
$ 1,206
2,010
1,610
7,035
—
$11,871
$ 4,095
1,954
1,709
6,606
—
$ 11,467
$ 3,956
2,849
2,426
8,083
398
$ 14,962
$ 5,162
ASC 505 and ASC 718 requires the cash flows resulting from the tax benefits from tax
deductions in excess of the compensation cost recognized (excess tax benefits) to be
classified as financing cash flows.
Deferred Compensation Plan. Zebra has a deferred compensation plan that permits
directors, management and highly compensated employees to defer portions of their
compensation. Zebra immediately pays deferred amounts into a Rabbi Trust, and plan
participants select a method of investing these funds into hypothetical investments.
Zebra tracks the performance of these hypothetical investments in order to determine
the value of each participant’s deferral. Zebra accrues the deferred compensation liability
in other long-term liabilities as the amount that is actually owed to the participants.
Foreign Currency Translations. The consolidated balance sheets of Zebra’s foreign
subsidiaries, not having a U.S. dollar functional currency, are translated into U.S. dollars
using the year-end exchange rate, and statement of earnings items are translated using
the average exchange rate for the year. The resulting translation gains or losses are
recorded in stockholders’ equity as a cumulative translation adjustment, which is a
component of accumulated other comprehensive income (loss).
Acquisition Costs. Zebra periodically has external expenditures related to potential
acquisitions. During 2008 and previously, these expenditures were recorded as prepaid
expenses until such time as Zebra either completed the transaction or abandoned the
transaction. If the transaction completed, the costs were treated as part of the cost of
the acquisition. If the transaction was abandoned, the costs were expensed during the
period in which it was abandoned. In 2009, Zebra expensed these costs as incurred in
accordance with the adoption of ASC 805.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. Zebra
accounts for long-lived assets in accordance with the provisions of ASC 350. The
statement requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the sum of the
undiscounted cash flows expected to result from the use and the eventual disposition of
the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. See Note 7 for further information related to
impairment charges.
Recently Issued Accounting Pronouncements. In October 2009, the FASB issued update
2009-13, ASC 605, Revenue Recognition: Multiple –Deliverable Revenue Arrangements-a
consensus of the FASB Emerging Issues Task Force. The revised guidance provides for
two significant changes to existing multiple element arrangement guidance. The first
relates to the determination of when the individual deliverables included in a multiple-
element arrangement may be treated as separate units of accounting. This change is
significant as it will likely result in the requirement to separate more deliverables within
an arrangement, ultimately leading to less revenue deferral. The second change modifies
the manner in which the transaction consideration is allocated across the separately
identifiable deliverables. These changes are likely to result in earlier recognition of
revenue for multiple-element arrangements than under previous guidance. This standard
is effective prospectively for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010. This standard will not have a material
effect upon our consolidated financial statements andard did not have a significant effect
upon our consolidated financial statements.
In October 2009, the FASB issued update 2009-14, ASC 985, Software: Certain Revenue
Arrangements That Include Software Elements – a consensus of the FASB Emerging
Issues Task Force. This updated guidance is expected to significantly affect how entities
account for revenue arrangements that contain both hardware and software elements.
This standard is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010. This standard
will not have a material effect upon our consolidated financial statements.
F-9
In January 2010, the FASB issued update 2010-06, ASC 820, Fair Value Measurements
and Disclosures: Improving Disclosures about Fair Value Measurements. This updated
guidance requires new disclosures related to transfers in and out of Levels 1 and 2.
The standard also provides guidance on the disclosures related to Level 3 activities. In
addition, existing disclosures related to disaggregation levels and disclosures about
inputs and valuation techniques are clarified. This standard is effective for interim and
annual periods beginning after December 15, 2009. This standard did not have a material
effect upon our consolidated financial statements.
In December 2010, the FASB issued update 2010-28, ASC 350, Intangibles – Goodwill
and Other: When to Perfrom Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task
Force). This updated guidance requires entities with reporting units with zero or negative
carrying amounts to perform and additional test to determine if goodwill has been
impaired and to calculate the amount of impairment (Step 2). This standard is effective
for interim and annual periods beginning after December 15, 2010. This standard will not
have a material effect upon our consolidated financial statements.
In December 2010, the FASB issued update 2010-29, ASC 805, Business Combinations:
Disclosure of Supplementary Pro Forma Information for Business Combinations (a
consensus of the FASB Emerging Issues Task Force). The standard provides updated
guidance on the disclosures related to business combinations. This standard is effective
for interim and annual periods beginning after December 15, 2010. This standard will not
have a material effect upon our consolidated financial statements.
Reclassifications. Certain amounts in the prior years’ financial statements have been
reclassified to conform to the current year’s presentation. Selling and marketing
expenses of $2,336,000 and research and development expenses of $1,301,000 for the
year ended December 31, 2009 have been reclassified from general and administrative
expenses. Selling and marketing expenses of $4,890,000 and research and development
expenses of $1,351,000 for the year ended December 31, 2008 have been reclassified from
general and administrative expenses to realign Zebra’s SPG product management group.
Prior period amounts will differ in these categories from amounts previously reported.
Subsequent events. We have evaluated subsequent events and transactions for potential
recognition or disclosure in the financial statements through the date the financial
statements were issued. See Note 23 Subsequent Events.
Note 3 Fair Value Measurements
Financial assets and liabilities are to be measured using inputs from three levels of the
fair value hierarchy. Fair value is based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Zebra uses a fair value hierarchy that prioritizes observable
and unobservable inputs used to measure fair value into three broad levels:
Level 1: quoted prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives
the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets,
but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, we utilize valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent possible
as well as consider counterparty credit risk in the assessment of fair value.
Included in our investment portfolio are three auction rate security instruments. These
instruments are classified as available-for-sale securities and are reflected at fair value.
Due to events in credit markets, however, the auction events for the instruments held by
Zebra as of December 31, 2010, are failed. Therefore, the fair values of these securities
are estimated utilizing broker quotations, discounted cash flow analysis or other
types of valuation adjustment methodologies at December 31, 2010. These analyses
consider, among other items, the collateral underlying the security instruments, the
creditworthiness of the counterparty, the timing of expected future cash flows, estimates
of the next time the security is expected to have a successful auction, and Zebra’s intent
and ability to hold such securities until credit markets improve. These securities were also
compared, when possible, to other securities with similar characteristics. In June 2010,
one of the four auction rate securities held at the end of 2009 was called by the issuer and
redeemed at par value. Zebra received proceeds in the amount of $1,650,000 and adjusted
other comprehensive income by $200,000. See Level 3 table below for more details.
Of the three auction rate security instruments still held, Zebra deemed one to be other
than temporarily impaired and recorded the market value decline in 2008. The decline in
the market value of the other securities is considered temporary and has been recorded
in accumulated other comprehensive income (loss) on Zebra’s balance sheet. Since Zebra
has the intent and ability to hold these securities until they are sold at auction, redeemed
at carrying value or reach maturity, we have classified them as long-term investments on
the balance sheet.
F-10
Financial assets and liabilities carried at fair value as of December 31, 2010, are classified
below (in thousands):
Financial assets and liabilities carried at fair value as of December 31, 2009 are classified
below (in thousands):
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 21,318
$ —
$ —
$ 21,318
$ 12,811
$ —
$ —
$ 12,811
Assets:
U.S. government and
agency securities
Obligations of government-
sponsored enterprises (1)
State and municipal bonds
Corporate securities
Other investments
Investments subtotal
205,448
Forward contracts(2)
Money market investments
related to the deferred
compensation plan
3,275
3,427
—
—
—
—
—
—
—
5,785
131,626
46,683
36
—
5,785
134,309
49,597
2,683
2,914
—
Assets:
U.S. government and
agency securities
Obligations of government-
sponsored enterprises (1)
State and municipal bonds
Corporate securities
10,666
161,839
13,654
36
36
Other investments
5,597
211,045
Investments subtotal
199,006
—
—
3,275
Forward contracts(2)
Money market investments
related to the deferred
compensation plan
3,427
851
3,155
—
—
—
—
—
—
—
—
10,666
4,133
2,914
—
165,972
16,568
36
7,047
206,053
—
—
851
3,155
Total assets at fair value
$ 212,150
$ —
$ 5,597
$ 217,747
Total assets at fair value
$ 203,012
$ —
$ 7,047
$210,059
Liabilities:
Liabilities:
Liabilities related to the
deferred compensation plan
$ 3,427
Total liabilities at fair value $ 3,427
$ —
$ —
$ —
$ 3,427
$ —
$ 3,427
Liabilities related to the
deferred compensation plan
$
3,155
Total liabilities at fair value $
3,155
$ —
$ —
$ —
$ 3,155
$ —
$ 3,155
1) Includes investments in notes issued by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association and the Federal Home Loan Bank.
2) The fair value of forward contracts are calculated as follows:
a. Fair value of forward collar contract associated with forecasted sales hedges are calculated using the midpoint
of ask and bid rates for similar contracts.
b. Fair value of regular forward contracts associated with forecasted sales hedges are calculated using the period-
end exchange rate adjusted for the discount rate (3 month LIBOR rate).
c. Fair value of balance sheet hedges are calculated at the period end exchange rate adjusted for current forward
points unless the hedge has been traded but not settled at period end. If this is the case, the fair value is
calculated at the rate at which the hedge is being settled.
