2 0 1 2 a n n u a l r e p o r t
increasing visibility T O O U R
S T O C K H O L D E R S
We further extended our industry leadership by maintaining a deep commitment
physical assets a digital voice and provides them visibility into their increasingly
Anders Gustafsson Chief Executive Officer
The diversity of our business helped Zebra achieve
record sales of $996 million for 2012.
to innovation and investments in emerging technology trends that will meet
complex value chains. By giving their valued assets a digital voice with
our customers’ evolving needs. Weakness in our Europe and Asia businesses,
enabling technologies, Zebra solutions help our customers gain better
due in part to economic challenges in those regions, was more than offset by
visibility into their extended value chains to achieve improved management
record sales in North America and Latin America. For the year, we maintained
over their assets, people and transactions. We call this the Visible Value Chain.
high profit margins and delivered $2.35 per share in earnings from continuing
operations. With $188 million in free cash flow, we used $73 million for
Emerging technology trends are increasing Zebra’s opportunity for new
acquisitions to supplement investments in our core business, and returned
revenue streams, as our customers recognize the value of deploying
$54 million to stockholders in the form of share buybacks. At year-end,
Zebra solutions in new ways. Merchants can deliver an improved shopper
we maintained a solid financial condition, with no debt and $394 million
experience by using Zebra mobile point-of-sale and other retail solutions,
in cash and investments.
which facilitate higher levels of engagement and product availability. In
hospitals, health care providers are improving patient safety with the use
Zebra’s performance for 2012 was due to our clearly defined and well-executed
of Zebra wristbands for positive identification and connection to electronic
strategies. Together with our partners, we are creating a smarter, more
health records. We are also optimistic about emerging opportunities in
connected global business community by intensifying innovation, expanding
new industries for Zebra, such as sports, travel and leisure.
into new markets, maximizing operational effectiveness, penetrating existing
markets further and inspiring our people and culture. Through these strategic
We will take advantage of our financial strength to invest in opportunities
initiatives, we have gained a deeper understanding of unique customer
that deliver the highest risk-adjusted returns to sustain our competitive
needs and challenges, so we can continue to serve them better.
advantage. These investments include maintaining a high cadence of
product development, as we expand and enhance this foundation for Zebra’s
Throughout 2012, the cadence of product and solution development remained
long-term success. We will also support long-term growth with further
high, with the introduction of a record 14 new printer-related products.
channel development as well as the capacity for offering a broader array
This broader portfolio has enabled us to serve more customer needs for
of solutions and services to our expanding base of customers worldwide.
established and emerging applications. These products include new card
printers with industry-leading performance for personal identification
We look forward to providing you with further details of our progress as 2013
applications. The acquisition of LaserBand supplemented record sales of our
unfolds. Together with our partners, the more than 2,500 Zebra employees
label and ribbon supplies business in 2012 and gives us a solid platform to
around the world are working to penetrate existing markets more deeply,
take advantage of high-growth opportunities in healthcare.
expand our presence in new, exciting areas of growth, and position the
We are expanding our relevance in other key industries as well, including
developments is that Zebra will be able to serve more of our customers’
manufacturing and retail where more effective sales and marketing
needs, while building increasing value for our shareholders.
company to benefit from important new trends. The tangible result of these
programs have led to deeper engagements with strategic accounts. We
also strengthened our leading go-to-market channels. Globally, we continue
Thank you for your support for Zebra.
to benefit from investments that have extended our geographic reach in
emerging markets including China, India, Brazil and Turkey.
As we look to the future, Zebra is positioned well for higher growth and
returns in a fundamentally attractive industry. Companies and organizations
continue to seek opportunities to meaningfully enhance their businesses as
they participate more deeply in the Internet of Things, which gives their
Anders Gustafsson Chief Executive Officer
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
2012
% Change
2011
% Change
2010
Net sales
Gross profit
Operating income
Income from continuing operations
Net income
Diluted earnings per share:
$ 996,168
491,644
164,351
121,897
122,904
1.3%
1.0
(9.7)
(6.5)
(29.6)
Income from continuing operations
Income (loss) from discontinued operations
Net income
2.35
0.02
2.37
(2.1)
•
(26.4)
Diluted weighted average shares outstanding
51,843
C A P I T A L I Z A T I O N
Cash and cash equivalents,
restricted cash, investments
and marketable securities
(current and long-term)
Working capital
Total assets
Stockholders’ equity
2012
$ 394,075
615,649
967,748
857,002
10.0%
15.7
22.8
24.6
71.6
31.9
•
81.9
$ 983,488
486,769
182,036
130,343
174,643
2.40
0.82
3.22
54,191
December 31,
2011
$ 326,695
475,899
899,006
776,925
$ 894,359
420,775
148,215
104,614
101,778
1.82
(0.05)
1.77
57,428
2010
$ 258,598
455,143
878,864
730,032
net sales (In thousands)
operating income (In thousands)
earnings per share* (In dollars)
$1,000,000
1000000
800,000
800000
600,000
600000
400,000
400000
200,000
200000
0
0
1000000
20
800000
15
600000
10
400000
5
200000
0
0
$200,000
2.5
20
1000000
2.5
20
2.0
800000
150,000
15
1.5
600000
100,000
10
1.0
400000
50,000
0.5
5
200000
0
0
0
0
2.0
1.5
1.0
0.5
15
10
5
0
0
$2.50
2.5
2.00
2.0
1.50
1.5
1.00
1.0
0.50
0.5
0
0
* diluted, from
continuing
operations
Zebra Technologies Corporation 2012 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, 2012
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 __
(Do not check if a smaller reporting company)
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 June 30, 2012, the aggregate market value of
each of the registrant’s Class A Common held by
non-affiliates was approximately $1,775,843,000.
The closing price of the Class A Common Stock on
June 29, 2012, as reported on the Nasdaq Stock
Market, was $34.36 per share.
As of February 8, 2013, 50,951,204 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 16, 2013, are incorporated by
reference into Part III of this report.
101112101112101112
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
PART I
Item 1. Business
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . 27
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . 30
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 13. Certain Relationships and Related Transactions,
and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 14. Principal Accounting Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PART IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SIGNATURES
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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, Latin America, Asia
Pacific, 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,
• The effect of natural disasters on our business,
• 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.
The Company
Zebra is a global leader respected for innovation and reliability which offers products and
solutions that enable organizations to gain greater insight into their operations. Improved
visibility allows our customers to create value by managing their assets, transactions and
people better.
Zebra’s extensive portfolio of marking and printing technologies, which including barcode,
RFID, GPS and sensoring, captures physical events in digital form to give operational
events a virtual voice. This capture enables organizations to know in real-time the location,
condition, timing and accuracy of events occurring throughout their value chain. Once the
events are seen, organizations can create new value from what is already there.
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, application development and printer network management.
Zebra also designs and sells solutions incorporating active RFID, telematics and ultra
wideband radio (UWB) technologies. These solutions help businesses locate and or track
assets and people in real time. They use 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.
In July of 2012, Zebra acquired LaserBand LLC (a Missouri limited liability company).
LaserBand is a leader in patient identification wristbands and related products. LaserBand
strengthens Zebra’s product and patent portfolio and enables Zebra to offer a wider array
of products to hospitals, other healthcare organizations and other customers that use
wristbands in their operations.
In December of 2012, Zebra acquired StepOne Systems. StepOne is a mobility software
company that empowers store associates by giving them access to product details as
well as store and company inventories to better serve their customers. StepOne’s retail
application platform is incorporated into Zebra’s fully integrated mobile point-of-sale (POS)
offering, which retail customers use to create a more personal customer engagement and
improve the overall shopping experience.
Discontinued Operations
Sale of Navis, LLC – On March 18, 2011, we sold our Navis marine terminal solutions
business and the related WhereNet marine terminal solutions product line of our ZES
business to Cargotec Corporation.
Sale of proveo AG – On August 3, 2011, we entered into a Share Purchase Agreement with
F Two NV (a Belgium company) and sold all of our interest in Zebra Enterprise Solutions
GmbH (formerly proveo AG) business.
Beginning in the first quarter of 2011, Zebra reported the results of these businesses
as discontinued operations. The amounts presented in Zebra’s financial statements
for discontinued operations include Navis and proveo assets and liabilities, and the
operating results of these businesses for 2012, 2011 and 2010. With the sale of Navis, we
integrated the remaining ZES business into our location solutions operations.
Continuing Operations
Zebra’s continuing operations include our printers, supplies and services business and
our location solutions operations.
Zebra’s printer operations
We design our printer products to produce high-quality labels, wristbands, 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 for improved
customer service and productivity gains. Plastic cards are used for secure, reliable
personal identification (state id cards and drivers licenses), access control and financial
cards (credit, debit and ATM cards) by financial institutions.
Applications for our printing solutions span most industries and geographies. They
include inventory control, small package delivery, baggage handling, automated
warehousing, just-in-time (JIT) 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, 2012, management estimates that Zebra has
sold more than 11,900,000 printers to customers around the world.
We believe competitive forces on businesses worldwide drive them 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 Zebra provides. These solutions deliver
significant and predictable economic benefits. 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.
2
3
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 barcode 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 barcode label design and
network management software. These products are used to support barcode 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 specific applications. 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
product offering is a unique and significant competitive strength.
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
barcode 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 barcodes. These images can be printed on a wide variety of
labeling materials, which enable users to affix barcode 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, 2012, we offered 54 thermal printer models with numerous variations,
in seven categories as follows:
• Tabletop printers for applications requiring continuous operation in high output,
mission-critical and industrial settings as well as 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 mobile workers in a broad range
of industries.
• 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 barcode 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.
Zebra’s location solutions
Zebra offers a range of solutions and services that enable businesses to have visibility into
the location and movement of its personnel and assets with real-time locating systems.
Zebra’s location solutions incorporate active RFID technology. Our software and
hardware locate, track, manage, and maximize the utilization of high-value assets,
equipment, and people. Whether tracking pallets through a supply chain, the flow of work
in process, optimizing product fulfillment, or providing wide-area asset traceability, our
real-time location solutions provide constant visibility and accurate location.
Zebra provides asset tags, call tags, sensors, exciters and application software. Each
tag contains a unique ID that users can associate to a specific asset, part, workstation
or person. The complementary technologies in our location solutions work seamlessly
together to provide customers with asset visibility and tracking.
Applications for our location solutions span a broad array of industries where tracking
assets, transactions and people are critical. Our location solutions are deployed primarily
in industrial manufacturing, process industries, aerospace, transportation and logistics
and healthcare environments.
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.
We fully support our 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
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 life of key printer components such as printheads.
Zebra also provides a family of self-laminating wristbands for use in laser printers. These
wristbands are marketed under the LaserBand name.
Printer related software
Our goal is to provide solutions that enable high levels of functionality to all major
computer network and software systems. Zebra has specialized printer management,
label design, printer drivers and application development solutions to help unlock the
full potential of Zebra printers. Our Link-OS™ suite of networking, software, device
operating system offerings, makes Zebra’s printers easy to use and integrate into small,
medium and enterprise-wide environments. Zebra connectivity solutions include support
for Ethernet, 802.11a/b/g/n, and Bluetooth®. Integration with multiple device operating
systems, such as Microsoft® Windows® , Android™, iOS, UNIX and Linux, are supported.
We also offer design and integration software specifically designed to optimize the
performance of Zebra label and card printers. Our suite of tools includes CardStudio™,
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, United States; Etobicoke, Ontario, Canada; Mexico City, Mexico; Preston, United
Kingdom; Singapore; Shanghai, China; Heerenveen, Netherlands; Sydney, Australia; and
Sao Paulo, Brazil. 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 one year of warranty coverage on our printers against defects
in material and workmanship. Our printheads are warranted for nine months, and our
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 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 barcodes. 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.
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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 802.11a/b/g/n 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, 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.
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
directly to a select number of named customer accounts. For media and consumables,
we 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 us to reach
end users throughout the world in a wide variety of industries. We experience 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 the
customer is in a targeted high-growth industry with applications for Zebra solutions that
span our product categories. Zebra sales personnel, either alone or together with our
channel partners, manage these strategic accounts to ensure their needs are being met.
The sales function also encompasses a team that manages three global alliances. They
direct the business development strategies for third-party relationships that are strategic
to new demand creation for specific vertical markets and/or specific applications.
Marketing. Marketing operations encompass global corporate marketing, field
marketing, product marketing, industry marketing, market research and channel
marketing functions. Corporate marketing manages our Zebra brand globally, corporate
public relations, internal communications and our web site. Corporate marketing is
also responsible for market research and planning and industry marketing. Product
marketing focuses on market analysis, positioning, product launch support and analyzes
Zebra’s competitive strengths and weaknesses. Field marketing encompasses demand
generation, channel program management and marketing and sales enablement.
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.
In 2010 we completed the transfer of final printer assembly to a third-party manufacturer,
Jabil Circuit, Inc. This action reduces product costs and optimized our global printer
product supply chain. It has enabled us to be more responsive to customer needs and
increase Zebra’s flexibility to meet emerging business opportunities.
Jabil produces our printers to our design specifications in the quantities we order. We
maintain control over portions of 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 our
sourcing, engineering and quality personnel to help ensure that we receive optimal
raw material pricing, manufacturing process controls are maintained and the final
printers meet our quality standards. The majority of our printers manufactured by Jabil
are shipped to our regional distribution centers. A small percentage of products are
reconfigured at Zebra’s distribution centers through firmware downloads, packaging
and customer specific 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.