F-11
The following table presents Zebra’s activity for assets measured at fair value on a
recurring basis using significant unobservable inputs, Level 3 as defined in ASC 820 for
the years ended December 31 (in thousands):
Year Ended,
December 31, December 31,
2009
2010
U.S. government and
agency securities
As of December 31, 2009
Gross
Amortized Unrealized Unrealized
Losses
Gross
Gains
Cost
Estimated
Fair
Value
$ 12,931
$
45
$
(165)
$ 12,811
Balance at beginning of the year
Transfers to Level 3
Total losses (realized or unrealized):
Included in earnings
Included in other comprehensive income (loss)
Purchases and settlements (net)
Balance at end of period
Total gains and (losses) for the period included
in earnings attributable to the change in unrealized
losses relating to assets still held at end of period
$ 7,047
—
—
200
(1,650)
$5,597
$7,047
—
—
—
—
$7,047
$ —
$ —
Obligations of government-
sponsored enterprises
10,589
82
(5)
10,666
State and municipal bonds
165,366
1,177
(571)
165,972
Corporate securities
Other investments
16,680
306
(418)
16,568
36
—
—
36
Total investments
$ 205,602
$ 1,610
$
(1,159)
$ 206,053
The maturity dates of investments as of December 31, 2010 are as follows (in thousands):
As of December 31, 2010 and December 31, 2009, there were no other Level 3 unrealized
losses that Zebra believes to be other-than-temporary. No realized gains or losses were
recorded for the years ended December 31, 2010, 2009 and 2008.
The following is a summary of short-term and long-term investments at December 31,
2010 and December 31, 2009 (in thousands):
As of December 31, 2010
Less than 1 year
1 to 5 years
6 to 10 years
Thereafter
Total
Gross
Amortized Unrealized Unrealized
Losses
Gross
Gains
Cost
Estimated
Fair
Value
The carrying value for Zebra’s financial instruments classified as current assets
(other than short-term investments) and current liabilities approximate fair value
due to short maturities.
U.S. government and
agency securities
Obligations of government-
sponsored enterprises
State and municipal bonds
Corporate securities
Other investments
Total investments
$ 21,226
$
98
$
(6)
$ 21,318
5,731
134,370
49,884
36
$ 211,247
54
402
199
—
$ 753
—
5,785
(463)
134,309
(486)
49,597
—
36
$ (955)
$ 211,045
F-12
Amortized
Cost
Estimated
Fair
Value
$ 125,292
$ 125,567
85,216
84,725
739
—
753
—
$ 211,247
$ 211,045
Note 4 Investments and Marketable Securities
We classify our investments in marketable debt securities as available-for-sale. As of
December 31, 2010, all of our investments in marketable debt securities with maturities
greater than one year are classified as long-term in the balance sheet due to our ability
to hold them until maturity.
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 statement of cash flows, changes in the balances of available-for-sale
securities are shown as purchases, sales and maturities of investments and marketable
securities under investing activities.
Changes in market value of trading securities would be 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.
Changes in unrealized gains and losses on available-for-sale securities are included in
these financial statements as follows (in thousands):
Year Ended December 31,
2010
2009
2008
Changes in unrealized gains and losses
on available-for-sale securities, net of tax,
recorded in accumulated other
comprehensive income (loss)
$(406)
$737
$(543)
The following table shows the number, aggregate market value and unrealized losses (in thousands) of investments with market values that were less than amortized cost as of
December 31, 2010. These lower market values are primarily caused by fluctuations in credit spreads. Market values are expected to recover to the amortized cost prior to maturity.
Government securities
State and municipal bonds
Corporate Securities
Total
Unrealized Loss < 12 months
Unrealized Loss > 12 months
Number
of investments
Aggregate
Market Value
–
10
3
13
$ —
17,707
4,029
$21,736
Unrealized
Losses
$ —
(6)
(8)
$ (14)
Number of
investments
Aggregate
Market Value
1
13
12
26
$ 610
20,461
13,850
$34,921
Unrealized
Losses
$ (6)
(457)
(478)
$ (941)
As of December 31, 2009, the number, aggregate market value and unrealized losses (in thousands) of investments with market values that were less than amortized cost were:
Unrealized Loss < 12 months
Unrealized Loss > 12 months
Number
of investments
Aggregate
Market Value
Unrealized
Losses
Number of
investments
Aggregate
Market Value
Unrealized
Losses
Government securities
State and municipal bonds
Corporate Securities
Total
12
3
2
17
$ 5,511
5,580
4,187
$15,278
$ (164)
(1)
(413)
$(578)
2
15
2
19
$ 2,361
19,145
1,391
$22,897
$ (7)
(570)
(5)
$ (582)
F-13
Using the specific identification method, the proceeds and realized gains on the sales of
available-for-sale securities were as follows (in thousands):
Other items related to property and equipment are as follows (in thousands):
Proceeds
Realized gains
Realized losses
Net realized losses included in other
comprehensive income (loss)
as of the end of the prior year
2010
2009
2008
$102,485
$56,020
$165,177
Unamortized computer software costs
458
(198)
260
(219)
376
(901)
December 31,
2010
$ 17,509
2009
$21,545
Year Ended December 31,
2009
2010
2008
(264)
(26)
(441)
Total depreciation expense charged to income 21,636
Amortization of capitalized software
$ 5,624
$ 6,212
22,447
$ 5,058
20,006
Note 5 Inventories
The components of inventories are as follows (in thousands):
Note 7 Goodwill and Other Intangible Asset Data
Intangible asset data are as follows (in thousands):
Raw material
Work in process
Deferred costs of long-term contracts
Finished goods
Total inventories, gross
Inventory reserves
Total inventories, net
As of December 31,
2010
2009
$ 33,441
$27,953
171
482
89,485
123,579
(9,837)
162
1,937
58,928
88,980
(9,054)
Amortized intangible assets
Current technology
Patent and patent rights
Customer relationships
Total
As of December 31, 2010
Gross Accumulated
Amount Amortization
Net
Amount
$31,846
$ (20,743)
17,160
44,670
(9,351)
(13,876)
$93,676
$(43,970)
$ 11,103
7,809
30,794
$49,706
$113,742
$79,926
Amortization expense for the
year ended December 31, 2010
$ 9,573
Note 6 Property and Equipment
Property and equipment, which includes assets under capital leases, is comprised of the
following (in thousands):
Buildings
Land
Machinery, equipment and tooling
Furniture and office equipment
Computers and software
Automobiles
Leasehold improvements
Projects in progress – computers and software
Projects in progress – other
Less accumulated depreciation and amortization
Net property and equipment
F-14
December 31,
2010
2009
$ 2,036
$ 2,036
471
77,873
11,695
81,306
20
12,924
26,844
10,600
320
74,311
11,191
81,096
20
11,637
11,594
3,275
223,769
(134,786)
195,480
(117,891)
$ 88,983
$ 77,589
During the second quarter of 2010, Zebra entered into an agreement with an international
technology provider to acquire patents and patent rights related to card printer solutions
technology. The agreement required total consideration in the amount of approximately
$3,047,000 or €2,400,000, of which Zebra has paid in full through the end of 2010. This
agreement provides Zebra with a new distribution partner and enhanced technology
solutions and software.
Amortized intangible assets
Current technology
Patent and patent rights
Customer relationships
Total
Amortization expense for the
year ended December 31, 2009
As of December 31, 2009
Gross Accumulated
Amount Amortization
Net
Amount
$32,038
$ (17,071)
$14,967
13,663
44,822
(6,774)
(10,696)
6,889
34,126
$90,523
$ (34,541)
$55,982
$ 10,466
Estimated amortization expense:
For the year ended December 31, 2011
$ 9,553
For the year ended December 31, 2012
For the year ended December 31, 2013
For the year ended December 31, 2014
For the year ended December 31, 2015
Thereafter
Total
8,899
7,550
4,511
3,797
15,396
$ 49,706
During the fourth quarter of 2008, we determined that certain impairment indicators
existed related to identified intangible assets and conducted an additional impairment
test of intangibles. Due to the deterioration of the economy and a significant reduction in
the price of our stock, we determined that our goodwill and other intangible assets were
impaired requiring total estimated impairment charges of $157,600,000 at December 31,
2008. (The portion of the goodwill associated with our ZES segment included in the
estimated impairment charge was $113,679,000). Upon completion of a detailed second
step impairment analysis we recorded a credit of $1,495,000 in the second quarter of 2009
to adjust a portion of our original goodwill impairment for ZES. In addition, we recorded
an impairment charge for a ZES intangible asset or $437,000.
Certain of our intangible assets including goodwill are denominated in foreign currency
and, as such, include the effects of foreign currency translation.
We performed our annual impairment test in June 2010 and determined that our goodwill
was not impaired as of the end of May 2010.
Unamortized intangible assets
Goodwill at gross cost
Impairment charges
Foreign exchange impact
Goodwill
December 31, December 31,
2009
2010
$265,799
(112,184)
(1,682)
$ 265,799
(112,184)
(390)
$ 151,933
$ 153,225
We test goodwill for impairment on an annual basis or more frequently if we believe
indicators of impairment exist. Factors considered that may trigger an impairment review
consist of:
• Significant underperformance relative to 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
perform an impairment test. The performance of the test involves a two-step process.
The first step of the impairment test involves comparing the fair values of the applicable
reporting units with their aggregate carrying values, including goodwill. We generally
determine the fair value of our reporting units using three valuation methods: Income
Approach – Discounted Cash Flow Analysis, Market Approach – Guideline Public Company
Method and Market Approach – Comparative Transactions Method. If the carrying amount
of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of
the goodwill impairment test to determine the amount of impairment loss. The second
step of the goodwill impairment test involves comparing the implied fair value of the
affected reporting unit’s goodwill with the carrying value of that goodwill. See detailed
discussion on Valuation of Goodwill, Long-Lived and Other Intangible Assets in the Critical
Accounting Policies and Estimates Section of Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations of this Form 10-K.
Changes in the net carrying value amount of goodwill were as follows (in thousands):
ZES
SPG
Total
Goodwill at December 31, 2008
$80,837
$ 70,519
$151,356
Impairment reversal
Foreign exchange impact
1,495
304
—
70
1,495
374
Goodwill at December 31, 2009
$82,636
$70,589
$153,225
Impairment reversal
Foreign exchange impact
—
(1,292)
—
—
—
(1,292)
Goodwill at December 31, 2010
$81,344
$70,589
$151,933
During 2010, we acquired intangible assets in the amount of $3,497,000 for patents and
other intellectual property. During 2009, we acquired intangible assets in the amount
of $425,000 for patent rights. These intangible assets have an estimated useful life of 2
to 9 years. In conjunction with our goodwill impairment testing in 2008, we also tested
our identifiable intangible assets and found several of them to be impaired resulting in
an additional impairment charge of $28,937,000 to our ZES segment and $14,680,000 to
our SPG segment. The intangible asset impairment charges in our SPG segment in were
related primarily to radio frequency identification patents and patent rights. The intangible
asset impairment charges in our ZES segment were related to customer relationships,
technology, third party technology licenses and non-competition agreements.
Note 8 Other Assets
Other assets consist of the following (in thousands):
Money market investments related to the
deferred compensation plan (See Note 16)
Long-term equity securities
Deposits
Other long-term assets
Total
December 31,
2010
2009
$3,427
$3,155
527
1,194
58
532
1,120
108
$5,206
$4,915
F-15
Note 9 Costs Associated with Exit or Disposal Activities
During 2008, we initiated two different plans to close facilities. These plans are being
accounted for under ASC 420.
In January 2008, we initiated a plan to close our supplies manufacturing plant in Warwick,
Rhode Island and transfer operations to a new facility in Flowery Branch, Georgia. This
transition was completed during the second quarter of 2008. We do not expect to incur
any further costs associated with this plan.
Costs incurred and included in the December 31, 2008 results were (in thousands):
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Other exit costs
Total
2008
$ 341
261
$ 602
Also in 2008, we announced plans to establish regional distribution and configuration
centers, consolidate our supplier base, and transfer final assembly of thermal printers
to Jabil Circuit, Inc., a global third-party electronics manufacturer. These actions
are intended to optimize our global printer product supply chain by improving
responsiveness to customer needs and increasing Zebra’s flexibility to meet emerging
business opportunities. All printer manufacturing in our Vernon Hills, Illinois, and
Camarillo, California, facilities have been transferred to Jabil’s facility in Guangzhou,
China as of December 31, 2010.
As of December 31, 2010, we have incurred the following exit costs (in thousands):
Cost incurred
through
Costs incurred
Total costs
for the
incurred as of
year ended
December 31, December 31, December 31,
2010
2009
2010
For the year ended December 31, 2010, we have incurred the following exit costs by
segment (in thousands):
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Professional services
Relocation and transition costs
Other exit costs
Total
Specialty
Printing Group
(SPG) costs
Zebra
Total costs
incurred for
Enterprise the year ended
Solutions December 31,
2010
(ZES) costs
$ 94
140
1,959
0
$ 511
1,225
0
268
$ 2,193
$2,004
$ 605
1,365
1,959
268
$ 4,197
For the year ended December 31, 2009, we incurred the following exit costs by segment
(in thousands):
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Professional services
Relocation and transition costs
Other exit costs
Total
Specialty
Printing Group
(SPG) costs
Zebra
Total costs
incurred for
Enterprise the year ended
Solutions December 31,
2009
(ZES) costs
$2,356
$ 969
$3,325
485
5,140
0
5
0
30
490
5,140
30
$ 7,981
$1,004
$8,985
Liabilities and expenses related to exit activities were as follows (in thousands):
$ 7,633
$ 605
$ 8,238
5,915
8,802
30
1,365
1,959
268
7,280
10,761
298
$22,380
$4,197
$26,577
Balance at beginning of period
Charged to earnings
Cash paid
Balance at the end of period
Year Ended,
December 31, December 31,
2009
2010
$ 3,038
4,197
(5,534)
$ 1,701
$ 6,378
8,985
(12,325)
$ 3,038
Liabilities related to exit activities are included in the accrued liabilities line item on the
balance sheet. All current exit costs are included in operating expenses for our SPG
segment under the line item exit, restructuring and integration costs.
Also included in the line item exit, restructuring and integration costs are expenses
related to an integration project to combine our acquisitions of WhereNet Corp., proveo
AG, Navis Holdings, LLC, and Multispectral Solutions, Inc., to form our ZES segment.
Expenses related to integrating these businesses totaled $3,206,000 for the year ended
December 31, 2009, and $3,359,000 for the year ended December 31, 2008.
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Professional services
Relocation and transition costs
Other exit costs
Total
F-16
On January 31, 2011, Zebra announced that it will sell its Navis Holdings, LLC business
unit to a third party. See Note 23 Subsequent events for further details. Zebra incurred
costs in 2010 related to consulting and professional fees in order to prepare for the sale of
this unit. Costs incurred related to the future disposition of $1,153,000 have been included
in the exit, restructuring and integration costs line item for 2010.
Forward Contracts
We record our forward contracts at fair value on our consolidated balance sheet as
either long-term other assets or long-term other liabilities depending upon the fair value
calculation as detailed in Note 3 of Zebra’s financial statements. The amounts recorded
on our consolidated balance sheets are as follows (in thousands):
Note 10 Derivative Instruments
In the normal course of business, portions of our operations are subject to fluctuations
in currency values. We manage these risks using derivative financial instruments. We
conduct business on a multinational basis in a wide variety of foreign currencies. Our
exposure to market risk for changes in foreign currency exchange rates arises from
international financing activities between subsidiaries, foreign currency denominated
monetary assets and liabilities and transactions arising from international trade. Our
objective is to preserve the economic value of non-functional currency denominated
cash flows. We attempt to hedge transaction exposures with natural offsets to the fullest
extent possible and, once these opportunities have been exhausted, through foreign
exchange forward and option contracts with third parties.
Credit and market risk
Financial instruments, including derivatives, expose us to counter party credit risk for
nonperformance and to market risk related to interest and currency exchange rates.
We manage our exposure to counterparty credit risk through specific minimum credit
standards, diversification of counterparties, and procedures to monitor concentrations
of credit risk. Our counterparties in derivative transactions are commercial banks with
significant experience using derivative instruments. We monitor the impact of market
risk on the fair value and cash flows of our derivative and other financial instruments
considering reasonably possible changes in interest rates and currency exchange rates
and restrict the use of derivative financial instruments to hedging activities. We continually
monitor the creditworthiness of our customers to which we grant credit terms in the
normal course of business. The terms and conditions of our credit sales are designed to
mitigate or eliminate concentrations of credit risk with any single customer. Our sales are
not materially dependent on a single customer or a small group of customers.
Fair Value of Derivative Instruments
Zebra has determined that derivative instruments for hedges that have traded but have
not settled are considered Level 1 in the fair value hierarchy, and hedges that have not
traded are considered Level 2 in the fair value hierarchy. Derivative instruments are used
to manage risk and are not used for trading or other speculative purposes, nor do we use
leveraged derivative financial instruments. Our foreign currency exchange contracts are
valued using broker quotations or market transactions, in either the listed or over-the-
counter markets.
Hedging of Net Assets
We use forward contracts to manage exposure related to our pound and euro
denominated net assets. Forward contracts typically mature within three months after
execution of the contracts. We record gains and losses on these contracts and options in
income each quarter along with the transaction gains and losses related to our net asset
positions, which would ordinarily offset each other.
Assets:
Other assets
Total
Liabilities:
Other long-term liabilities
Total
As of
December 31, December 31,
2009
2010
$ 3,275
$ 3,275
$ 851
$ 851
$ —
$ —
$ —
$ —
Summary financial information related to these activities included in our consolidated
statement of earnings as other income (expense) is as follows (in thousands):
Change in losses from foreign
exchange derivatives
Year Ended December 31,
2009
2010
2008
$ 5,074
$ (512)
$ (13,196)
Gain (loss) on net foreign currency assets
(5,287)
467
16,714
Net foreign exchange gain (loss)
$ (213)
$ (45)
$ 3,518
December 31, December 31, December 31,
2008
2009
2010
Notional balance of outstanding contracts:
Euro
Pound
Euro/Pound
€ 46,307
£ 6,162
€ —
€ 37,042
£ 7,476
€ —
€ 18,500
£ 5,000
€ 17,000
Net fair value of outstanding contracts
$
667
$
(6)
$ (2,414)
Hedging of Anticipated Sales
We can manage the exchange rate risk of anticipated euro-denominated sales using
purchased options, forward contracts, participating forwards and options. We designate
these contracts as cash flow hedges which mature within twelve months after the
execution of the contracts. Gains and losses on these contracts are deferred in other
comprehensive income until the contracts are settled and the hedged sales are realized,
the deferred gains or losses will then be reported as an increase or decrease to sales.