Competition
Many companies are engaged in the design, manufacture and marketing of barcode label
printers, RFID printer/encoders, card personalization and active RFID/Real Time Locating
System (RTLS) solutions.
We consider our direct competition in barcode 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 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 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 us. In addition, service bureaus
compete for end user business and provide an alternative to the purchase of our card
printing equipment and supplies.
We compete with a diverse group of small companies marketing RTLS solutions.
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.
We face competition in our printing business from many printer companies, including
the following (listed in alphabetical order): Argox; Avery Dennison; Bixolon; Blue
Bamboo; Boca Systems; Brother International; Canon; CIM; Citizen; 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.
Zebra’s competitors in the location solutions products include Aeroscout, Ekahau
and Ubisense.
Alternative printing 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 barcoded printing, offering growth opportunities for Zebra as the technologies
become more widely adopted.
If other technologies were to evolve or become available, 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, our products may become
obsolete. This obsolescence would have a significant negative effect on our business,
financial position, results of operations and cash flows.
Therefore, we continually assess competitive and complementary methods of barcode
printing and other means of automatic identification. Alternative print technologies
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
standards development and rapidly adopt RFID into new Zebra products and systems as
new markets and applications emerge.
Customers
Zebra has sold more than 11,900,000 thermal printers to customers as of December 31, 2012.
Zebra had three customers that accounted for 10% or more of its sales. All three of these
customers are distributors and not end users. Our net sales to significant customers as a
percentage of total net sales were as follows:
Customer A
Customer B
Customer C
Year Ended December 31,
2012
20.4%
11.4%
10.3%
2011
20.7%
10.5%
8.9%
2010
19.8%
9.8%
8.0%
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,
2012
2011
2010
$730,489
212,499
47,941
990,929
5,239
$996,168
$743,308
187,457
47,206
977,971
5,517
$983,488
$676,738
167,633
44,829
889,200
5,159
$ 894,359
Net sales to international customers, as a percent of total net sales, were as follows:
Percent of net sales
Year Ended December 31,
2012
56.2%
2011
58.4%
2010
55.9%
We believe that international sales are likely 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,
2012
2011
2010
Research and development expenses
Percent of net sales
$ 87,364
8.8%
$ 89,926
9.1%
$ 82,575
9.2%
We devote significant resources to developing new printing solutions for our target
markets and ensuring that our products maintain high levels of reliability and value to
our customers.
Intellectual Property Rights
Zebra relies on a combination of trade secrets, patents, trademarks, copyrights and
contractual rights to establish and protect its innovations. We hold over 200 domestic and
international trademarks. We hold over 700 United States and foreign patents and patent
applications. The expiration of any individual patent would not have a significant negative
impact on our business.
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 26, 2013, Zebra employed approximately 2,544 persons, of which 265 are
corporate employees. None of our employees are members of a union. Some portions of
our business, primarily in Europe and China, are subject to labor laws that differ significantly
from those in the United States. For example, in Europe, 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.
Contact Information
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.
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.
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 and our location solutions products is performed
by Jabil Circuit, a third-party electronics manufacturer. We are dependent on Jabil as a
sole source of supply for the manufacture of such products. A failure by Jabil to provide
manufacturing services to Zebra as Zebra 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 our 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 and location solution products. 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 and location solution products
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.
Zebra has significant operations outside the United States and sells a significant portion
of its products internationally and purchases important components, including final
products, from foreign suppliers. These circumstances create a number of risks. Zebra has
significant operations outside the United States 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. Zebra also expects to continue the use of third-party contract
manufacturing services with overseas production and assembly of our products.
Risks associated with operations, sales and purchases outside the United States include:
• 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,
• Transportation delays that may affect production and distribution of Zebra’s
products, and
• Inadequately managing and overseeing operations that are distant and remote from
corporate headquarters.
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 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 effectively and economically 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.
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 effectively and economically 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, which may create
additional pressures on Zebra’s competitive position in the marketplace.
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Zebra is vulnerable to the potential difficulties associated with the increase in the
complexity of its business. Zebra has grown rapidly over the last several years through
domestic and international growth. 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 in multiple international jurisdictions,
• Managing our distribution channel partners,
• Managing our contract manufacturing and supply chain,
• 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
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, trademarks,
trade secrets and contracts are used to protect these proprietary rights. Despite these
precautions, third parties may be able to copy or reproduce aspects of Zebra’s intellectual
property and its products or, without authorization, to misappropriate and use information
which Zebra regards as its 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 non-U.S. 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. The system implementation has progressed well with
EMEA implemented in January 2011 and North America in February 2012.
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 or reduced information
technology spending may adversely impact our business. As widely reported, financial
markets throughout the world experienced extreme disruption since 2008, 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.
A natural disaster may cause supply disruptions that could adversely affect Zebra’s
business and results of operations. As widely reported, a powerful earthquake centered
off the northeastern coast of Japan on March 11, 2011, resulted in the loss of many lives,
wide-spread damage to and destruction of property, disruption of electric power, and
the release of radiation from a crippled nuclear power plant. This devastation disrupted
the operations to varying degrees of companies with business activity in the affected
region, including the business of Zebra suppliers. Other natural disasters may occur in
the future and Zebra is not able to predict to what extent or duration any such disruptions
will have on our ability to maintain ordinary business operations. The consequences of an
unfortunate natural disaster may have a material adverse effect on Zebra’s business and
results of operations.
Item 1B. Unresolved Staff Comments
Not applicable.
10
11
Item 2. Properties
Item 4. Mine Safety Disclosures
Item 6. Selected Financial Data
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 Agoura Hills, California.
Not applicable.
PART II
Zebra’s principal facilities as of December 31, 2012, are listed below:
Location
Square Footage
Manufacturing, Administrative,
Production &
Warehousing
Research
& Sales
Total
Lease Expires
Vernon Hills, Illinois, USA
110,000
115,000
225,000
June 2015
Heerenveen, The Netherlands
47,286
Agoura Hills, California, USA
Buffalo Grove, Illinois, USA
Preston, UK
Greenville, Wisconsin, USA
Lincolnshire, Illinois, USA
—
63,189
51,450
60,000
—
Flowery Branch, Georgia, USA
40,520
Lincoln, Rhode Island, USA
Guangzhou, China
Bourne End, UK
—
—
—
Otay Mesa, California, USA
26,639
47,286
75,077
—
8,600
—
47,334
—
40,116
32,655
27,251
—
San Jose, California, USA
—
24,630
McAllen, Texas, USA
18,000
Germantown, Maryland, USA
Chicago, Illinois, USA
—
—
Rogersville, Tennessee, USA
9,780
Singapore, Singapore
Shanghai, China
Detroit, Michigan, USA
Mexico City, Mexico
Clayton, Missouri, USA
Sao Paulo, Brazil
Miami, Florida, USA
Shanghai, China
—
—
—
3,400
—
—
—
—
—
13,134
10,417
—
9,427
7,524
7,085
3,488
6,171
5,812
5,786
5,287
94,572
75,077
63,189
60,050
60,000
47,334
40,520
January 2015
March 2021
July 2014
Owned by Zebra
May 2028
June 2015
June 2017
40,116
April 2016
32,655
January 2014
27,251
June 2014
26,639
24,630
18,000
13,134
10,417
9,780
9,427
7,524
7,085
6,888
6,171
5,812
5,786
5,287
September 2014
July 2015
September 2016
January 2016
June 2014
April 2014
February 2017
January 2014
November 2017
October 2015
September 2013
February 2015
October 2017
January 2015
Total
430,264
492,080
922,344
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.
Item 3. Legal Proceedings
See Note 12 in the Notes to the Consolidated Financial Statements included in this
Form 10-K.
12
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
2012 and 2011, as reported by The NASDAQ Stock Market.
2012
High
Low
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$41.88 $34.61
31.79
33.25
34.92
41.79
38.74
40.41
Source: The NASDAQ Stock Market
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$41.48 $34.66
36.55
44.53
28.20
43.61
29.54
38.48
At February 8, 2013, the last reported price for the Class A Common Stock was $44.07 per
share, and there were 465 registered stockholders of record for Zebra’s Class A Common
Stock. In addition, we had approximately 14,000 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 2012, Zebra purchased 400,000 shares of Zebra’s Class A
Common Stock at a weighted average share price of $36.69 per share, as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 2012
(September 30 – October 27)
November 2012
(October 28 – November 24)
December 2012
(November 25 – December 31)
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
392,146
$36.71
392,146
2,030,190
7,854
$ 35.67
7,854
2,022,336
0
$ 0.00
0
2,022,336
(1) On November 4, 2011, Zebra’s Board authorized the purchase of up to an additional 3,000,000 shares under the
purchase plan program. The November 2011 authorization does not have an expiration date.
(2) During the fourth quarter, Zebra acquired 3,651 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. These shares
were acquired at an average price of $38.44 per share.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) DATA
(In thousands, except per share amounts)
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income
Income from continuing
operations before
income taxes
Income (loss) from
continuing operations
Income (loss) from
discontinued operations,
net of tax
Year Ended December 31,
December 31,
2012
2011
2010
2009
2008
2012
2011
2010
2009
2008
$ 996,168
$ 983,488
$ 894,359
$ 738,482
$ 910,065
Cash and cash equivalents,
504,524
496,719
473,584
420,895
471,546
491,644
327,293(1)
164,351
486,769
304,733(2)
182,036
420,775
272,560(3)
148,215
317,587
247,308(4)
70,279
438,519
427,730(5)
10,789
164,174
179,719
149,607
72,319
15,085
121,897
130,343
104,614
48,491
(19,047)
1,007
44,300
(2,836)
(1,387)
(19,374)
restricted cash, investments
and marketable securities
(current and long-term)
$ 394,075
$ 326,695
$ 258,598
$ 245,027
$ 221,409
Working capital(6)
Total assets
Long-term obligations (7)
Stockholders’ equity
615,649
967,748
14,229
857,002
475,899
899,006
11,515
455,143
878,864
10,191
429,277
830,479
9,012
400,883
850,878
9,345
776,925
730,032
712,129
710,738
(1) Includes asset impairment charges of $9,114,000 and exit and restructuring costs of $960,000.
(2) Includes exit and restructuring costs of $2,041,000.
(3) Includes litigation settlement proceeds received of $1,082,000 and exit and restructuring costs of $2,262,000.
(4) Includes exit and restructuring costs of $9,902,000.
(5) Includes asset impairment charges of $144,950,000 and exit and restructuring costs of $17,932,000.
Net income (loss)
$ 122,904
$ 174,643
$ 101,778
$ 47,104
$ (38,421)
(6) Calculated as current assets minus current liabilities.
(7) Long-term obligations include deferred compensation and unearned revenue. See Note 17 Deferred
Compensation Plan in the Notes to the Consolidated Financial Statements included in this Form 10-K.
Basic earnings per share:
Income (loss) from
continuing operations
$
2.36
$
2.42
$
1.83
$
0.81
$
(0.30)
Income (loss) from
discontinued operations
0.02
0.82
(0.05)
(0.02)
(0.30)
Net income (loss)
$
2.38
$
3.24
$
1.78
$
0.79
$
(0.60)
Diluted earnings per share:
Income (loss) from
continuing operations
Income (loss) from
discontinued operations
$
2.35
$
2.40
$
1.82
$
0.81
$
(0.30)
0.02
0.82
(0.05)
(0.02)
(0.30)
Net income (loss)
$
2.37
$
3.22
$
1.77
$
0.79
$
(0.60)
Weighted average
shares outstanding
Basic
Diluted
51,566
51,843
53,854
54,191
57,143
57,428
59,306
59,425
64,524
64,524
13
Item 7. Management’s Discussion and Analysis of Financial Condition
Consolidated Results of Operations – Fourth quarter
Sales to customers by geographic region were as follows (in thousands, except percentages):
and Results of Operations
Results of Operations: Fourth Quarter of 2012 versus Fourth Quarter of 2011
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Three Months Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
2012
Net Sales
Tangible products
$241,257
$235,714
Service & software
11,922
11,594
Total net sales
Cost of Sales
253,179
247,308
Tangible products
121,869
118,792
Service & software
6,850
6,996
Total cost of sales
Gross profit
Operating expenses
Operating income
128,719
125,788
124,460
121,520
80,342
44,118
79,397
42,123
2.4
2.8
2.4
2.6
(2.1)
2.3
2.4
1.2
4.7
95.3
4.7
100.0
48.1
2.7
50.8
49.2
31.7
17.5
95.3
4.7
100.0
48.1
2.8
50.9
49.1
32.1
17.0
Other income (expense)
(56)
(1,011)
(94.5)
(0.1)
(0.4)
Income from continuing
operations before
income taxes
Income taxes
Income from continuing
operations
Income from discontinued
operations, net of tax
Net income
Diluted earnings per share:
Income from continuing
operations
Income from
discontinued operations
44,062
9,263
41,112
8,253
7.2
12.2
34,799
32,859
5.9
191
2,185
$ 34,990
$ 35,044
(91.3)
(0.2)
17.4
3.7
13.7
0.1
13.8
16.6
3.3
13.3
0.9
14.2
$ 0.68
$ 0.63
7.9
0.00
0.04
100.0
Net income
$ 0.68
$ 0.67
1.5
Sales
Net sales for the fourth quarter of 2012 compared with the 2011 quarter increased 2.4%
primarily due to increased sales in supplies and aftermarket services. Printer unit volume
increased 2.9% for 2012 compared to 2011 principally from unit volume increases in
desktop and tabletop printers.
Sales by product category were as follows (amounts in thousands, except percentages):
Product category
2012
Three Months Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Hardware
Supplies
Service and software
$182,267
$188,198
57,607
11,922
46,135
11,594
Subtotal products
251,796
245,927
Shipping and handling
1,383
1,381
Total net sales
$253,179
$247,308
(3.2)
24.9
2.8
2.4
0.1
2.4
72.0
22.8
4.7
99.5
0.5
76.1
18.6
4.7
99.4
0.6
100.0
100.0
Sales declines in Europe, Middle East and Africa, and Asia Pacific, primarily from a
challenged business environment, were offset by increased sales in North America
and Latin America. Sales increased in Latin America in part from improved geographic
coverage, with notable increases in supplies, tabletop, desktop, and mobile printers. Sales
in North America increased due to increased sales in supplies and aftermarket services.
Zebra continues to build a broader base of customers to penetrate targeted industries
more deeply. Movements in foreign exchange rates decreased sales by $1,858,000 in the
Europe, Middle East and Africa region for the quarter, due to a weaker euro against the
U.S. dollar compared to the same period in the prior year.
Geographic region
2012
Three Months Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Europe, Middle East
and Africa
Latin America
Asia-Pacific
$ 83,355
$ 88,360
26,255
31,665
21,578
32,470
Total International
141,275
142,408
North America
Total net sales
111,904
104,900
$253,179
$247,308
(5.7)
21.7
(2.5)
(0.8)
6.7
2.4
32.9
10.4
12.5
55.8
44.2
35.7
8.7
13.1
57.5
42.5
100.0
100.0
Gross profit
Gross profit increased 2.4% reflecting reduced overhead and freight costs, partially offset
by unfavorable movements in foreign exchange rates and product mix. Unfavorable
foreign currency movements decreased fourth quarter gross profit by $1,806,000. As a
percentage of sales, gross margin improved from 49.1% to 49.2%.
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
Three Months Ended
December 31,
2012
2011
321,314
312,409
Average selling price of printers shipped
$ 477
$ 506
Percent
Change
2.9
(5.7)
For the fourth quarter of 2012, unit volumes increased in tabletop and desktop printers.
Desktop printers achieved record sales. The decrease in average selling price is a result
of a change in product mix toward lower priced products in the 2012 quarter compared to
the 2011 quarter.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating expenses
2012
Three Months Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Selling and marketing
$ 33,313
$ 36,377
Research and development
General and administrative
22,605
20,964
23,174
18,973
Amortization of intangible assets
1,463
Acquisition costs
Exit and restructuring costs
1,037
960
806
116
(49)
Total operating expenses
$ 80,342
$ 79,397
(8.4)
(2.5)
10.5
81.5
N/M
N/M
1.2
13.2
14.7
8.9
8.3
0.6
0.4
0.4
9.4
7.7
0.3
0.0
0.0
31.7
32.1
Operating expenses for the quarter increased 1.2% due mainly to higher general
and administrative expenses, amortization and acquisition expenses, and exit and
restructuring costs. Compensation costs and depreciation increased over 2011 levels.
Amortization expense increases are primarily related to the intangibles acquired with the
LaserBand acquisition. Acquisition costs relate to investigated and completed merger
and acquisition activity during the period. Exit and restructuring costs in 2012 relate to
the restructuring of the location solutions business management structure.
Other income (expense)
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
Investment income
Foreign exchange loss
Other, net
Total other income (expense)
Three Months Ended
December 31, 2012
December 31, 2011
$ 526
(5)
(577)
$ (56)
$ 594
(706)
(899)
$(1,011)
Other expense decreased in the fourth quarter of 2012 as a result of decreases in foreign
exchange losses.
Operating income
Operating income for the fourth quarter of 2012, compared to the same period in 2011,
increased 4.7%. See comments above for explanation of changes in individual categories.
Income taxes
The effective income tax rate for the fourth quarter of 2012 was 21.0% compared with
20.1% for the same quarter in the prior year. The fourth quarter 2012 effective tax rate
increased slightly due to an increase in income in higher rate tax jurisdictions in 2012
when compared to the prior years quarter. The increase in 2012 was offset by an August
2012 decrease in the UK statutory tax rate from 25.5% to 24.5%. During 2012 Zebra
implemented a new international holding company structure to facilitate the investment
of overseas cash and international acquisitions. This new structure has also decreased
our international income taxes. In addition, the fourth quarter of 2012 benefitted from
one-time adjustments resulting from amended tax returns for 2010 and prior years.
Income from discontinued operations
The income in the fourth quarter of 2012 is related to a reversal of amounts previously
reserved, which were related to the finalization of the accounting and taxes related to
discontinued operations transactions during 2011.
14
15
Results of Operations: Year ended December 31, 2012 versus Year ended December 31, 2011
Sales to customers by geographic region were as follows (in thousands, except percentages):
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Year Ended
December 31,
2012
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Net Sales
Tangible products
$948,227
$936,282
Service & software
47,941
47,206
Total net sales
Cost of Sales
996,168
983,488
Tangible products
479,633
469,834
Service & software
24,891
26,885
Total cost of sales
Gross profit
504,524
496,719
491,644
486,769
Operating expenses
327,293
304,733
1.3
1.6
1.3
2.1
(7.4)
1.6
1.0
7.4
Operating income
164,351
182,036
(9.7)
95.2
4.8
100.0
48.1
2.5
50.6
49.4
32.9
16.5
95.2
4.8
100.0
47.8
2.7
50.5
49.5
31.0
18.5
Other income (expense)
(177)
(2,317)
(92.4)
(0.0)
(0.2)
Income from continuing
operations before
income taxes
Income taxes
Income from continuing
operations
Income from discontinued
operations, net of tax
Net income
Diluted earnings per share:
Income from continuing
operations
Income from
discontinued operations
164,174
179,719
42,277
49,376
(8.6)
(14.4)
121,897
130,343
(6.5)
1,007
44,300
$122,904
$174,643
(97.7)
(29.6)
16.5
4.3
12.2
0.1
12.3
18.3
5.0
13.3
4.5
17.8
$ 2.35
$ 2.40
(2.1)
Net income
$ 2.37
$ 3.22
0.02
0.82
(97.6)
(26.4)
Consolidated Results of Operations – Full Year
Sales
Net sales for 2012 compared with 2011 increased 1.3%. This increase is primarily due to
growth in sales of supplies, including the impact of the acquisition of LaserBand LLC in
July 2012. Printer unit volumes increased 6.0% for 2012 compared to 2011 due to volume
increases in desktop, mobile and card printers. Movement towards lower-priced printers
partially offset unit volume increases.
Sales by product category were as follows (amounts in thousands, except percentages):
Product category
2012
Year Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Hardware
Supplies
$730,489
$743,308
212,499
187,457
Service and software
47,941
47,206
Subtotal products
990,929
977,971
Shipping and handling
5,239
5,517
Total net sales
$996,168
$983,488
(1.7)
13.4
1.6
1.3
(5.0)
1.3
73.4
21.3
4.8
99.5
0.5
75.5
19.1
4.8
99.4
0.6
100.0
100.0
Sales increased in Latin America due to improved geographic coverage with notable
increases in supplies, mobile, and card printer sales compared to 2011. Sales in North
America increased due to increased sales of supplies and continued demand for desktop,
card and tabletop printers. Zebra continues to build a broader base of customers to
penetrate targeted industries more deeply. Movements in foreign exchange rates
decreased sales by $12,139,000 in the Europe, Middle East and Africa regions due
principally to a weaker euro against the U.S. dollar.
Geographic region
2012
Year Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Europe, Middle East
and Africa
Latin America
Asia-Pacific
$322,970
$342,578
100,101
89,715
137,577
141,987
Total International
560,648
574,280
North America
Total net sales
435,520
409,208
$996,168
$983,488
(5.7)
11.6
(3.1)
(2.4)
6.4
1.3
32.4
10.0
13.8
56.2
43.8
34.8
9.1
14.5
58.4
41.6
100.0
100.0
Gross profit
Gross profit increased 1.0% due to higher volumes and lower material costs. Lower
freight costs in 2012 of $5,042,000 versus 2011 helped improve gross profit while
unfavorable movements in foreign currency decreased gross profit by $9,923,000. The
above factors contributed to the slight decrease in gross margin from 49.5% to 49.4%.
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
1,260,141
1,188,892
Average selling price of printers shipped
$ 485
$ 527
Year Ended
December 31,
2012
2011
Percent
Change
6.0
(7.9)
Product unit volumes increased 6.0% in 2012 over the prior year. This was due to
increased volumes in desktop, mobile and card printers. The average selling price reflects
a change in product mix toward lower priced products from year to year.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating expenses
2012
Year Ended
December 31,
Percent
2011 Change
Percent of Percent of
Net Sales Net Sales
2011
2012
Selling and marketing
$129,906
$127,797
Research and development
General and administrative
87,364
92,167
Amortization of intangible assets
4,673
Acquisition costs
Exit and restructuring costs
Asset impairment charge
3,109
960
9,114
89,926
81,345
3,320
304
0
Total operating expenses
$ 327,293 $304,733
1.7
(2.8)
13.3
40.8
N/M
N/M
7.4
2,041
(53.0)
13.0
13.1
8.8
9.3
0.5
0.3
0.1
0.9
9.1
8.3
0.3
0.0
0.2
0.0
32.9
31.0
Operating expenses for 2012 increased 7.4%. This is primarily due to greater selling and
marketing and general and administrative expenses. The asset impairment charge was
accounted for 40.4% of the total increase in 2012. Several categories accounted for these
increases, including compensation costs, outside professional services, rent, depreciation
and information systems expenses. Acquisition costs are related to investigated and
completed acquisitions during the period. Exit and restructuring costs in 2012 relate to the
restructuring of the location solutions business management structure while costs in 2011
relate to the relocation and consolidation of administrative, accounting and distribution
functions of our location solutions operations to Illinois. The asset impairment charge in
2012 relates to the goodwill associated with Zebra’s smaller reporting unit.
Selling and marketing expenses
Selling and marketing expenses are summarized below (in thousands):
Year Ended December 31,
2011
2012
Payroll and benefit costs
$ 78,894
$ 75,436
Business development
Travel and entertainment expenses
Offsite meetings
Other changes
23,434
8,451
1,141
17,986
23,022
8,068
3,362
17,909
Total selling and marketing expenses $129,906
$127,797
Increase/
(Decrease)
$ 3,458
412
383
(2,221)
77
$ 2,109
Selling and marketing expenses were higher in 2012 primarily due to increased payroll
and benefit costs related to the addition of more sales-related Zebra personnel in
geographic regions with high-growth opportunities. Payroll and benefit cost increases
include salaries, commissions, benefits, and payroll taxes. Other selling and marketing
expense categories also increased over 2011 levels due to higher expenses relating to
the addition of Zebra sales representatives to expand Zebra’s global reach into new
developing geographic regions.
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 2012 we introduced
14 new printer related products and 19 location software and hardware releases. Zebra
introduced its latest generation of print engine during the year which enables Zebra
to expand into new markets. The ZE500 is designed for reliable operations in mission
critical applications and is well suited for use in the food and beverage industries and
other environments where dust and moisture can create printing challenges. Zebra
has enhanced its printers for cloud based connectivity through Zebra’s Link-OS,
an ecosystem enabled by Zebra’s printer architecture which makes Zebra printers
significantly easier to integrate, manage and use in a company’s operations, with greater
capabilities for customization with the development of specialized apps.
16
17
Quarterly product development expenses fluctuate 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,
2011
2012
Increase/
(Decrease)
Payroll and benefit costs
$ 58,464
$ 59,087
Project expenses
Other changes
5,710
23,190
7,838
23,001
Total research and development costs
$ 87,364
$ 89,926
$ (623)
(2,128)
189
$(2,562)
The decreases in research and development costs relate to decreased payroll and
benefit costs and project expenses. Project expenses decreased due primarily due to the
completion on new mid-range and print engine products in 2012.
General and administrative expenses
General and administrative expenses are summarized below (in thousands):
Exit and restructuring costs
Exit and restructuring costs in 2012 of $960,000 relate to the restructuring of our location
solutions business management structure. Costs in 2011 of $2,041,000 relate to the
consolidation of our location solutions operations following the divestiture of Navis in the
first quarter of 2011.
Operating income
The operating income decrease for 2012 was the result of operating expense increases as
noted above.
Other income (expense)
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
Investment income
Foreign exchange loss
Other, net
December 31, 2012
December 31, 2011
Year Ended
$ 2,485
(941)
(1,721)
$ (177)
$ 1,944
(2,006)
(2,255)
$ (2,317)
Year Ended December 31,
2011
2012
Increase/
(Decrease)
Total other income (expense)
Payroll and benefit costs
$ 46,606
$ 40,975
Professional services expenses
Information systems expenses
Other changes
Total general and
administrative expenses
13,890
13,046
18,625
10,544
12,138
17,688
$ 5,631
3,346
908
937
Other expense decreased in 2012 as a result of decreases in foreign exchange losses.