F-17
Summary financial information related to the cash flow hedges is as follows (in thousands):
Net unrealized gains (losses) deferred
in other comprehensive income:
Gross
Income tax benefit
Net
As of
December 31, December 31,
2009
2010
$ (1,522)
$ 31
(573)
12
$ (949)
$ 19
Summary financial information related to the cash flow hedges of future revenues follows
(in thousands, except percentages):
Notional balance of outstanding contracts
versus the dollar
Hedge effectiveness
As of
December 31, December 31,
2009
2010
€ 82,800
100%
—
—
Year ended December 31,
2010
2009
2008
Net gain and (losses) included in revenue
$ (630)
$ 603
$(12,354)
Note 11 Commitments and Contingencies
Leases. Minimum future obligations under all non-cancelable operating leases as of
December 31, 2010 are as follows (in thousands):
Operating Leases
2011
2012
2013
2014
2015
Thereafter
Total minimum lease payments
$ 12,269
10,450
8,904
5,078
2,830
8,486
$ 48,017
Rent expense for operating leases charged to operations was as follows (in thousands):
Year Ended December 31,
2009
2010
2008
$13,367
$13,312
$ 15,695
Rent expense
F-18
The operating lease information includes a variety of properties around the world. These
properties are used as manufacturing facilities, distribution centers and sales offices.
Lease terms range from one year to 17 years with breaking periods specified in the lease
agreements.
Letters of Credit. In connection with various customer contracts, Zebra has entered into
four letters of credit agreements with a bank. The contingent liability of Zebra under
these agreements as of December 31, 2010, is $1,781,000. See below for letters of credit
related to our revolving credit agreement.
Revolving Credit Agreement. On August 14, 2008, Zebra entered into a revolving credit
agreement for a five-year $100 million revolving credit facility. The funds under this credit
facility are available for general corporate purposes of Zebra and its subsidiaries in the
ordinary course of business and other purposes permitted by the agreement.
This credit agreement is guaranteed by certain of Zebra’s domestic subsidiaries. Loans
under the agreement bear interest at a rate equal to the prime rate or a spread over the
applicable LIBOR rate, as selected by Zebra. This spread for LIBOR-based loans depends
on our ratio of Total Debt to EBITDA, as defined in the agreement, and ranges from 0.50%
to 1.25%. The spread in effect at closing for LIBOR-based loans was 0.50%.
The credit agreement includes customary representations, warranties, affirmative
and negative covenants (including, among others, restrictions on the payment of cash
dividends) and events of default (and related remedies, including acceleration and
increased interest rates following an event of default). It also contains financial covenants
tied to Zebra’s leverage ratio and fixed charge coverage ratio. As of December 31, 2010,
we had established letters of credit amounting to $3,858,000, which reduce the funds
available for borrowing under the agreement. As of December 31, 2010 and 2009, no
amounts were outstanding under the credit agreement.
Legal Proceedings. On April 9, 2008, a complaint was filed in the U.S. District Court for the
Northern District of Illinois by Barcode Informatica, Ltd. (“Barcode”), a former Brazilian
reseller, against Zebra. The complaint alleges that Zebra wrongfully terminated Barcode’s
reseller status and tortiously interfered with Barcode’s alleged bid for the sale of printers
to a Brazilian customer. Barcode’s claim seeks an unspecified amount of damages.
Discovery in the case is on-going and we expect that a trial will occur in the second half of
2011. Zebra is vigorously defending this action, believes that Barcode’s claims are without
merit and that the matter will not have a material adverse impact on our business.
We are subject to a variety of investigations, claims, suits and other legal proceedings
that arise from time to time in the ordinary course of business, including but not limited
to, intellectual property, employment, tort and breach of contract matters. We currently
believe that the outcomes of such proceedings, individually and in the aggregate, will
not have a material adverse impact on our business, cash flows, financial position, or
results of operations. Any legal proceedings are subject to inherent uncertainties, and
management’s view of these matters and their potential effects may change in the future.
Note 12 Savings and Profit Sharing Plans
Zebra has a Retirement Savings and Investment Plan (401(k) Plan), which is intended
to qualify under Section 401(k) of the Internal Revenue Code. During the first quarter of
2009, Zebra announced changes to its 401(k) Plan, profit sharing plan and stock purchase
plan. qualified employees may participate in Zebra’s 401(k) Plan by contributing up
to 15% of their gross earnings to the plan subject to certain Internal Revenue Service
restrictions. Effective March 1, 2009, Zebra reduced the company match to each
participant’s contribution from 6% of gross eligible earnings at the rate of 50%, to 3% of
gross eligible earnings at the rate of 50%. Effective January 1, 2010, Zebra increased the
company match to each participant’s contribution to a total of 4%. Zebra will match 100%
of the first 2% of gross eligible earnings, and also match the next 4% of gross eligible
earnings at the rate of 50%. Zebra may contribute additional amounts to its 401(k) Plan at
the discretion of the Board of Directors, subject to certain legal limits.
Zebra has a discretionary profit-sharing plan for qualified employees, to which it
contributes a percentage of eligible payroll each year. In 2009, Zebra announced that it
was suspending any further contributions to the profit sharing plan until further notice.
Participants are not permitted to make contributions under the profit-sharing plan.
Company contributions to these plans, which were charged to operations, approximated
the following (in thousands):
401(k)
Profit sharing
Total
Year Ended December 31,
2009
2008
$ 2,210
145
$2,355
$ 4,156
1,748
$5,904
2010
$4,586
0
$4,586
Percentage of eligible payroll contributed
for profit-sharing plan
N/A
N/A
1.5%
Note 13 Stockholders’ Equity
Share count and par value data related to stockholders’ equity are as follows:
December 31, December 31,
2009
2010
Preferred Stock
Par value per share
Shares authorized
Shares outstanding
Common Stock—Class A
Par value per share
Shares authorized
Shares issued
Shares outstanding
Treasury stock
Shares held
$
0.01 $
10,000,000
—
0.01
10,000,000
—
$
0.01 $
150,000,000
72,151,857
55,711,325
0.01
150,000,000
72,151,857
58,318,983
During the year ended December 31, 2010, Zebra purchased 3,349,286 shares of common
stock for $102,091,000 under board authorized share repurchase plans compared to the
year ended December 31, 2009, in which Zebra purchased 3,173,182 shares of common
stock for $65,445,000. During the year ended December 31, 2008, Zebra purchased
6,008,232 shares of common stock for $157,582,000.
A roll forward of Class A common shares outstanding is as follows:
Balance at the beginning of the year
Repurchases
Stock option and ESPP issuances
Restricted share issuances
Restricted share forfeitures
Shares withheld for tax obligations
Balance at the end of period
Year Ended,
December 31, December 31,
2009
2010
58,318,983
60,861,592
(3,349,286)
(3,173,182)
389,799
375,279
(16,252)
(7,198)
281,975
409,201
(49,650)
(10,953)
55,711,325
58,318,983
Stockholder Rights Agreement. Zebra’s Board of Directors adopted a Stockholder Rights
Agreement under which stock purchase rights were paid by dividend to stockholders
of record on March 15, 2002, at the rate of one Class A Right for each outstanding share
of Class A Common Stock. Each Class A Right, other than those held by an acquiring
person, entitles the registered holder to purchase one ten-thousandth of a share of Series
A Junior Participating Preferred Stock, par value $0.01 per share, at a price of $133.33
per four ninety-thousandth of Class A Preferred Share after the distribution date. The
distribution date is 10 days after the date on which any person or group announces that
it has acquired 15% or more of Zebra’s outstanding common stock or 10 days (or a later
date as determined by the Board of Directors) after the date on which any person or
group announces or commences a tender offer that would result in the person or group
becoming an owner of 15% or more of the outstanding common stock.
The Rights will expire on March 14, 2012, unless that date is extended by the Board of
Directors or unless the Rights are redeemed or terminated earlier. A committee of Zebra’s
independent directors reviews the Rights Plan at least every three years and decides
whether it should continue or be revoked. Zebra generally may amend the Rights Plan or
redeem the Rights at $0.001 per Right at any time prior to the time a person or group has
acquired at least 15% of the outstanding common stock.
16,440,532
13,832,874
F-19
Note 14 Earnings (Loss) Per Share
For the years ended December 31, 2010, 2009, and 2008, earnings (loss) per share were
computed as follows (in thousands, except per-share amounts):
participate in the 2006 Plan. The Compensation Committee of the Board of Directors
administers the plan. As of December 31, 2010, 2,205,918 shares were available for grant
under the plan, and options for 2,262,412 shares were outstanding under the 2006 Plan.
Basic earnings (loss) per share:
Net income (loss)
Weighted average common
shares outstanding
Per share amount
Diluted earnings (loss) per share:
Net income (loss)
Weighted average common
shares outstanding
Year Ended December 31,
2009
2010
2008
$101,778
$47,104
$(38,421)
57,143
$1.78
59,306
$0.79
64,524
$(0.60)
$101,778
$47,104
$(38,421)
Add: Effect of dilutive securities – stock options
285
Diluted weighted average and
equivalent shares outstanding
Per share amount
57,428
$1.77
57,143
59,306
119
59,425
$0.79
64,524
—
64,524
$(0.60)
The potentially dilutive securities that were excluded from the earnings (loss) per share
calculation consist of stock options and stock appreciation rights (SARs) with an exercise
price greater than the average market price of the Class A Common Stock. These options
were as follows:
Potentially dilutive shares
1,844,038
2,350,854
2,217,940
Year Ended December 31,
2009
2010
2008
Note 15 Equity-Based Compensation
As of December 31, 2010, Zebra had a general equity-based compensation plan and a
stock purchase plan under which shares of our common stock were available for future
grants and sales, and which are described below.