Rate of return analysis:
December 31, 2012
December 31, 2011
Year Ended
$ 92,167
$ 81,345
$10,822
Annualized rate of return
0.7%
Average cash and marketable securities balances
$360,385
$292,646
0.7%
General and administrative expenses increased over 2011 due to larger incentive costs
related to merit increases and equity incentives. Professional fees increased slightly due
to the acquisition of LaserBand and other long-term investments in 2012. Professional
services were also utilized for the implementation of Zebra’s new international structure
and to expand geographic regions. Information systems costs increased slightly in the
maintenance and service contracts area.
Amortization of intangible assets
Amortization of intangible assets increased $1,353,000 during 2012 due to additions of
current technology, patent and patent rights and customer relationships during the year
as a result of the acquisition of LaserBand.
Investment income increased overall from higher cash and investment balances in 2012
versus 2011.
Income taxes
The effective income tax rate for 2012 was 25.8% compared with an income tax rate of
27.5% for 2011. During 2012 Zebra implemented a new international holding company
structure to facilitate the investment of overseas cash and international acquisitions.
This new structure also decreased our international income taxes. In addition, the UK
statutory rate decreased from 25.5% to 24.5% in August 2012. These reductions were
offset by a discrete item in the third quarter of 2012 related to a non-deductible asset
impairment charge which increased the effective tax rate for 2012 by 1.9%. The rate in
2011 included a tax valuation allowance in the first quarter of 2011 against a subsequently
divested subsidiary.
Income from discontinued operations
The income from discontinued operations in 2012 is related to an amendment and
extension of the proveo loan agreement and reversal of amounts previously reserved
which were related to the finalization of the accounting and taxes. The income from
discontinued operations in 2011 relates to the sale of Navis LLC and proveo AG, offset by
losses on discontinued operations.
Comparison of Years Ended December 31, 2011 and 2010
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Year Ended
December 31,
2011
Percent
2010 Change
Percent of Percent of
Net Sales Net Sales
2010
2011
10.2
5.3
10.0
4.3
17.1
4.9
15.7
11.8
22.8
N/M
20.1
9.7
Net Sales
Tangible products
$936,282
$849,530
Service & software
47,206
44,829
Total net sales
Cost of Sales
983,488
894,359
Tangible products
469,834
450,630
Service & software
26,885
22,954
Total cost of sales
Gross profit
496,719
473,584
486,769
420,775
Operating expenses
304,733
272,560
Operating income
182,036
148,215
Other income (expense)
(2,317)
1,392
Income from continuing
operations before
income taxes
Income taxes
Income from continuing
operations
Income (loss) from
discontinued operations,
net of tax
Net income
Diluted earnings per share:
Income from continuing
operations
Income (loss) from
discontinued operations
179,719
149,607
49,376
44,993
130,343
104,614
24.6
44,300
(2,836)
$174,643
$101,778
N/M
71.6
$ 2.40
$ 1.82
31.9
Net income
$ 3.22
$ 1.77
0.82
(0.05)
95.2
4.8
100.0
95.0
5.0
100.0
47.8
2.7
50.5
49.5
31.0
18.5
(0.2)
18.3
5.0
13.3
4.5
17.8
50.4
2.6
53.0
47.0
30.5
16.5
0.2
16.7
5.0
11.7
(0.3)
11.4
Consolidated Results of Operations – Year to date
Sales
Net sales for the 2011 year compared with 2010 increased 10.0% due to a broad-based
increase in demand, complemented by a focused business strategy of geographic
expansion, new product introductions and expansion of go-to-market channels. New
products introduced over the past year helped us meet more of our customers’ needs for
improving asset visibility in complex supply chain environments. The increase in sales
was largely attributable to increased hardware sales with notable volume increases in
high-performance and mid-range tabletop, desktop, mobile printers and aftermarket
parts. Supplies sales increased from greater shipments of labels and thermal ribbons.
Printer unit volume increased 12.4% for 2011 compared to levels in 2010.
Sales by product category were as follows (amounts in thousands, except percentages):
Product category
2011
Year Ended
December 31,
Percent
2010 Change
Percent of Percent of
Net Sales Net Sales
2010
2011
Hardware
Supplies
$743,308
$676,738
187,457
167,633
Service and software
47,206
44,829
Subtotal
977,971
889,200
Shipping and handling
5,517
5,159
Total net sales
$983,488
$894,359
9.8
11.8
5.3
10.0
6.9
10.0
75.5
19.1
4.8
99.4
0.6
75.7
18.7
5.0
99.4
0.6
100.0
100.0
Sales increased in all geographic regions, in part from the impact of our investments in
sales and sales-related personnel to expand Zebra’s presence in high-growth regions
including China, Brazil and Eastern Europe. Sales in the regions targeted by Zebra for
geographic expansion increased by 22%. Movements in foreign exchange rates increased
sales by $14,412,000 in the Europe, Middle East and Africa region due principally to a
stronger euro against the U.S. dollar for the first three quarters of 2011.
Sales to customers by geographic region were as follows (in thousands,
except percentages):
Geographic region
2011
Year Ended
December 31,
Percent
2010 Change
Percent of Percent of
Net Sales Net Sales
2010
2011
N/M
81.9
Europe, Middle East
and Africa
Latin America
Asia-Pacific
$342,578
$305,659
89,715
80,679
141,987
113,156
Total International
574,280
499,494
North America
Total net sales
409,208
394,865
$983,488
$894,359
12.1
11.2
25.5
15.0
3.6
10.0
34.8
9.1
14.5
58.4
41.6
34.2
9.0
12.7
55.9
44.1
100.0
100.0
18
19
Gross profit
Gross profit increased 15.7% due to higher volumes and lower material costs. Lower
freight costs in 2011 of $4,963,000 versus 2010 helped improve profit. Gross profit was
also affected by favorable foreign currency movements which also improved gross profit
by $12,730,000. The above factors contributed to the increase in gross margin from 47.0%
to 49.5%.
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
1,188,892
1,057,744
Average selling price of printers shipped
$ 527
$ 533
Year Ended
December 31,
2011
2010
Percent
Change
12.4
(1.1)
For 2011, product unit volumes increased in nearly all printer product lines with notable
volume increases in high-performance and mid-range table top, desktop, and mobile.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating expenses
2011
Year Ended
December 31,
Percent
2010 Change
Percent of Percent of
Net Sales Net Sales
2010
2011
Selling and marketing
$127,797
$112,365
Research and development
General and administrative
89,926
81,345
Amortization of intangible assets
3,320
82,575
73,229
3,211
13.7
8.9
11.1
3.4
Litigation settlement
Acquisition costs
0
304
(1,082)
(100.0)
0
Exit and restructuring costs
2,041
2,262
Total operating expenses
$ 304,733 $272,560
N/M
(9.8)
11.8
13.1
9.1
8.3
0.3
0.0
0.0
0.2
31.0
12.5
9.2
8.2
0.4
(0.1)
0.0
0.3
30.5
Operating expenses for 2011 increased 11.8% due to higher expenses in all three
operating expense line items. Several categories accounted for these increases, including
compensation costs which include salaries, stock option expense, and commissions.
These increases are primarily related to more employees in 2011 versus 2010. Business
development, outside professional services, travel and entertainment, rent, information
systems, recruiting, offsite meetings, shipping and depreciation expenses all increased
over 2010 levels.
Selling and marketing expenses
Selling and marketing expenses are summarized below (in thousands):
Year Ended December 31,
2010
2011
Payroll and benefit costs
Business development
Professional services expense
Travel and entertainment expenses
Offsite meetings
Other changes
$ 75,436
23,022
3,538
8,068
3,362
14,371
$ 70,539
20,608
2,308
6,421
884
11,605
Increase/
(Decrease)
$ 4,897
2,414
1,230
1,647
2,478
2,766
Total selling and marketing expenses
$127,797
$112,365
$15,432
Selling and marketing expenses were higher in 2011 primarily due to increased payroll
and benefit costs related to the addition of more sales-related Zebra personnel in
geographic regions with high-growth opportunities 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 2010
levels due to higher expenses relating to the addition of Zebra sales representatives
to expand Zebra’s global reach into new developing geographic regions and a global
partner conference in 2011.
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 2011 we introduced 13
new printer related products and 10 location software and hardware releases. Products
introduced in 2011 include printers in the mobile, desktop, and card lines as well as
related accessories. Zebra is receiving positive customer responses to its recently
introduced QLn wireless mobile printer which incorporates a flexible user interface for
easy configuration. Zebra’s ZXP8 retransfer card printer which is utilized for printing
secure employee IDs. In 2010, we introduced an updated two inch light duty printer and
a new Xi4 high-performance printer. 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.
Quarterly product development expenses fluctuate 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):
Litigation settlement
In 2010 Zebra received litigation settlement proceeds of $1,082,000 related to our
acquisition of MSSI in 2008.
Year Ended December 31,
2010
2011
Payroll and benefit costs
$ 59,087
$ 54,602
Professional services expenses
Travel and entertainment expenses
Shipping expense
Other changes
8,708
2,585
693
18,853
7,802
2,164
238
17,769
Total research and development costs
$ 89,926
$ 82,575
Increase/
(Decrease)
$ 4,485
906
421
455
1,084
$ 7,351
The increases in research and development costs relate to increased payroll and benefit
costs, compliance and project expenses to bring new products to market.
General and administrative expenses
General and administrative expenses are summarized below (in thousands):
Exit and restructuring costs
Exit and restructuring costs in 2011 of $2,041,000 relate to the consolidation of our
Location solutions product line following the divestiture of Navis in the first quarter of
2011. Costs in 2010 of $2,262,000 relate to the completion of the production transfer
to Jabil. See Note 10 of the Consolidated Financial Statements included in this Annual
Report on Form 10-K for a more detailed discussion of exit and restructuring charges.
Operating income
The operating income increase for 2011 was the result of increased sales and gross profit
as noted above.
Other income (expense)
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
December 31, 2011
December 31, 2010
Year Ended
$ 1,944
(2,006)
(2,255)
$ (2,317)
$ 2,678
(169)
(1,117)
$ 1,392
Payroll and benefit costs
$ 40,975
$ 36,833
Year Ended December 31,
2010
2011
Increase/
(Decrease)
$ 4,142
Investment income
Foreign exchange loss
Other, net
Professional services expenses
Information systems expenses
Depreciation expense
Other changes
Total general and
administrative expenses
10,544
12,138
9,232
8,456
9,987
10,547
8,221
7,641
557
1,591
1,011
815
$ 81,345
$ 73,229
$ 8,116
Annualized rate of return
0.7%
Average cash and marketable securities balances
$292,646
$251,812
1.1%
Rate of return analysis:
December 31, 2011
December 31, 2010
Year Ended
Total other income (expense)
General and administrative expenses increased over 2010 amounts from larger incentive
costs related to merit increases and equity incentives. Professional fees increased slightly
due to the Navis and proveo dispositions in 2011, and the utilization of professional
services in the expanding geographic regions. Information systems costs increased
slightly primarily in the maintenance and service contracts area.
Amortization of intangible assets
Amortization of intangible assets increased $109,000 during 2011 due to additions of
patents during the year.
Investment income declined overall from lower short-term interest rates in 2011
compared with 2010 even though cash and investment balances were higher in 2011
versus 2010.
Income taxes
The effective income tax rate for 2011 was 27.5% compared with an income tax rate
of 30.1% for 2010. Zebra’s effective tax rate for the first quarter of 2010 included a
$2,764,000 reduction of federal taxes related to improperly accounting for the tax impact
on intercompany profit generated from intercompany sales in 2009. This adjustment
reduced our effective rate for 2010 by approximately 1.8%. Zebra’s effective rate has also
decreased in 2011 due to higher profits in lower rate international jurisdictions.
Income (loss) discontinued operations
The income from discontinued operations in 2011 relates to the sale of Navis LLC and
proveo AG, offset by losses on discontinued operations. The loss from discontinued
operations for 2010 represents the results of operations for the entities we divested in 2011.
20
21
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:
• 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 barcode 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 ASC (Accounting Standards Codification)
985, 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.
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, 2012, consisted of the following:
U.S. government and agency securities
Obligations of government sponsored enterprises (1)
State and municipal bonds
Corporate securities
29.4%
1.5%
29.3%
39.8%
(1) Includes investments in notes issued by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association and the Federal Home Loan Bank.
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. 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.
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 8.0% to 11.9% of
gross inventory. As of December 31, 2012, inventory reserves were $13,655,000, or 10.0%
of gross inventory. We believe this reserve level is appropriate considering the quantities
and quality of the inventories as of December 31, 2012.
Zebra’s investments in marketable debt securities are classified as available-for-sale
except for securities held in Zebra’s deferred compensation plan which are considered
to be trading securities. Investments in marketable debt securities are classified based
on intent and ability to sell investment securities. Zebra’s available-for-sale securities
are used to fund further acquisitions and other operating needs and therefore can be
sold prior to maturity. Investments in marketable debt securities for which Zebra intends
to sell within the next year are classified as current and those that we intend to hold in
excess of one-year are classified as non-current.
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,
• Active collection efforts 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 0.4% to 1.2% of total accounts receivable. Accounts receivable reserves
as of December 31, 2012, were $669,000, or 0.4% of the balance due. We believe this
reserve level is appropriate considering the quality of the portfolio as of December 31,
2012. 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.
Valuation of Goodwill
Goodwill of a reporting unit is tested for impairment between annual tests if an event
occurs or circumstances 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 of a significant asset group within 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, 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. The
approach defined below is based upon our last impairment test conducted in June 2012
as of the end of May 2012. Zebra did perform an interim impairment test in October 2012
for its smaller reporting unit as of the end of September 2012. The October 2012 test only
utilized the income approach as discussed below.
22
23
Under the “Income Approach – Discounted Cash Flow Analysis” the key assumptions
consider sales, cost of sales and operating expenses projected through the year 2021.
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 20 publicly
traded companies, including Zebra, which we believe have significant relevant
similarities. For these 20 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 19
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.
There have not been any significant changes to our impairment testing methodology
other than updating the assumptions to reflect the current market environment. As
discussed above, key assumptions used in the first step of the goodwill impairment
test were determined by management utilizing the internal operating plan. The key
assumptions utilized include forecasted growth rates for revenues and operating
expenses as well as a discount rate which is determined by looking at current risk-free
rates of capital, current market interest rates and the evaluation of a risk premium
relevant to the business segment. Zebra will monitor future results and will perform a
test if indicators trigger an impairment review.
We test the impairment of goodwill each year as of the end of May or whenever events
or changes in circumstances indicate that the carrying value may not be recoverable.
Zebra has two reporting units required for its annual goodwill impairment test. We
completed our annual assessment during June 2012 and determined that our goodwill
was not impaired as of the end of May 2012.As part of Zebra’s annual impairment test
in the second quarter, Management determined that the larger of the two reporting
units’ fair value exceeded its carrying value by a significant amount. The second smaller
reporting unit’s amount by which the fair value exceeded the carrying value ranged from
approximately 8% under the Income Approach to 31% under the Market Approach.
Due to the deterioration in the smaller reporting unit’s operating results during the
third quarter, failing to meet our forecasted revenues and operating expenses, and a
decline in expected growth rates, our fair value calculation for the smaller reporting unit
changed and we determined our goodwill associated with the smaller reporting unit was
impaired. The above impairment indicators led us to conclude an interim goodwill test
was necessary. Zebra performed the first step of the impairment test which failed. As a
result, Zebra also performed a second step analysis and recorded a goodwill impairment
charge of $9,114,000 as of September 29, 2012. After this impairment charge, there is no
remaining goodwill in the smaller reporting unit.
Valuation of Long-Lived and Other Intangible Assets
Zebra evaluates 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 Zebra believes 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, Zebra
measures impairment based on projected discounted cash flows using a discount rate
that incorporates the risk inherent in the cash flows.
Net intangible assets, long-lived assets and goodwill amounted to $235,442,000 as of
December 31, 2012.
Income Taxes
On January 1, 2007, we adopted ASC 740. According to ASC 740, Zebra identified, evaluated,
and measured the amount of income tax benefits to be recognized for all of our income
tax positions. During 2008, Zebra recognized an increase of approximately $4,000,000
in the liability for unrecognized tax benefits related to an acquisition. During 2012 Zebra
recognized an increase of $680,000 for tax benefits related to the foreign restructuring.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
Contingencies
Zebra records estimated liabilities related to contingencies based on our estimates of the
probable outcomes. Quarterly, Zebra assesses 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 12 in the
Notes to the Consolidated Financial Statements included in the Form 10-K.
Balance at January 1, 2011
Additions based on tax positions related to 2011
Additions based on tax positions related to 2012
Balance at December 31, 2012
$4,000
—
680
$4,680
Equity-Based Compensation
As of December 31, 2012, 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. Zebra recognizes compensation costs using the
straight-line method over the vesting period of up to 5 years. See Notes 2 and 16 to the
Consolidated Financial Statements included in the Form 10-K for further information.
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, 2012 and
December 31, 2011, we did not accrue any interest or penalties into income tax expense.
Liquidity and Capital Resources
(Amounts in thousands, except percentages):
An audit of U.S. federal income tax returns for years of 2008 through 2010 was completed
in 2012. The tax years 2008 through 2010 remain open to examination by multiple state
taxing jurisdictions. Tax authorities in the United Kingdom have completed income tax
audits for tax years through 2008.
Included in deferred tax assets are amounts related to federal and state net operating
losses that resulted from Zebra’s acquisition of WhereNet Corp. As of December 31, 2012,
Zebra had approximately $2,518,000 of federal net operating loss carryforwards available
to offset future taxable income which expire in 2022 through 2027. As of December 31,
2012, Zebra also had approximately $27,391,000 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 amount of benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances, including significant changes in ownership interests.
Rate of Return Analysis:
2012
Average cash and marketable securities balances
$360,385
Annualized rate of return
0.7%
2011
$292,646
0.7%
Year Ended December 31,
Average cash and marketable securities balances for 2012 increased compared to 2011 as
a result of increased cash provided by operations.
As of December 31, 2012, Zebra had $394,075,000 in cash, restricted cash, investments
and marketable securities, compared with $326,695,000 at December 31, 2011. Factors
affecting cash and investment balances during 2012 include the following (changes
below include the impact of foreign currency):
• Accounts receivable increased $8,647,000 due to the increased sales and the timing
of receipts.
Year Ended
• Inventories decreased $11,530,000 due to decreases in raw materials inventory.
December 31, 2012
December 31, 2011
• Accounts payable decreased $14,605,000 due to the timing of payments at period end.
Effective tax rate
25.8%
27.5%
• Income taxes increased $16,335,000 due to the timing of tax payments and
During 2012, Zebra established a foreign holding company structure that is designed to
accomplish various international business objectives. This new holding company structure
allows Zebra to consolidate the ownership of its significant foreign affiliates under a single
holding company. In addition, the structure gives the company the ability to facilitate
cash pooling for its non-US operations and provide for the tax efficient movement of
cash within the structure to efficiently deploy cash generated by the foreign subsidiaries.
Zebra’s international income taxes have also decreased as result of this project.
taxes incurred.
• Purchases of property and equipment totaled $22,443,000.
• Escrowed proceeds received from the sale of Navis totaled $27,580,000.
• Acquisition of businesses totaled $59,876,000.
• Purchases of treasury stock totaled $54,373,000.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
24
25
Zebra earns a significant amount of our operating income outside the U.S., which is
deemed to be permanently reinvested in foreign jurisdictions. Zebra does not currently
foresee a need to repatriate funds, however, should Zebra require more capital in the
U.S. than is generated by our operations locally, Zebra could elect to repatriate funds
held in foreign jurisdictions or raise capital in the U.S. through debt or equity issuances.
These alternatives could result in higher effective tax rates or increased interest expense.
Included in Zebra’s cash, restricted cash, investments and marketable securities are
amounts held by foreign subsidiaries. Zebra had $173,483,000 as of December 31, 2012,
and $96,829,000 as of December 31, 2011 of foreign cash and investments, which are
generally invested in U.S. dollar-denominated holdings.
Contractual Obligations
Zebra’s contractual obligations as of December 31, 2012 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 $ 31,497
$ 10,699
$ 11,125
$4,574
$5,099
Deferred compensation
liability
3,553
—
—
Deferred revenue
24,001
13,326
10,675
Purchase obligations
104,366
104,366
—
—
—
—
3,553
—
—
Total
$163,417
$128,391
$21,800
$4,574
$8,652
Purchase obligations are for purchases made in the normal course of business to meet
operational requirements, primarily raw materials and finished goods.
On October 10, 2012, Zebra entered into a revolving credit agreement for a five-year
$250 million revolving credit facility with a syndicate of banks led by J. P. Morgan
Securities LLC as Administrative Agent. 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. As of December 31, 2012,
we had established letters of credit amounting to $2,300,000, which reduce the funds
available for borrowing under the agreement. No amounts were outstanding under the
credit agreement as of December 31, 2012.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
Recently Issued Accounting Pronouncements
In June 2011, the FASB issued update 2011-05, ASC 220, Comprehensive Income:
Presentation of Comprehensive Income and in December 2011, the FASB issued update
2011-12, ASC 220, Comprehensive Income: Deferral of the Effective Date for Amendments
to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive
Income in Accounting Standards Update No. 2011-05. ASU No. 2011-12 is to defer only
those changes in ASU No. 2011-05 that relate to the presentation of reclassification
adjustments. Entities should continue to report reclassifications out of accumulated other
comprehensive income consistent with the presentation requirements in effect before
ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU
No. 2011-12, including the requirement to report comprehensive income either in a single
continuous financial statement or in two separate but consecutive financial statements.
This standard is effective for interim and annual periods beginning after December 15,
2011. The adoption of this standard moved the Other Comprehensive Income statement
disclosure from our footnote to its own financial statement for our 10-Q filings in 2012.
In September 2011, the FASB issued update 2011-08, ASC 350, Intangibles Goodwill and
Other: Testing Goodwill for Impairment. This updated guidance simplifies how companies
test goodwill for impairment. Essentially, companies are no longer required to calculate
the fair value of a reporting unit unless the entity determines that it is more-likely-than-
not that its fair value is less than its carrying amount using a qualitative assessment. This
standard is effective for fiscal years beginning after December 15, 2011. The adoption of
this standard did not have any effect upon our consolidated financial statements.
In July 2012, the FASB issued update 2012-03, ASC 350, Intangibles Goodwill and Other:
Testing Indefinite-Lived Intangible Assets for Impairment. This updated guidance provides
entities with the option to make qualitative assessments about the likelihood that an
indefinite-lived intangible asset is impaired to determine whether it should perform a
quantitative impairment test. This standard is effective for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012. The adoption of this
standard did not have any effect upon our consolidated financial statements.
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’s objective is to achieve
stable and predictable targeted rates of return, and to provide the liquidity necessary for
the operation of the business.
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 investments, 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,
2011
2012
$ (3,657)
$ (0.05)
$ (3,423)
$ (0.05)
$ 3,657
$ 0.05
$ 3,423
$ 0.05
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. 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)
As of December 31,
2011
2012
$
824
$ 0.01
$ 5,193
$ 0.07
$ 895
$ 0.01
$ 5,970
$ 0.08
Equity Price Risk
Zebra’s investment manager uses an investment strategy that is principally designed to
preserve capital. 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.
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.
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-29. An index to such materials appears on page F-1.
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 11 of the Notes to the Consolidated Financial Statements
included in this form 10-K for further discussions of hedging activities.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Not applicable.
26
27
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, 2012.
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, 2012, 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 43 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 pieces 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 will be a fundamental element of the design and
implementation of these systems.
As of January 31, 2011, we completed the implementation of the new systems for
our EMEA region. This implementation included customer order entry and invoicing,
inventory procurement and management, certain accounts payable activity, and other
related operational systems. As part of the implementation, we changed many of the
related internal controls, primarily by replacing manual controls with system controls
and streamlining Zebra’s internal operations. These new controls were subject to testing
throughout 2011 and 2012.
As of February 27, 2012, we completed the implementation of the new systems for our
North America region. This implementation included customer order entry and invoicing,
inventory procurement and management, certain accounts payable activity, and other
related operational systems. As part of the implementation, we changed many of the
related internal controls substantially by reducing the number of manual controls with
system controls and streamlining Zebra’s internal operations. These new controls were
subject to testing throughout 2012.
During 2012, we made additional changes to our controls and procedures as part of our
ongoing monitoring of our controls. None of these changes has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting. In
addition, 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.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Zebra Technologies Corporation:
We have audited Zebra Technologies Corporation and subsidiaries’ internal control over
financial reporting as of December 31, 2012, 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 and
subsidiaries’ 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.
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.
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 and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of December 31,
2012, based on the COSO criteria.
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 and subsidiaries as of December 31, 2012 and 2011, and the
related consolidated statements of earnings, comprehensive income, stockholders’
equity, and cash flows for each of the three years in the period ended December 31,
2012, our report dated February 21, 2013 expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Chicago, Illinois
February 21, 2013
28
29
Item 9B. Other Information
PART IV
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Item 15. Exhibits, Financial Statement Schedules
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
To the Board of Directors and Stockholders of
Zebra Technologies Corporation
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,” and “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 “Compensation Discussion and Analysis-Executive
Summary,” “Compensation Discussion and Analysis,” “Executive Compensation,”
“Director Compensation,” “Compensation Committee Interlocks and Insider Participation”
and “Compensation Committee Report.”
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
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.”
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, there unto duly authorized, on the 21st day of February 2013.
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.
Date
February 21, 2013
February 21, 2013
Signature
Title
/s/Anders Gustafsson
Anders Gustafsson
Chief Executive Officer and Director
(Principal Executive Officer)
/s/Gerhard Cless
Gerhard Cless
Executive Vice President,
Director
/s/Michael C. Smiley
Michael C. Smiley
Chief Financial Officer
(Principal Financial Officer)
/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
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Earnings for the years ended
December 31, 2012, 2011, and 2010
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2012, 2011, and 2010
Consolidated Statements of Stockholders’ Equity
for the years ended December 31, 2012, 2011, and 2010
Consolidated Statements of Cash Flows
for the years ended December 31, 2012, 2011, and 2010
Notes to Consolidated Financial Statements
Financial Statement Schedule
The following financial statement schedule is included herein:
Page
F-1
F-2
F-3
F-3
F-4
F-5
F-6
February 21, 2013
Schedule II - Valuation and Qualifying Accounts
F-29
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.