On May 9, 2006, Zebra’s stockholders approved the 2006 Zebra Technologies Corporation
Incentive Compensation Plan (the 2006 Plan), which included authorization for issuance
of awards of 5,500,000 shares under the 2006 Plan. The 2006 Plan became effective
immediately and superseded the 1997 Stock Option Plan (the 1997 Plan) and the 2002
Non-Employee Director Stock Option Plan (the 2002 Director Plan), except that the
prior plans will remain in effect with respect to stock options granted under the prior
plans until such options have been exercised, forfeited, cancelled, expired or otherwise
terminated in accordance with the terms of such grants. The types of awards available
under the 2006 Plan are incentive stock options, nonqualified stock options, SARs,
restricted stock, performance shares and units and performance-based cash bonuses.
Employees, directors and consultants of Zebra and its subsidiaries are eligible to
F-20
The options and SARs granted under the 2006 Plan have an exercise or grant price equal to
the closing market price of Zebra’s stock on the date of grant. Options and SAR’s generally
vest over a four or five-year period. These awards expire on the earlier of (a) ten years
following the grant date, (b) immediately if the employee is terminated for cause, (c) ninety
days after termination of employment if the employee is terminated involuntarily other
than for cause, (d) thirty days after termination of employment if the employee voluntarily
terminates his or her employment, or (e) one year after termination of employment if the
employee’s employment terminates due to death, disability, or retirement.
The following table shows the number of shares of time-vested restricted stock granted
in 2010 and the vesting schedules of the restricted stock awards that were granted under
the Plan to certain executive officers and other members of management.
Vesting period
After three years of service
After four years of service
After five years of service
Number of shares granted
341,580
11,233
22,466
These restricted stock awards will vest at each vesting date if the employee remains
employed by Zebra throughout the applicable time period, but will vest in whole or in
part (as set forth in each Restricted Stock Agreement) before the end of the each vesting
period in the event of death, disability, resignation for good reason, a change in control
(as defined in the 2006 Plan), or termination by Zebra other than for Cause, as defined
in the Restricted Stock Agreement entered into by Zebra with each employee who was
granted restricted stock. The restricted stock is forfeited in certain situations specified in
the Restricted Stock Agreement, including, if the employee’s employment is terminated
by Zebra for Cause or if the employee resigns for other than good reason.
The 1997 Plan was superseded by the 2006 Plan. As of December 31, 2010, options for
1,080,576 shares were outstanding and exercisable under the 1997 Plan. These options
expire on the earlier of (a) ten years following the grant date, or (b) immediately if the
employee is terminated for cause, (c) ninety days after termination of employment
if the employee is terminated involuntarily other than for cause, (d) thirty days after
termination of employment if the employee voluntarily terminates his or her employment,
or (e) one year after termination of employment if the employee’s employment
terminates due to death, disability, or retirement.
The 2002 Director Plan was superseded by the 2006 Plan. As of December 31, 2010,
options for 159,068 shares were outstanding and exercisable under the 2002 Director
Plan. Unless otherwise provided in an option agreement, options granted under the 2002
Director Plan become exercisable in five equal increments beginning on the date of the
grant and continuing on each of the four anniversaries thereafter. All such options expire
on the earlier of (a) ten years following the grant date, (b) the first anniversary of the
termination date of the non-employee director’s directorship for any reason other than
the termination of the non-employee director’s directorship by Zebra’s stockholders for
cause, or resignation for cause, in each case as defined in the option agreement.
In connection with Zebra’s acquisitions of Navis and WhereNet, Zebra assumed existing
unvested stock options exercisable for shares of Navis’ common stock and WhereNet’s
common stock, respectively, and made them options exercisable for Zebra common
stock. These new options have exercise prices and vesting dates based on their previous
terms. The vesting dates extend in some cases until April 30, 2011 for the Navis options
and extended until October 23, 2010 for the WhereNet options. As of December 31, 2010,
outstanding Navis options were exercisable into 48,162 shares of Zebra Class A Common
Stock. As of December 31, 2010, outstanding WhereNet options were exercisable into
23,278 shares of Zebra Class A Common Stock.
The Board of Directors and stockholders adopted the 2001 Stock Purchase Plan under
which employees who work a minimum of 20 hours per week may elect to withhold up to
10% of their cash compensation through regular payroll deductions to purchase shares of
Class A Common Stock from Zebra over a period not to exceed 12 months at a purchase
price per share which prior to April 1, 2009 was equal to the lesser of: (1) 85% of the fair
market value of the shares as of the date of the grant, or (2) 85% of the fair market value of
the shares as of the date of purchase. Effective April 1, 2009, the purchase price per share
is now equal to the lesser of: (1) 95% of the fair market value of the shares as of the date
of the grant, or (2) 95% of the fair market value of the shares as of the date of purchase.
The effect of this change to Zebra was to reduce the general and administrative expense
related to this portion of Zebra’s stock purchase plan. Stock purchase plan expense for
the year ended December 31, 2010 was $315,000. Stock purchase plan expense for the
year ended December 31, 2009 was $514,000.
For purposes of calculating the compensation cost, the fair value is estimated on the date
of grant using a binomial model. Volatility is based on an average of the implied volatility
in the open market and the annualized volatility of Zebra’s stock prices over our entire
stock history. Stock option grants in the table below include both stock options, all of which
were non-qualified, and stock appreciation rights (SAR) that will be settled in Zebra stock.
The following table shows the weighted-average assumptions used for grants of stock
options and SARs as well as the fair value of the grants based on those assumptions
(excluding the Navis and WhereNet options):
Expected dividend yield
Forfeiture rate
Volatility
Risk free interest rate
2010
0%
9.78%
39.50%
2.26%
2009
0%
9.92%
43.08%
2.23%
2008
0%
8.99%
37.79%
3.17%
– Range of interest rates
0.06%-3.41%
0.15% - 3.29% 0.81% - 3.87%
Expected weighted-average life
5.36 years
5.23 years
5.09 years
Fair value of options granted
$6,527,000
$6,046,000
$7,566,000
Weighted-average grant date
fair value of options granted
(per share underlying the options)
$10.64
$8.06
$13.33
The forfeiture rate is based on the historical annualized forfeiture rate, which is consistent
with prior year rates. This rate includes only pre-vesting forfeitures. Volatility is based
on an average of the implied volatility in the open market and the annualized volatility of
Zebra’s stock prices over our entire stock history. The risk free interest rate used is the
implied yield currently available from the U.S. Treasury zero-coupon yield curve over the
contractual term of the options. The expected weighted-average life is based on historical
exercise behavior, which combines the average life of the options that have already been
exercised or cancelled with the exercise life of all unexercised options. The exercise life
of unexercised options assumes that the option will be exercised at the midpoint of the
vesting date and the full contractual term. These assumptions are consistent with the
assumptions used in prior years.
Stock option and SAR activity for the years ended December 31, 2010, 2009, and 2008, was as follows:
Options and SARs
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
2010
Weighted-Average
Exercise Price
$32.81
27.82
23.03
30.44
38.02
$32.68
$36.24
Shares
3,451,945
612,681
(304,565)
(93,476)
(90,839)
3,575,746
2,042,664
Intrinsic value of exercised options and SARs
$2,567,000
2009
Weighted-Average
Exercise Price
$35.83
19.96
17.53
37.28
39.88
$ 32.81
$35.23
Shares
3,139,174
749,951
(128,311)
(132,646)
(176,223)
3,451,945
1,884,449
$ 738,000
2008
Weighted-Average
Exercise Price
$34.68
35.72
16.77
36.11
41.38
$35.83
$33.30
Shares
3,029,138
567,676
(202,204)
(213,012)
(42,424)
3,139,174
1,719,434
$3,138,000
F-21
For the year ended December 31, 2010, shares granted above include SARs with respect
to 612,681 shares of Zebra stock. There were no stock options granted in 2010. The terms
of the SARs are established under the 2006 Plan and the applicable SAR agreement. Once
vested, a SAR entitles the holder to receive a payment equal to the difference between
the per-share grant price of the SAR and the fair market value of a share of Zebra stock
on the date the SAR is exercised, multiplied by the number of shares covered by the SAR.
Exercised SARs will be settled in whole shares of Zebra stock, and any fraction of a share
will be settled in cash. Vesting of SARs granted in 2010 is as follows: 18,000 SARs vest
after one year, 474,382 SARs vest annually in four equal amounts on each of the first four
anniversaries of the grant date; 120,299 vest 25% on the third and fourth anniversary of
the grant date, with an additional 50% vesting on the fifth anniversary of the grant date.
All SARs expire 10 years after the grant date.