February 21, 2013
February 21, 2013
February 21, 2013
February 21, 2013
February 21, 2013
February 21, 2013
We have audited the accompanying consolidated balance sheets of Zebra Technologies
Corporation and subsidiaries (the Company) as of December 31, 2012 and 2011, and the
related consolidated statements of earnings, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2012.
Our audits also included the financial statement schedule listed in Index at 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 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Zebra Technologies Corporation
and subsidiaries at December 31, 2012 and 2011, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended
December 31, 2012, 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, 2012, 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 21, 2013
expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Chicago, Illinois
February 21, 2013
30
F-1
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Investments and marketable securities
Accounts receivable, net
Receivable from buyer
Inventories, net
Deferred income taxes
Income tax receivable
Prepaid expenses and other current assets
Long-term deferred income taxes
Goodwill
Other intangibles, net
Long-term investments and marketable securities
Other assets
Total assets
December 31,
2012
December 31,
2011
December 31,
2012
December 31,
2011
LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 64,740
324,140
168,732
0
123,357
13,484
0
16,410
$ 36,418
182,398
155,230
27,580
133,288
13,931
13,111
22,917
2,602
94,942
39,151
5,195
13,646
97,822
11,866
79,703
12,667
107,879
4,196
$ 967,748
$ 899,006
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes payable
Total current liabilities
Deferred rent
Other long-term liabilities
Total liabilities
Stockholders’ equity:
Preferred Stock
Class A Common Stock
Additional paid-in capital
Treasury stock
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
57,234
13,326
1,609
95,214
1,303
14,229
110,746
0
722
139,523
(641,438)
64,612
11,089
0
108,974
1,592
11,515
122,081
0
722
131,422
(596,622)
1,368,520
1,245,616
(10,325)
857,002
(4,213)
776,925
Total liabilities and stockholders’ equity
$ 967,748
$ 899,006
See accompanying notes to consolidated financial statements.
Total current assets
710,863
584,873
Property and equipment at cost,
less accumulated depreciation and amortization
101,349
$
23,045
$
33,273
Revenue from services and software
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share data)
Year Ended December 31,
2011
2012
2010
Year Ended December 31,
2011
2012
2010
Net sales
Net sales of tangible products
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
Acquisition costs
Litigation settlement
Exit and restructuring costs
Asset impairment charge
Total operating expenses
Operating income
Other income (expense):
Investment income
Foreign exchange loss
Other, net
Total other income (expense)
Income from continuing operations
before income taxes
Income taxes
$948,227
47,941
996,168
479,633
24,891
504,524
$ 936,282
47,206
983,488
469,834
26,885
496,719
491,644
486,769
129,906
87,364
92,167
4,673
3,109
0
960
9,114
127,797
89,926
81,345
3,320
304
0
2,041
0
$ 849,530
44,829
894,359
450,630
22,954
473,584
420,775
112,365
82,575
73,229
3,211
0
(1,082)
2,262
0
327,293
164,351
304,733
182,036
272,560
148,215
2,485
(941)
(1,721)
(177)
1,944
(2,006)
(2,255)
(2,317)
2,678
(169)
(1,117)
1,392
164,174
42,277
179,719
49,376
149,607
44,993
Basic earnings per share
Income from continuing operations
$
Income (loss) from discontinued operations
Net Income
Diluted earnings per share
Income from continuing operations
$
$
Income (loss) from discontinued operations
Net Income
$
2.36
0.02
2.38
2.35
0.02
2.37
$
$
$
$
2.42
0.82
3.24
2.40
0.82
3.22
$
1.83
(0.05)
$
1.78
$
1.82
(0.05)
$
1.77
Basic weighted average shares outstanding
51,566
53,854
57,143
Diluted weighted average and
equivalent shares outstanding
51,843
54,191
57,428
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
$122,904
$174,643
$ 101,778
Year Ended December 31,
2011
2012
2010
Other comprehensive income (loss):
Unrealized gain (loss) on hedging
transactions, net of income taxes
Unrealized holding gain (loss)
on investments, net of income taxes
(7,241)
6,209
887
242
(385)
(688)
(949)
(406)
67
Income from continuing operations
121,897
130,343
104,614
Income (loss) from discontinued operations,
net of tax
1,007
44,300
(2,836)
Foreign currency translation adjustment
F-2
F-3
Net income
$ 122,904
$ 174,643
$ 101,778
Comprehensive income
$ 116,792
$179,779
$100,490
See accompanying notes to consolidated financial statements.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
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
Repurchase of 4,353,801 shares of Class A Common Stock
Issuance of 809,084 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 gain on hedging transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2011
Repurchase of 1,473,863 shares of Class A Common Stock
Issuance of 488,863 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 loss on hedging transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2012
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
$ 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
—
—
—
—
—
—
—
—
—
(160,200)
(12,598)
210
14,095
—
—
—
—
25,607
—
—
—
—
—
—
—
—
—
—
174,643
—
—
—
—
—
—
—
—
(385)
6,209
(688)
(160,200)
13,009
210
14,095
174,643
(385)
6,209
(688)
$722
$ 131,422
$(596,622)
$1,245,616
$ (4,213)
$776,925
—
—
—
—
—
—
—
—
—
(54,373)
(6,196)
(430)
14,727
—
—
—
—
9,557
—
—
—
—
—
—
—
—
—
—
122,904
—
—
—
—
—
—
—
—
887
(7,241)
242
(54,373)
3,361
(430)
14,727
122,904
887
(7,241)
242
$722
$ 139,523
$(641,438)
$1,368,520
$ (10,325)
$857,002
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended December 31,
2012
2011
2010
Year Ended December 31,
2012
2011
2010
Cash flows from operating activities:
Cash flows from investing activities:
Net income
$122,904
$174,643
$101,778
Purchases of property and equipment
(22,443)
Proceeds from the sale of business
27,580
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
Equity-based compensation
Asset impairment charges
Impairment of investments
Excess tax benefit from
share-based compensation
Loss on sale of property and equipment
Gain on sale of business
Deferred income taxes
Changes in assets and liabilities,
net of businesses acquired:
Accounts receivable, net
Inventories, net
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Other operating activities
Net cash provided by
operating activities
26,177
14,727
9,114
0
(1,578)
311
(930)
8,067
(8,647)
11,530
7,304
(14,605)
(4,193)
4,351
16,335
(7,536)
24,000
14,095
0
219
(1,392)
284
(68,745)
10,796
(3,269)
(19,545)
(12,721)
(5,439)
(11,086)
(14,131)
(14,983)
5,582
31,209
11,871
0
0
(244)
(58)
0
(1,347)
(4,603)
(33,884)
(2,615)
6,619
15,386
3,414
16,980
(2,669)
183,331
78,308
141,837
Acquisition of businesses,
net of cash acquired
Acquisition of intangible assets
Purchases of long-term investments
Purchases of investments and
marketable securities
Maturities of investments and
marketable securities
Proceeds from sales of investments
and marketable securities
Net cash provided by (used in)
investing activities
Cash flows from financing activities:
(26,918)
161,206
0
(30,721)
0
0
(1,232)
(3,497)
0
0
(59,876)
(3,500)
(9,125)
(347,609)
(991,633)
(382,091)
145,028
607,996
274,208
164,410
303,801
102,485
(105,535)
53,220
(39,616)
Purchase of treasury stock
(54,373)
(160,200)
(102,091)
Proceeds from exercise of stock options
and stock purchase plan purchases
Excess tax benefit from
equity-based compensation
3,361
13,009
8,975
1,578
1,392
244
Net cash used in financing activities
(49,434)
(145,799)
(92,872)
Effect of exchange rate changes on cash
(40)
1,835
562
Net increase (decrease) in cash and
cash equivalents
Cash balance of discontinued operations
at beginning of period
Less: Cash balance of discontinued
operations at end of period
Cash and cash equivalents
at beginning of period
28,322
(12,436)
9,911
0
0
1,301
0
1,694
1,301
36,418
47,553
37,249
Cash and cash equivalents at end of period
$ 64,740
$ 36,418
$ 47,553
Supplemental disclosures of cash flow information:
Income taxes paid
$ 20,059
$ 65,364
$ 26,563
See accompanying notes to consolidated financial statements.
F-5
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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 (Navis)
and Multispectral Solutions Inc., which we referred to as Zebra Enterprise Solutions
Group (ZES). 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 we
consolidated the remaining operations of ZES and no longer report ZES as a separate
segment since it is not greater than 10% of Zebra’s consolidated totals.
Reclassifications. Prior-period amounts will differ from amounts previously reported
because certain immaterial amounts in the prior years’ financial statements have been
reclassified to conform to the current year’s presentation.
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
2012 fiscal year, our quarter end dates were as follows:
• March 31,
• June 30,
• September 29, 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.
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 three months to be cash equivalents. These highly liquid short-term investments
are readily convertible to known amounts of cash and are so near their maturity that they
present insignificant risk of a change in value because of changes in interest rates.
Investments and Marketable Securities. Investments and marketable securities at
December 31, 2012, consisted of U.S. government and agency securities, state and
municipal bonds, corporate bonds, and other security interests. 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, unless we determine them to
be other-than-temporarily impaired.
Zebra’s investments and marketable securities are classified as available-for-sale
securities except for securities held in Zebra’s deferred compensation plan which are
considered trading securities. Investments in marketable debt securities are classified
based on intent and ability to sell investment securities. Zebra’s available-for-sale
securities are used to fund further acquisitions and other operating needs and therefore
can be sold prior to maturity. Investments in marketable debt securities for which Zebra
intends to sell within the next year are classified as current and those that we intend to
hold in excess of one-year are classified as non-current.
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. Zebra’s continuing practice is to recognize interest and penalties related
to income tax matters as part of income tax expense. During 2012 Zebra recognized an
increase of $680,000 in the liability for tax benefits related to the foreign restructuring.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
Balance at January 1, 2011
Additions based on tax positions related to 2011
Additions based on tax positions related to 2012
Balance at December 31, 2012
$ 4,000
0
680
$ 4,680
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 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 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.
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
• 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.
F-6
F-7
We performed our annual impairment test in June 2012 and determined that our goodwill
was not impaired as of the end of May 2012. Zebra has two reporting units required for
its annual goodwill impairment test. As of our May 2012 testing date, the larger of the two
reporting units’ fair value exceeded its carrying value by a significant amount. The fair
value amount by which the second smaller reporting unit exceeded the carrying value
ranged from approximately 8% under the Income Approach and 31% under the Market
Approach. Key assumptions used in the first step of the goodwill impairment test were
determined by management utilizing the internal operating plan. The key assumptions
utilized included forecasted growth rates for revenues and operating expenses as well as
a discount rate which is determined by looking at current risk-free rates of capital, current
market interest rates, and the evaluation of a risk premium relevant to the business
segment. Due to the deterioration in the smaller reporting unit’s operating results during
the third quarter our fair value calculation for the smaller reporting unit changed and we
determined our goodwill associated with the smaller reporting unit to be impaired. The
above impairment indicators led us to conclude an interim goodwill test was necessary.
Zebra performed the first step of the impairment test which failed. As a result, Zebra
also performed a second step analysis and recorded a goodwill impairment charge of
$9,114,000 as of September 29, 2012. After this impairment charge, there is no remaining
goodwill in the smaller reporting unit.
Other intangible assets capitalized consist primarily of current technology, customer
relationships, patents and patent rights. These assets are recorded at cost and amortized
on a straight-line basis over a weighted-average life of 5.3 years, which approximates the
estimated useful lives. Weighted average lives remaining by intangible asset class are
as follows: Current technology 4.0 years; Patent and patent rights 4.4 years; Customer
relationships 7.3 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.
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.
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 is expensed as incurred. Advertising costs totaled $8,983,000 for
the year ended December 31, 2012, $8,070,000 for the year ended December 31, 2011 and
$6,836,000 for the year ended December 31, 2010.
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 printers against
defects in material and workmanship. Printheads are warranted for nine months and
batteries are warranted for twelve months. Battery based products, such as location
tags, are covered by a 30 day warranty. A provision for warranty expense is recorded
at the time of sale and adjusted 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
2012
$ 4,613
6,828
(7,189)
$ 4,252
Year Ended December 31,
2011
2010
$ 4,554
5,856
(5,797)
$ 4,613
$ 3,813
6,427
(5,686)
$ 4,554
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
11 for additional information on our derivatives and hedging activities.
Equity-Based Compensation. At December 31, 2012, 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 more fully in Note 16.
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 upon grant
to up to 5 years.
The compensation expense and the related income tax benefit for share-based payments
were included in the Consolidated Statement of Earnings as follows (in thousands):
Compensation costs and
related income tax benefit:
Cost of sales
Selling and marketing
Research and development
General and administration
Total compensation expense
Income tax benefit
For the years ended December 31,
2010
2011
2012
$ 1,061
$ 1,029
$ 882
1,792
1,593
10,281
$14,727
$ 5,132
1,463
1,387
9,228
$13,107
$ 4,522
1,368
1,282
6,580
$ 10,112
$ 3,489
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 cash flows from financing activities. Cash flows resulting from the tax
benefits of tax deductions in excess of the compensation cost recognized (excess tax
benefits) are classified as financing cash flows in the statement of cash flows. The tax
benefits classified as financing cash flows was $1,578,000 as of December 31, 2012,
$1,392,000 as of December 31, 2011, and $244,000 as of December 31, 2010.
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 Translation. 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 expenses acquisition costs as incurred.
Concentration risks. 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.
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 8 for further information related to
impairment charges.
F-8
F-9
Recently Issued Accounting Pronouncements. In June 2011, the FASB issued update
2011-05, ASC 220, Comprehensive Income: Presentation of Comprehensive Income and
in December 2011, the FASB issued update 2011-12, ASC 220, Comprehensive Income:
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05. ASU No. 2011-12 is to defer only those changes in ASU No. 2011-05
that relate to the presentation of reclassification adjustments. Entities should continue to
report reclassifications out of accumulated other comprehensive income consistent with
the presentation requirements in effect before ASU No. 2011-05. All other requirements
in ASU No. 2011-05 are not affected by ASU No. 2011-12, including the requirement to
report comprehensive income either in a single continuous financial statement or in two
separate but consecutive financial statements. This standard is effective for interim and
annual periods beginning after December 15, 2011. The adoption of this standard moved
the Other Comprehensive Income statement disclosure from our footnote to its own
financial statement for our 10-Q filings in 2012.
In September 2011, the FASB issued update 2011-08, ASC 350, Intangibles Goodwill and
Other: Testing Goodwill for Impairment. This updated guidance simplifies how companies
test goodwill for impairment. Essentially, companies are no longer required to calculate
the fair value of a reporting unit unless the entity determines that it is more-likely-than-
not that its fair value is less than its carrying amount using a qualitative assessment. This
standard is effective for fiscal years beginning after December 15, 2011. The adoption of
this standard did not have any effect upon our consolidated financial statements.
In July 2012, the FASB issued update 2012-03, ASC 350, Intangibles Goodwill and Other:
Testing Indefinite-Lived Intangible Assets for Impairment. This updated guidance provides
entities with the option to make qualitative assessments about the likelihood that an
indefinite-lived intangible asset is impaired to determine whether it should perform a
quantitative impairment test. This standard is effective for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012. The adoption of this
standard did not have any effect upon our consolidated financial statements.
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.
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. (i.e. U.S. Treasuries and money
market funds)
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 at December 31, 2012, is an auction rate security which is classified
as available for sale and is reflected at fair value. Due to events in credit markets, however,
the auction event for the instrument held by Zebra is failed. Therefore, the fair value of
this security is estimated utilizing broker quotations, discounted cash flow analysis or
other types of valuation adjustment methodologies at December 31, 2012. 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. The security was also
compared, when possible, to other securities with similar characteristics.
The decline in the market value of the auction rate security 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 this auction rate security
until it is sold at auction, redeemed at carrying value or reach maturity, we have classified
it as a long-term investment on the balance sheet.
Financial assets and liabilities carried at fair value as of December 31, 2012, are classified
below (in thousands):
Financial assets and liabilities carried at fair value as of December 31, 2011, are classified
below (in thousands):
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets:
U.S. government and
agency securities
Obligations of government-
sponsored enterprises (1)
State and municipal bonds
Corporate securities
Other investments
$ 83,532
$ 13,455
$
4,840
96,516
0
0
0
0
0
0
0
$ 96,987
4,840
96,516
Assets:
U.S. government and
agency securities
Obligations of government-
sponsored enterprises (1)
State and municipal bonds
128,368
2,588
130,956
Corporate securities
36
0
36
Other investments
$ 25,540
$ 25,307
$
0
0
0
$ 50,847
16,612
142,873
16,612
142,873
0
0
0
0
77,321
2,588
79,909
36
0
36
Investments subtotal
83,532
243,215
2,588
329,335
Investments subtotal
25,540
262,149
2,588
290,277
Money market investments
related to the deferred
compensation plan
3,553
0
0
3,553
Total assets at fair value
$ 87,085
$ 243,215
$ 2,588
$ 332,888
Liabilities:
Forward contracts (2)
2,626
6,584
Money market investments
related to the deferred
compensation plan
3,199
0
0
0
9,210
3,199
Total assets at fair value
$ 31,365
$ 268,733
$ 2,588
$ 302,686
Forward contracts (2)
Liabilities related to the
deferred compensation plan
$ 1,174
$
871
3,553
0
Total liabilities at fair value
$ 4,727
$
871
$
$
0
0
0
$ 2,045
Liabilities:
3,553
$ 5,598
Liabilities related to the
deferred compensation plan
$ 3,199
Total liabilities at fair value
$ 3,199
$
$
0
0
$
$
0
0
$ 3,199
$ 3,199
1) Includes investments in notes issued by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Federal Farm Credit Banks and the Federal Home Loan Bank.
2) The fair value of forward contracts are calculated as follows:
a. Fair value of a collar or put option contract associated with forecasted sales hedges are calculated using bid
and ask 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 current forward points.
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-10
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,
2011
2012
U.S. government and
agency securities
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 (losses) for the period included
in earnings attributable to the change in unrealized
losses relating to assets still held at end of period
$ 2,588
0
0
0
0
$ 2,588
$ 5,597
0
(255)
317
(3,071)
$ 2,588
$ 0
$ 0
Obligations of government-
sponsored enterprises
State and municipal bonds
Corporate securities
Other investments
As of December 31, 2012 and December 31, 2011, 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, 2012 and 2011.
The following is a summary of short-term and long-term investments at December 31,
2012 and December 31, 2011 (in thousands):
As of December 31, 2012
Less than 1 year
1 to 5 years
6 to 10 years
Thereafter
Total
As of December 31, 2011
Gross
Amortized Unrealized Unrealized
Losses
Gross
Gains
Cost
Estimated
Fair
Value
$ 50,738
$ 115
$
(6)
$ 50,847
16,581
142,586
81,132
36
32
330
164
0
(1)
16,612
(43)
142,873
(1,387)
79,909
0
36
As of December 31, 2012
Amortized
Cost
Estimated
Fair
Value
$ 323,210
$ 324,140
0
5,586
0
0
5,195
0
$ 328,796
$ 329,335
Total investments
$ 291,073
$ 641
$ (1,437)
$ 290,277
The maturity dates of investments as of December 31, 2012 are as follows (in thousands):
Gross
Amortized Unrealized Unrealized
Losses
Gross
Gains
Cost
Estimated
Fair
Value
U.S. government and
agency securities
Obligations of government-
sponsored enterprises
State and municipal bonds
Corporate securities
Other investments
$ 96,913
$
77
$
(3)
$ 96,987
4,830
96,383
130,634
36
10
161
790
0
0
4,840
(28)
96,516
(468)
130,956
0
36
Total investments
$ 328,796
$ 1,038
$ (499)
$ 329,335
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 term maturities.
Note 4 Investments and Marketable Securities
Investments in marketable debt securities are classified based on intent and ability
to sell investment securities. Zebra’s available-for-sale securities are used to fund
further acquisitions and other operating needs and therefore can be sold prior to
maturity. Investments in marketable debt securities for which Zebra intends to sell
within the next year are classified as current and those that we intend to hold in excess
of one-year are classified as non-current.
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):
Changes in unrealized gains and losses
on available-for-sale securities, net of tax,
recorded in accumulated other
comprehensive income (loss)
Year Ended December 31,
2012
2011
2010
$887
$(385)
$(406)
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, 2012. 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
Unrealized
Losses
Number of
investments
Aggregate
Market Value
Unrealized
Losses
4
19
33
56
$ 5,179
24,969
15,429
$45,577
$ (3)
(27)
(23)
$ (53)
1
1
14
16
$ 1,790
1,092
7,262
$ 10,144
$ (0)
(1)
(445)
$ (446)
As of December 31, 2011, 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
5
16
35
56
$ 4,599
24,556
31,461
$60,616
$ (3)
(7)
(855)
$(865)
6
11
53
70
$ 6,708
18,612
17,057
$42,377
$ (4)
(36)
(532)
$ (572)
F-12
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):
Note 7 Property and Equipment
Property and equipment, which includes assets under capital leases, is comprised of the
following (in thousands):
Note 8 Goodwill and Other Intangible Asset Data
Intangible asset data are as follows (in thousands):
Changes in the net carrying value amount of goodwill were as follows (in thousands):
285
159
(264)
Computers and software
Buildings
Land
Machinery, equipment and tooling
Furniture and office equipment
Automobiles
Leasehold improvements
Projects in progress – computers and software
Projects in progress – other
As of December 31,
2011
2012
$ 2,134
$ 2,086
504
88,222
12,672
130,357
18
16,380
2,217
15,561
504
81,464
12,003
111,793
18
15,494
9,135
11,332
Amortized intangible assets
Current technology
Patent and patent rights
Customer relationships
Total
Amortization expense for the
year ended December 31, 2012
Estimated amortization expense:
As of December 31, 2012
Gross Accumulated
Amount Amortization
Net
Amount
Unamortized intangible assets:
Goodwill at gross cost
Impairment charge – 2008
$ 18,978
$ (12,391)
$ 6,587
Goodwill as of December 31, 2011
Acquisitions – LaserBand
Impairment charge – 2012
29,569
20,493
(14,618)
(2,880)
$69,040
$(29,889)
14,951
17,613
$39,151
$ 4,673
Total
$ 180,731
(101,028)
79,303
24,353
(9,114)
268,065
243,829
For the year ended December 31, 2013
$ 7,382
Less accumulated depreciation and amortization
(166,716)
(146,007)
Net property and equipment
$ 101,349
$ 97,822
Other items related to property and equipment are as follows (in thousands):
For the year ended December 31, 2014
For the year ended December 31, 2015
For the year ended December 31, 2016
For the year ended December 31, 2017
As of December 31,
2011
2012
Thereafter
Total
7,133
6,669
6,231
5,000
6,736
$39,151
Unamortized computer software costs
$ 48,873
$ 42,134
Amortization of capitalized software
$ 7,912
$ 6,180
$ 5,624
Total depreciation expense charged to income 21,504
20,680
20,291
Year Ended December 31,
2011
2012
2010
In 2012, we acquired intangible assets in the amount of $31,157,000 for patents,
technology and customer relationships. These intangible assets have an estimated
useful life ranging from 5 to 9 years. See Note 24 Business Combinations for specific
information regarding the acquisition. In 2011, we acquired intangible assets in the
amount of $6,232,000 for patents and other intellectual property, of which, $5,000,000
was accrued as of December 31, 2011. During 2012, Zebra paid $3,500,000 towards
intangible asset commitments previously accrued.
Amortized intangible assets
Current technology
Patent and patent rights
Customer relationships
Total
Amortization expense for the
year ended December 31, 2011
As of December 31, 2011
Gross Accumulated
Amount Amortization
Net
Amount
$ 12,718
$ (11,403)
23,392
1,773
(12,079)
(1,734)
$ 1,315
11,313
39
$37,883
$(25,216)
$12,667
$ 3,320
Goodwill as of December 31, 2012
$ 94,942
Unamortized intangible assets
Goodwill at gross cost
Impairment charges
Goodwill
Note 9 Other Assets
Other assets consist of the following (in thousands):
Money market investments related to the
deferred compensation plan (See Note 17)
Long-term investments
Deposits
Total
As of December 31,
2012
2011
$ 205,084
$ 180,731
(110,142)
(101,028)
$ 94,942
$ 79,703
As of December 31,
2011
2012
$ 3,553
$3,199
9,195
898
80
917
$13,646
$4,196
During 2012, Zebra acquired interests ranging from 4.7% to 19.7% in several venture
capital technology companies for $9,125,000 during the year. These investments are
classified as long term.
Proceeds
Realized gains
Realized losses
Net realized gains (losses) included in
other comprehensive income (loss)
as of the end of the prior year
Year Ended December 31,
2012
2011
2010
$164,410
$ 303,801
$ 102,485
423
(78)
388
(306)
458
(198)
Included in Zebra’s cash, restricted cash, investments and marketable securities are
amounts held by foreign subsidiaries which are generally invested in U.S. dollar-
denominated holdings. Zebra had $173,483,000 as of December 31, 2012, and $96,829,000
as of December 31, 2011 of foreign cash and investments. Amounts held by foreign
subsidiaries are generally subject to U.S. income taxation upon repatriation, however,
Zebra does not see a need to repatriate these funds.
Note 5 Accounts Receivable Reserves
The components of accounts receivable are as follows (in thousands):
Gross accounts receivable
Accounts receivable reserves
Accounts receivable, net
Note 6 Inventories
The components of inventories are as follows (in thousands):
Raw material
Work in process
Deferred costs of long-term contracts
Finished goods
Total inventories, gross
Inventory reserves
As of December 31,
2012
2011
$ 169,401
$156,790
(669)
(1,560)
$ 168,732
$155,230
As of December 31,
2012
2011
$ 31,350
$ 45,795
921
604
104,137
137,012
(13,655)
872
220
101,111
147,998
(14,710)
Total inventories, net
$123,357
$133,288
F-14
F-15
Note 10 Costs Associated with Exit or Disposal Activities
In December 2012, Zebra began a plan to restructure its Location Solutions business
management structure and announced a project to further optimize our manufacturing
operations costs, which includes the consolidation and relocation of support functions.