The following table summarizes information about stock options and SARs outstanding at December 31, 2010:
Range of
Exercise Prices
$1.29-$20.74
$20.75-$27.82
$27.83-$39.27
$39.28-$43.35
$43.36-$53.92
Aggregate intrinsic value
Weighted-average remaining contractual term
Number
of Shares
703,589
995,495
742,892
519,238
614,532
3,575,746
Outstanding
Exercisable
Weighted-Average
Remaining Contractual Life
Weighted-Average
Exercise Price
Number
of Shares
Weighted-Average
Exercise Price
7.83 years
6.58 years
6.39 years
5.82 years
4.02 years
$18.87
25.97
35.81
42.07
47.61
Outstanding
$13,027,000
6.2 years
215,355
377,096
455,233
392,448
602,532
2,042,664
$17.28
23.20
35.88
42.07
47.64
Exercisable
$5,733,000
4.7 years
Restricted stock award activity, granted under the 2006 Plan, for the years ended December 31, 2010, 2009 and 2008 was as follows:
Restricted Stock Awards and
Performance Share Awards
Outstanding at beginning of year
Granted
Released
Forfeited
2010
Weighted-Average
Grant Date Fair Value
$23.94
27.84
29.11
26.19
Shares
507,984
375,279
(22,325)
(16,252)
Outstanding at end of year
844,686
$ 25.47
2009
Weighted-Average
Grant Date Fair Value
$30.35
20.02
32.97
32.34
$23.94
Shares
283,567
298,703
(35,904)
(38,382)
507,984
2008
Weighted-Average
Grant Date Fair Value
$ 31.05
31.42
35.46
34.89
$30.35
Shares
166,415
179,060
(50,114)
(11,794)
283,567
F-22
As of December 31, 2010, there was $19,780,000 of unearned compensation cost related
to awards granted under Zebra’s equity-based compensation plans, which is expected
to be recognized over a weighted-average period of 2.4 years.
The fair value of the purchase rights issued to Zebra employees under the stock
purchase plan is estimated using the following weighted-average assumptions for
purchase rights granted. Expected lives of three months to one year have been used
along with these assumptions.
Zebra’s intention is to permanently reinvest the undistributed earnings of all of our
foreign subsidiaries in accordance with ASC740. Deferred income taxes are not provided
on undistributed earnings of foreign subsidiaries, aggregating approximately $90,000,000
at December 31, 2010 and $38,000,000 at December 31, 2009. If the undistributed earnings
were to be remitted to Zebra, foreign tax credits would be available to substantially offset
any U.S. tax due upon repatriation.
The provision for income taxes consists of the following (in thousands):
Fair market value
Option price
Expected dividend yield
Expected volatility
Risk free interest rate
2010
$ 27.95
$26.55
0%
25%
0.14%
2009
$21.41
$19.66
0%
34%
0.18%
2008
$20.26
$ 17.22
0%
46%
1.87%
Note 16 Deferred Compensation Plan
Zebra offers a deferred compensation plan that permits directors and executive
management employees to defer portions of their compensation and to select a method
of investing these funds. The salaries that have been deferred since the plan’s inception
have been accrued and the only expense, other than salaries, related to this plan is the
gain or loss from the changes to the deferred compensation liability, which is charged to
compensation expense. To fund this plan, Zebra purchases money market investments.
Previously, Zebra purchased corporate-owned whole-life insurance contracts on
the related employees, of which Zebra is the beneficiary. During 2007, the whole-life
insurance policies were liquidated and money market investments were purchased.
The following table shows the income, asset and liability amounts related to this plan
(in thousands):
Year Ended December 31,
2010
2009
2008
Gain on cash surrender value of life insurance
policies/money market interest included in
investment income
$ —
$ —
$ 55
December 31, December 31,
2009
2010
Money market investments included in other assets
$3,427
$3,155
Note 17 Income Taxes
The geographical sources of income (loss) before income taxes were as follows
(in thousands:
Year Ended December 31,
2009
2010
2008
United States
Outside United States
Total
$ 73,915
$49,514
$ (30,517)
71,020
21,009
18,604
$144,935
$70,523
$ (11,913)
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total
Year Ended December 31,
2009
2010
2008
$ 24,340
$ 4,213
$ 38,149
2,890
16,994
44,224
(3,591)
2,524
(1,067)
861
5,556
10,630
10,504
509
1,776
12,789
5,213
7,494
50,856
(22,309)
(2,039)
—
(24,348)
$ 43,157
$23,419
$ 26,508
The provision for income taxes differs from the amount computed by applying the
U.S. statutory Federal income tax rate of 35% to income before income taxes. The
reconciliation of statutory and effective income taxes is presented below (in thousands):
Provision computed at statutory rate
$50,727
$24,683
$ (4,170)
Year Ended December 31,
2009
2010
2008
State income tax, net of Federal tax benefit
1,666
Tax-exempt interest income
Acquisition related items
Asset impairment charges
Domestic manufacturing deduction
Foreign rate differential
Other
(554)
(315)
—
(70)
(950)
(7,799)
452
566
(1,047)
—
—
(700)
(600)
(1,263)
1,780
1,127
(1,997)
(2,450)
35,360
(1,715)
(400)
1,094
(341)
Provision for income taxes
$ 43,157
$ 23,419
$26,508
Deferred income taxes reflect the impact of temporary differences between the amounts
of assets and liabilities for financial reporting purposes and such amounts as measured
by tax laws. Based on management’s assessment, it is more likely than not that the
deferred tax assets will be realized through future taxable earnings.
F-23
Deferred compensation liability included
in other long-term liabilities
3,427
3,155
Research and experimental credit
Tax effects of temporary differences that give rise to deferred tax assets and liabilities are
as follows (in thousands):
Deferred tax asset valuation allowances included in the temporary differences above are
as follows (in thousands):
Deferred tax assets:
Deferred rent
Accrued vacation
Deferred compensation
Inventory items
$
897
2,072
1,459
4,962
Allowance for doubtful accounts and other receivables
494
Other accruals
Equity based compensation expense
Unrealized gain on securities
Unrealized loss on other investments
Net operating loss carryforwards
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized loss on securities
Depreciation and amortization
Total deferred tax liabilities
Net deferred tax assets
December 31,
2010
2009
$ 1,462
1,227
1,525
4,131
410
3,488
16,132
—
5,552
18,334
—
12,165
16,463
76
570
10,626
(267)
49,517
52,261
(42)
(9,059)
(9,101)
$40,416
(169)
(5,458)
(5,627)
$ 46,634
On January 1, 2007, we adopted ASC 740 (formerly FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement
No. 109). According to ASC 740, we identified, evaluated, and measured the amount of
income tax benefits to be recognized for all of our income tax positions. During 2008, we
recognized an increase of approximately $4,000,000 in the liability for unrecognized tax
benefits related to an acquisition. This benefit remained unchanged as of December 31,
2010 and we do not anticipate any significant changes to the liability in 2011.
Included in deferred tax assets are amounts related to federal and state net operating
losses that resulted from our acquisition of WhereNet Corp. As of December 31, 2010,
we had approximately $21,932,000 of federal net operating loss carryforwards available
to offset future taxable income which expire in 2022 through 2027. As of December 31,
2010, we also had approximately $27,134,000 of state net operating loss carryforwards
which expire in 2012 through 2020. Zebra’s intention is to utilize these net operating loss
carryforwards to offset future income tax expense. Under the United States Tax Reform Act
of 1986, the amounts of benefits from net operating loss carryforwards may be impaired
or limited in certain circumstances, including significant changes in ownership interests.
In addition, as of December 31, 2010, Zebra had approximately $8,832,000 of foreign net
operating loss carryforwards which currently can be carried forward indefinitely.
F-24
Valuation allowance
Balance at the beginning of the year
Additions
Subtractions
Balance at the end of the period
2010
$ 0
267
0
$267
Year Ended December 31,
2009
$ 0
0
0
$ 0
2008
$ 0
0
0
$ 0
Zebra’s deferred tax valuation allowance is the result of uncertainties regarding the future
realization of recorded tax benefits on state income tax loss carry-forwards. The addition
in 2010 is primarily related to state income tax law changes in 2011 for that year and tax
years going forward.
Zebra has concluded all U.S. federal income tax audits for years through 2006. The
tax years 2006 through 2009 remain open to examination by multiple state taxing
jurisdictions. Tax authorities in the United Kingdom have completed income tax audits
for tax years through 2006.
Zebra’s continuing practice is to recognize interest and/or penalties related to income tax
matters as part of income tax expense. For the years ended December 31, 2010, 2009 and
2008, we did not accrue any interest or penalties into income tax expense.
Note 18 Other Comprehensive Income (Loss)
Stockholders’ equity contains certain items classified as other comprehensive income
(loss), including:
• Foreign currency translation adjustments related to our non-U.S. subsidiary
companies that have designated a functional currency other than the 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 adjustments
component of other comprehensive income (loss).
• Unrealized holding 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 10 for more details.
• Unrealized gains (losses) on investments classified as available-for-sale are
deferred from income statement recognition. See Note 4 for more details.
The components of other comprehensive income (loss) included in the Consolidated
Statements of Comprehensive Income (Loss) are as follows (in thousands):
Year Ended December 31,
2009
2010
2008
Foreign currency translation adjustments
$ 67
$3,972
$(22,991)
Changes in unrealized gains and (losses) on
hedging transactions:
Gross
Income tax (benefit)
Net
$ (1,522)
(573)
$ (949)
$ 31
$ 9,220
12
3,470
$ 19
$ 5,750
ZES has evolved since the beginning of 2007 with the acquisitions of WhereNet Corp.,
proveo AG, Navis Holdings, LLC and Multispectral Solutions, Inc. The solutions provided
by ZES are generally sold on a contract basis and are typically installed over several
quarters. These contracts cover a range of services, including design, installation and
ongoing maintenance services.
The accounting policies for reportable segments are the same as those described in the
summary of significant accounting policies except that Zebra records its federal and
state deferred tax assets and liabilities in corporate and other. Intersegment sales are
not significant.
Segment information is as follows (in thousands):
Changes in unrealized holding gains and
(losses) on investments classified
as available-for-sale:
Gross
Income tax (benefit)
Net
$ (652)
(246)
$ (406)
$ 1,182
$ (871)
Net sales:
SPG Tangible products
SPG Service & software
445
(328)
SPG Net Sales
$ 737
$ (543)
The components of accumulated other comprehensive income (loss) included in the
Consolidated Balance Sheets are as follows (in thousands):
Foreign currency translation adjustments
Unrealized losses on foreign currency hedging activities:
Gross
Income tax benefit
Net
Unrealized gains and (losses) on investments
classified as available-for-sale:
Gross
Income tax benefit
Net
As of December 31,
2010
2009
$(8,275)
$ (8,342)
$ (1,523)
(573)
$ (950)
$ (200)
(76)
$ (124)
$
$
$
$
(1)
—
(1)
452
170
282
ZES Tangible products
ZES Service & software
ZES Net Sales
Total
Operating income (loss):
SPG
ZES
Corporate and other
Total
Depreciation and amortization:
SPG
ZES
Corporate and other
Total
Note 19 Segment and Geographic Data
Zebra has two reportable segments: Specialty Printing Group (SPG) and Zebra Enterprise
Solutions (ZES).
SPG includes direct thermal and thermal transfer label and receipt printers, passive
radio frequency identification (RFID) printer/encoders and dye sublimation card printers.
Also included in this group is a comprehensive range of specialty supplies consisting of
self-adhesive labels, thermal transfer ribbons, thermal printheads, batteries and other
accessories, including software for label design and printer network management.
Identifiable assets:
SPG
ZES
Corporate and other
Total
Year Ended December 31,
2009
2010
2008
$ 834,392
$688,057
$ 851,562
36,644
871,036
20,877
64,935
85,812
34,499
722,556
12,987
68,042
81,029
30,897
882,459
20,025
74,216
94,241
$956,848
$803,585
$ 976,700
$ 229,898
$ 148,121
$ 206,188
(19,571)
(66,475)
(15,254)
(64,065)
(165,966)
(55,568)
$ 143,852
$ 68,802
$ (15,346)
$ 15,564
$ 15,565
$ 17,515
8,389
7,256
9,518
7,830
14,885
6,181
$ 31,209
$ 32,913
$ 38,581
December 31,
2010
2009
$ 392,512
$ 336,428
179,109
307,243
185,495
308,556
$878,864
$ 830,479
F-25
Corporate and other includes corporate administration costs or assets that support both
reporting segments.
The following table (in thousands) summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of acquisition.
Information regarding Zebra’s operations by geographic area is contained in the
following table. These amounts (in thousands) are reported in the geographic area of the
destination of the final sale. We manage our business based on these regions rather than
by individual countries.
North Europe, Middle
East & Africa
America
Latin
America
Asia
Total
Total assets acquired
Current assets
Property and equipment
Intangible assets
Goodwill
Deferred tax liability
Current liabilities
Net assets acquired
At April 1, 2008
$ 700
70
8,000
13,547
$22,317
(3,011)
(940)
$18,366
2010
Net sales
Long-lived assets
2009
Net sales
Long-lived assets
2008
Net sales
Long-lived assets
$ 407,201
79,850
$ 338,573
7,338
$ 87,278
332
$123,796
1,463
$ 956,848
88,983
$362,109
68,852
$294,296
6,986
$ 65,060
346
$ 82,120
1,405
$ 803,585
77,589
$444,266
64,296
$ 353,273
8,642
$ 76,489
340
$102,672
2,085
$ 976,700
75,363
Net sales by major product category are as follows (in thousands):
Hardware
Supplies
Service
and
Software
Shipping
and
Handling
Total
2010
2009
2008
$682,455
$ 167,633
$101,579
$ 5,181
$ 956,848
539,934
692,638
155,847
172,106
102,541
105,113
5,263
6,843
803,585
976,700
Note 20 Business Combinations
Multispectral Solutions Inc. On April 1, 2008, Zebra acquired all of the outstanding stock
of Multispectral Solutions Inc. (MSSI) for $18,366,000, which is net of cash acquired
and includes transaction costs. Headquartered in Germantown, Maryland, MSSI is a
global provider of ultra wideband (UWB) real-time locating systems and other UWB-
based wireless technology. Zebra acquired this company to further extend our range
of solutions. The Consolidated Statements of Earnings (Loss) reflect the results of
operations of MSSI since the effective date of the purchase. The pro forma impact of
this acquisition was not significant.
F-26
The purchase price was allocated to identifiable tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values resulting in goodwill of
$13,547,000. The intangible assets of $8,000,000 consist of the following (in thousands):
Customer relationships
Developed technology
The goodwill is not deductible for tax purposes.
Amount
$1,000
$7,000
Useful Life
10 years
8 years
As part of the acquisition closing, an escrow was established, which, as of December 31,
2009 held $2,000,000. On September 17, 2009, Zebra filed a demand against the
former shareholders of MSSI seeking recovery for damages resulting from the selling
Shareholders’ breach of several representations and warranties contained in the
acquisition agreement. Representatives of the selling shareholders of MSSI disputed
the allegations contained in Zebra’s demand and after settlement discussions were
unsuccessful, on October 28, 2009, filed a Declaratory Action in the Circuit Court of
Cook County seeking to obtain a portion of the escrowed funds. On December 9, 2009,
Zebra filed its Answer to the Declaratory Action and its Counterclaim against the former
shareholders of MSSI and others (the “Defendants”), alleging that Zebra is entitled
to indemnification from the Defendants as a result of, among other things, fraud and
breaches of the representations and warranties in the acquisition agreement.
The dispute was settled and the complaint was dismissed in December of 2010. In
accordance with the settlement agreement, Zebra received $1,000,000 of the escrowed
funds, less 50% of the unpaid expenses of the Escrow Agent, and the balance of the
escrow fund was distributed to the former shareholders and vested option holders of
MSSI pursuant to the terms of the acquisition agreement.
Zebra agreed to make payments to its current employees that had been shareholders and
vested option holders of MSSI to reimburse them for their pro rata portions of any share
of the escrow fund that they did not receive due to Zebra’s recoupment of amounts from
the escrow fund. Accordingly, we recorded expense in the amount of $100,000 related
to these payments. This expense was netted against the $1,000,000 received from the
escrow settlement and is shown on the Consolidated Statements of Earnings (Loss) on a
separate line titled litigation settlement.
WhereNet Corp. On January 24, 2008, Zebra filed an indemnification claim against the
sellers of WhereNet for the entire escrow balance of $13,600,000, alleging that Zebra
was entitled to indemnification from the former shareholders of WhereNet as a result of,
among other things, breaches of the representations and warranties in the acquisition
agreement and potential third party claims. Representatives of the shareholders disputed
the allegations and filed a declaratory action to obtain the escrowed funds. The dispute
was settled and the complaint was dismissed in September 2008. In accordance with
the settlement agreement, Zebra received $7,000,000 of the escrowed funds, and the
remainder was distributed to the former shareholders and vested option holders of
WhereNet pursuant to the terms of the acquisition agreement.
Zebra agreed to make payments to its current employees that had been shareholders
and vested option holders of WhereNet to reimburse them for their pro rata portions of
any share of the escrow funds that they did not receive due to Zebra’s recoupment of
amounts from the escrow funds. Accordingly, we recorded expense in the amount of
$1,698,000 related to these payments. This expense was netted against the $7,000,000
received from the escrow settlement and is shown on the Consolidated Statements of
Earnings (Loss) on a separate line titled litigation settlement in 2008. In 2010, litigation
settlement also includes $182,000 related to the WhereNet settlement that remained
after distributing funds to its current employees.
Note 21 Major Customers
ScanSource, Inc. is our most significant customer. Our net sales to ScanSource, Inc.,
an international distributor of Zebra SPG products related to automatic identification,
telephony and security, as a percentage of total net sales, were as follows:
ScanSource
Year Ended December 31,
2009
2008
16.1%
15.4%
2010
18.5%
No other customer accounted for 10% or more of total net sales during these years.
Note 22 Quarterly Results of Operations (unaudited)
(Amounts in thousands, except per share data)
2010
Net sales
Cost of sales
Gross profit
Selling and marketing
Research and engineering
First
Quarter
$ 226,431
119,096
107,335
27,500
23,072
General and administrative
20,869
Amortization of intangibles
Litigation settlement
Exit, restructuring and
integration costs
2,358
—
1,816
Second
Quarter
Third
Quarter
$ 235,735
$ 246,507
124,556
127,793
111,179
118,714
30,328
30,365
25,371
19,558
2,345
—
26,746
19,791
2,444
—
Fourth
Quarter
$ 248,175
124,534
123,641
34,496
26,741
19,492
2,426
(1,082)
736
511
1,134
Total operating expenses
75,615
78,338
79,857
83,207
Operating income
31,720
32,841
38,857
40,434
Investment income (loss)
Foreign exchange gain (loss)
Other, net
842
199
(349)
Total other income (loss)
692
634
361
(487)
508
635
(325)
(216)
94
Income before taxes
32,412
33,349
38,951
570
(448)
(333)
(211)
40,223
12,006
Income taxes
Net income
7,679
10,672
12,800
$ 24,733
$ 22,677
$ 26,151
$ 28,217
Basic earnings per share
Diluted earnings per share
$
$
0.43
0.42
$
$
0.39
0.39
$
$
0.46
0.46
$
$
0.50
0.50
F-27
2009
Net sales
Cost of sales
Gross profit
Selling and marketing
Research and engineering
First
Quarter
$ 192,609
106,800
85,809
23,199
22,149
Second
Quarter
Third
Quarter
$ 187,676
$ 200,778
105,940
109,080
81,736
91,698
24,398
26,395
20,949
21,454
General and administrative
21,357
18,077
22,447
Amortization of intangibles
2,634
2,575
2,649
Fourth
Quarter
$ 222,522
121,044
101,478
28,543
21,838
19,514
2,608
ZEBRA TECHNOLOGIES CORPORATION
Schedule II
Valuation and Qualifying Accounts
(Amounts in thousands)
Description
Balance at Charged to
Beginning Costs and Deductions/
(Recoveries)
Expenses
of Period
Balance at
End of
Period
Valuation account for accounts receivable:
Exit, restructuring and
integration costs
Asset impairment charges
(reversal)
2,296
3,643
3,515
2,737
Year ended December 31, 2010
$ 2,186
$ 367
$ 392
$ 2,161
Year ended December 31, 2009
2,734
329
877
2,186
—
(1,058)
—
—
Year ended December 31, 2008
5,075
1,061
3,402
2,734
Valuation accounts for inventories:
Year ended December 31, 2010
Year ended December 31, 2009
Year ended December 31, 2008
$ 9,054
9,664
10,004
$ 5,470
6,661
8,394
$ 4,687
$ 9,837
7,271
9,054
8,734
9,664
See accompanying report of independent registered public accounting firm.
Total operating expenses
71,635
68,584
76,460
75,240
Operating income
14,174
13,152
15,238
26,238
Investment income (loss)
Foreign exchange gain (loss)
Other, net
Total other income (loss)
Income before taxes
Income taxes
Net income
1,178
(1,284)
(317)
(423)
13,751
4,399
247
(131)
(19)
97
813
575
(286)
1,102
13,249
16,340
4,238
5,229
695
795
(545)
945
27,183
9,553
$ 9,352
$
9,011
$ 11,111
$ 17,630
Basic earnings per share
Diluted earnings per share
$
$
0.16
0.16
$
$
0.15
0.15
$
$
0.19
0.19
$
$
0.30
0.30
Note 23 Subsequent Events
On January 28, 2011, we entered into a Securities Purchase Agreement with Cargotec
Corporation to sell all of our interest in the Navis business and WhereNet Marine
Terminal Solution software product line for approximately $190 million in cash. We are
retaining the real time location, tags and readers portion of the WhereNet business, along
with the WhereNet applications that are sold into non-maritime industries. The sale is
expected to close in the first quarter of 2011.
Beginning with the first quarter of 2011, Navis and other ZES assets will be reported as
assets/liabilities held for sale and the operating results will be reported as discontinued
operations. We do not treat the Navis business as discontinued operations in our financial
statements for the three-year period ended December 31, 2010. Our financial statements
for the three-year period ended December 31, 2010 reflect our Specialty Printing Group
(SPG) and ZES segments, including the management discussion and analysis of financial
condition and results of operations. After the divestiture, we will be consolidating
the remaining location solutions businesses of ZES into Zebra and the separation of
segments between SPG and ZES will no longer be required.
F-28
Stock Performance Graph
This graph compares the cumulative annual change since December 31, 2005,
of the total stockholder return of Zebra Technologies Corporation Class A
Common Stock with the cumulative return on the following published indices:
(i) the Hemscott Industry Group 815 (Computer Peripherals) Index1; (ii) the RDG
Technology Composite2; and (iii) the NASDAq Composite Market Index, during
the same period. The comparison assumes that $100 was invested in each of
the Company’s Class A Common Stock, the stocks comprising the Hemscott
Industry Group 815 Index, the stocks comprising the RDG Technology
Composite and the stocks comprising the NASDAq Composite Market Index
on December 31, 2005. The comparison assumes that all dividends were
reinvested at the end of the month in which they were paid.
Comparison of Five-Year Cumulative Total Return of Zebra Technologies Corporation
Class A Common Stock, the Hemscott Industry Group 815 Index, the
RDG Technology Composite and the NASDAQ Composite Market Index
Zebra Technologies Corporation
Hemscott Industry Group Index
RDG Technology Composite
NASDAQ Composite Market Index
150
125
100
75
50
25
0
12/31/2005
12/31/2006
12/31/2007
12/31/2008
12/31/2009
12/31/2010
2005
2006
2007
2008
2009
2010
Zebra Technologies
Corporation
Hemscott Industry
Group Index
RDG Technology
Composite
NASDAq Composite
Market Index
$ 100.00
$81.19
$ 80.98
$ 47.28
$ 66.16
$88.66
100.00
98.90
121.59
55.50
81.44
88.06
100.00
109.07
125.31
71.12
114.36
129.26
100.00
111.16
124.64
73.80
107.07
125.99
1. Morningstar, Inc. publishes the Hemscott Industry Group 815 (Computer Peripherals) Index.
2. Research Data Group, Inc. publishes the RDG Technology Composite.
Board of Directors
Executive Officers
Stockholder Information
Michael A. Smith, Chairman (1, 2, 3)
Chairman and Chief Executive Officer
FireVision, LLC
Anders Gustafsson
Chief Executive Officer
Zebra Technologies Corporation
Gerhard Cless
Executive Vice President
Zebra Technologies Corporation
Richard L. Keyser (2)
Chairman Emeritus
W. W. Grainger, Inc.
Andrew K. Ludwick (1)
Private Investor
Ross W. Manire (1, 3)
Chairman and Chief Executive Officer
ExteNet Systems, Inc.
Dr. Robert J. Potter (2)
President and Chief Executive Officer
R.J. Potter Company
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating Committee
Anders Gustafsson
Chief Executive Officer
Gerhard Cless
Executive Vice President
Hugh K. Gagnier
Senior Vice President, Operations
Philip Gerskovich
Senior Vice President,
Corporate Development
Jim L. Kaput
Senior Vice President, General Counsel
and Corporate Secretary
Todd R. Naughton
Vice President, Finance
Michael C. Smiley
Chief Financial Officer
Michael H. Terzich
Senior Vice President, Sales and Marketing
Joanne Townsend
Vice President, Human Resources
Corporate Headquarters
Zebra Technologies Corporation
475 Half Day Road, Suite 500
Lincolnshire, Illinois 60069 U. S. A.
Phone: +1 847 634 6700
Fax +1 847 913 8766
Annual Meeting
Zebra’s Annual Meeting of Stockholders
will be held on May 19, 2011,
at 10:30 A.M. (Central Time), at
Zebra’s headquarters, 475 Half Day Road,
Lincolnshire, Illinois 60069
Independent Auditors
Ernst & Young LLP
Chicago, Illinois
Transfer Agent and Registrar
BNY Mellon Shareowner Services
P.O. Box 358015
Pittsburgh, PA 15252-8015
Overnight Delivery
480 Washington Boulevard
Jersey City, NJ 07310-1900
Zebra Toll Free: 877 870-2368
TDD for hearing impaired: 800 231-5469
Foreign Shareowners: 201 680-6578
TDD for Foreign Shareowners: 201 680-6610
Web Site address:
Shareowner accounts:
www.bnymellon.com/shareowner/isd
General transfer agent:
www.bnymellon.com/shareowner
E-mail contact: shrrelations@bnymellon.com
Investor Relations
Please contact Zebra’s Corporate Headquarters
for corporate or product information. Or, visit
our Web site at www.zebra.com.
Form 10-K
The Zebra Technologies Corporation Form 10-K
Report filed with the Securities and Exchange
Commission is incorporated in this annual
report. Please contact the Investor Relations
Department at the Corporate Headquarters
for additional copies, or visit our Web site
to view an online version.
Web Site
Investors are invited to learn more about
Zebra Technologies Corporation by accessing
the company’s Web site at www.zebra.com.
Equal Employment
Opportunities/Affirmative Action
It is the policy of Zebra Technologies Corporation
to provide equal opportunities and affirmative
action in all areas of its employment practices
without regard to race, religion, national origin,
sex, age, ancestry, citizenship, disability, veteran
status, marital status, sexual orientation or
any other reason prohibited by law.
R e l i a b i l i T y d u R a b i l i T y i n n o v a T i v e b R o a d e s T R a n g e o f p R o d u c T s
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productsWithin the enterprise. On the road. Across the supply chain. Zebra serves its customers with the broadest range of thermal printers, supplies, software and location solutions. Companies around the globe depend on of Zebra solutions in automatic identification applications ranging from the very basic to the most complex. Mission-critical applications use Zebra high-performance printers more than any other competing brand. Mobile solutions enhance field-force productivity, while Zebra card printers deliver personal IDs whenever and wherever needed. Radio frequency identification and real-time locating systems from Zebra address tomorrow’s asset tagging needs today, providing greater clarity to supply chains in an increasingly complex and competitive world. No changes.
G l o B a l / a M E r i c a s H E a d q u a r t E r s
E u r o p E , M i d d l E E a s t a n d a f r i c a H E a d q u a r t E r s
a s i a p a c i f i c H E a d q u a r t E r s
Zebra technologies corporation
Zebra technologies Europe, limited
Zebra technologies asia pacific, l.l.c.
475 Half day road
suite 500
lincolnshire, il 60069
usa
dukes Meadow
Millboard road
Bourne End
Buckinghamshire sl8 5Xf, uK
+1 847 634 6700
+ 44 (0) 1628 556000
www.zebra .com
120 robinson road
#06-01 parakou Building
singapore 068913
+ 65 6858 0722