The costs below incurred for the year ended December 31, 2012 represent the costs
related to the restructuring of Location solutions business management structure.
The costs expected to be incurred relate to the restructuring of Zebra’s manufacturing
operations and relocation of this portion of Zebra’s business from the U.S. to China and
consolidating some activities domestically.
As of December 31, 2012, we have incurred the following exit and restructuring costs
related to the location solutions business management structure and manufacturing
operations relocation and restructuring (in thousands):
Costs incurred for
the year ended
December 31,
2012
Additional
costs
expected to
be incurred
Total costs
expected to
be incurred
As of December 31, 2012, we have incurred the following exit and restructuring costs
related to consolidating the former ZES administrative and accounting function into our
corporate facilities (in thousands):
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Professional services
Relocation and transition costs
Total
for the
year ended
Cost incurred Costs incurred
for the
year ended
December 31, December 31,
2012
2011
Total costs
incurred as of
2012
$ 1,113
$ 0
$ 1,113
890
38
0
0
890
38
$ 2,041
$ 0
$ 2,041
Liabilities and expenses related to exit activities were as follows (in thousands):
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Professional services
Relocation and transition costs
Total
$960
$4,590
$ 5,550
0
0
310
480
310
480
Balance at beginning of period
Charged to earnings
Cash paid
$960
$5,380
$6,340
Balance at the end of period
Year Ended December 31,
2011
2012
$ 1,048
$ 1,479
960
(1,041)
2,041
(2,472)
$ 967
$ 1,048
In January 2011, we announced an agreement to sell Navis, to Cargotec Corporation.
Following the transaction which was completed on March 18, 2011, we retained the
location solutions products from the former ZES, which includes active RFID real-time
location solutions and associated tags and readers. In the first quarter of 2011, we also
announced a plan to consolidate any remaining administrative and accounting functions
from the former ZES into our corporate facilities in Illinois. The costs below incurred for
the year ended December 31, 2011, represent the costs related to the consolidation and
relocation of the administrative and accounting functions. There are no costs in 2012
related to this restructuring as this project was completed in 2011.
Liabilities related to exit activities are included in the accrued liabilities line item on the
balance sheet. Exit costs are included in operating expenses under the line item exit and
restructuring costs.
Note 11 Derivative Instruments
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.
F-16
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.
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.
Summary financial information related to these activities included in our consolidated
statement of earnings as other income (expense) is as follows (in thousands):
Year Ended December 31,
2012
2011
2010
Change in gains (losses) from
foreign exchange derivatives
Gain (loss) on net foreign currency assets
Net foreign exchange loss
$(1,347)
406
$ (941)
$ (825)
(1,181)
$(2,006)
$ 5,074
(5,243)
$ (169)
Hedging of Anticipated Sales
We can manage the exchange rate risk of anticipated euro-denominated sales using
purchased options, forward contracts, and participating forwards. 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.
Summary financial information related to the cash flow hedges is as follows (in thousands):
Net unrealized gains (losses)
in other comprehensive income:
Gross
Income tax expense (benefit)
Net
As of
December 31, December 31,
2011
2012
$ (9,936)
(2,695)
$ (7,241)
$ 8,878
2,669
$ 6,209
Summary financial information related to the cash flow hedges of future revenues follows
(in thousands, except percentages):
As of
December 31, December 31,
2011
2012
Notional balance of outstanding contracts versus the dollar
Hedge effectiveness
€ 88,680
100%
€ 85,105
100%
Net gains and (losses) included in revenue
$4,201
$ (4,159)
$ (630)
Year Ended December 31,
2012
2011
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):
Notional balance of outstanding contracts:
Euro/US dollar
Pound/US dollar
Net fair value of outstanding contracts
As of
December 31, December 31,
2011
2012
Assets:
Prepaid expenses and other current assets
€ 37,598
£ 3,810
$
18
€ 36,684
£ 6,016
$
(54)
Total
Liabilities:
Accrued liabilities
Total
As of
December 31, December 31,
2011
2012
$ 0
$ 0
$ 2,045
$ 2,045
$ 9,210
$ 9,210
$ 0
$ 0
F-17
Note 12 Commitments and Contingencies
Leases. Minimum future obligations under all non-cancelable operating leases as of
December 31, 2012 are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
Operating Leases
$ 10,699
7,336
3,788
2,501
2,074
5,099
$ 31,497
Rent expense for operating leases charged to operations was as follows (in thousands):
Rent expense
Year Ended December 31,
2011
2012
2010
$15,254
$13,907
$ 11,469
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 9 years with breaking periods specified in the lease
agreements.
Letters of Credit. In connection with various customer contracts, Zebra has entered into
two letters of credit agreements with a bank. The contingent liability of Zebra under these
agreements as of December 31, 2012, is $482,000. See below for letters of credit related
to our revolving credit agreement.
Revolving Credit Agreement. On October 10, 2012, Zebra entered into a revolving credit
agreement for a five-year $250,000,000 revolving credit facility with a syndicate of banks
led by J. P. Morgan Securities LLC as Administrative Agent. 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 a spread over the base rate, which
base rate is the greater of: the prime rate, the Federal Funds Effective Rate plus one-half
of one percent (0.50%), or an adjusted LIBOR rate, plus one percent (1%). The spread is
dependent on Zebra’s ratio of Total Debt to EBITDA, and ranges from 0.25% to 1.75%. The
spread in effect at closing for prime rate and Federal Funds based loans was 0.00%. The
spread for LIBOR-based loans ranges from 1.00% to 1.75%. The spread in effect at closing
for LIBOR-based loans was 1.00%. Zebra did not make any barrow any monies under the
New Credit Agreement at the time of closing.
The credit agreement includes customary representations, warranties, affirmative and
negative covenants and events of default. It also contains financial covenants tied to
Zebra’s leverage ratio and interest coverage ratio. As of December 31, 2012, we had
established letters of credit amounting to $2,300,000, which reduce the funds available
for borrowing under the agreement. As of December 31, 2012 and 2011, no amounts were
outstanding under the company’s credit agreement.
The credit agreement above replaced Zebra’s August 2008 five year $100,000,000
credit agreement.
Legal Proceedings. 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 13 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. 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. Zebra matches 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.
Company contributions to these plans, which were charged to operations, approximated
the following (in thousands):
401(k)
Total
Year Ended December 31,
2011
2010
$4,813
$4,813
$ 4,586
$4,586
2012
$5,138
$5,138
Note 14 Stockholders’ Equity
Share count and par value data related to stockholders’ equity are as follows:
As of
December 31, December 31,
2011
2012
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
0.01
10,000,000
0
$
0.01 $
150,000,000
72,151,857
50,908,267
0.01
150,000,000
72,151,857
52,095,166
21,243,590
20,056,691
During the year ended December 31, 2012, Zebra purchased 1,473,863 shares of common
stock for $54,373,000 under board authorized share repurchase plans compared to the
year ended December 31, 2011, in which Zebra purchased 4,353,801 shares of common
stock for $160,200,000. During the year ended December 31, 2010, Zebra purchased
3,349,286 shares of common stock for $102,091,000.
A roll forward of Class A common shares outstanding is as follows:
Balance at the beginning of the year
Repurchases
Stock options, rights and ESPP issuances
Restricted share issuances
Restricted share forfeitures
Shares withheld for tax obligations
Balance at the end of the period
Year Ended December 31,
2011
2012
52,095,166
55,711,325
(1,473,863)
(4,353,801)
246,625
242,238
(130,119)
(71,780)
593,574
215,510
(17,138)
(54,304)
50,908,267
52,095,166
Note 15 Earnings (Loss) Per Share
For the years ended December 31, 2012, 2011, and 2010, earnings (loss) per share were
computed as follows (in thousands, except per-share amounts):
Weighted average shares:
Weighted average common
shares outstanding
Effect of dilutive securities
outstanding
Diluted weighted average
shares outstanding
Earnings (loss):
Year Ended December 31,
2011
2012
2010
51,566
53,854
57,143
277
337
285
51,843
54,191
57,428
Income from continuing operations
$121,897
$130,343
$104,614
Income (loss) from
discontinued operations
Net Income
Basic per share amounts:
1,007
$122,904
44,300
$174,643
(2,836)
$101,778
Income from continuing operations
$ 2.36
$ 2.42
$ 1.83
Income (loss) from
discontinued operations
Net Income
Diluted per share amounts:
0.02
0.82
(0.05)
$ 2.38
$ 3.24
$ 1.78
Income from continuing operations
$ 2.35
$ 2.40
$ 1.82
Income (loss) from
discontinued operations
Net Income
0.02
0.82
(0.05)
$ 2.37
$ 3.22
$ 1.77
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
1,753,311
1,425,880
1,844,038
Year Ended December 31,
2011
2012
2010
F-18
F-19
Note 16 Equity-Based Compensation
As of December 31, 2012, 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 19, 2011, Zebra’s stockholders approved the 2011 Zebra Technologies
Corporation Long Term Incentive Plan (the 2011 Plan), which included authorization
for issuance of awards of 5,500,000 shares under the 2011 Plan. The 2011 Plan became
effective immediately and superseded the 2006 Incentive Compensation Plan (the 2006
Plan), 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 awards granted under the prior plans until such awards have been
exercised, forfeited, cancelled, expired or otherwise terminated in accordance with the
terms of such grants. The types of awards available under the 2011 Plan are incentive
stock options, nonqualified stock options, stock appreciation rights (SARs), restricted
stock, performance shares and units and performance-based cash bonuses. Employees,
directors and consultants of Zebra and its subsidiaries are eligible to participate in the
2011 Plan. The Compensation Committee of the Board of Directors administers the plan.
As of December 31, 2012, 4,805,599 shares were available for grant under the plan, and
options for 438,671 shares were outstanding under the 2011 Plan.
The options and SARs granted under the 2011 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.
Zebra’s time-vested restricted stock grants consist of restricted stock awards (RSA’s) and
performance share awards (PSA’s). The following table shows the number of shares of
time-vested restricted stock granted in 2012 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
At grant
After three years of service
Total
RSA’s
6,955
162,126
169,081
PSA’s
0
72,470
72,470
Total
6,955
234,596
241,551
These RSA’s 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 2011
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. Zebra’s restricted stock awards
are expensed over the vesting period of the related award, which is typically three to five
years. However, some recent awards vested upon grant. Compensation cost is calculated
as the market date fair value on grant date multiplied by the number of shares granted.
The 2006 Plan was superseded by the 2011 Plan. As of December 31, 2012, options
and SARs for 1,830,544 shares were outstanding and exercisable under the 2006 Plan.
These options and SARs 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 1997 Plan was superseded by the 2006 Plan. As of December 31, 2012, options for
705,445 shares were outstanding and exercisable under the 1997 Plan. These options
terms are the same as noted in the paragraph above in the 2006 Plan.
The 2002 Director Plan was superseded by the 2006 Plan. As of December 31, 2012,
options for 80,000 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 acquisition of WhereNet, Zebra assumed existing unvested
stock options exercisable for shares of WhereNet’s common stock and converted them
into options exercisable for Zebra common stock. These converted options have exercise
prices and vesting dates based on their previous terms and all of these options that are
outstanding are fully vested. As of December 31, 2012, outstanding WhereNet options
were exercisable into 12,988 shares of Zebra Class A Common Stock.
On May 19, 2011 Zebra’s stockholders adopted the 2011 Employee Stock Purchase
Plan (which replaced 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 is 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.
Stock purchase plan expense for the year ended December 31, 2012 was $242,000. Stock
purchase plan expense for the year ended December 31, 2011 was $321,000 and for the
year ended December 31, 2010 was $315,000.
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 SARs as well as the fair value of the grants based on those assumptions:
Expected dividend yield
Forfeiture rate
Volatility
Risk free interest rate
2012
0%
10.21%
35.90%
.94%
2011
0%
11.50%
35.33%
2.01%
2010
0%
9.78%
39.50%
2.26%
– Range of interest rates
0.07%-1.95%
0.01% - 3.18% 0.06% - 3.41%
Expected weighted-average life
5.48 years
5.42 years
5.36 years
Fair value of SARs granted
$5,533,000
$5,495,000
$6,527,000
Weighted-average grant date fair
value of options and SARs granted
(per underlying share)
$12.84
$14.29
$10.64
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 activity for the years ended December 31, 2012, 2011, and 2010, was as follows:
Options
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
Intrinsic value of exercised options
2012
Weighted-Average
Exercise Price
$40.43
0
27.02
36.36
43.63
$41.69
$41.75
Shares
1,702,650
0
(148,802)
(1,663)
(20,341)
1,531,844
1,527,814
$1,700,000
2011
Weighted-Average
Exercise Price
$ 37.35
0
26.63
32.29
40.76
$40.43
$40.84
Shares
2,340,959
0
(490,715)
(63,714)
(83,880)
1,702,650
1,589,096
$6,400,000
2010
Weighted-Average
Exercise Price
$35.98
0
23.43
35.87
35.08
$ 37.35
$37.50
Shares
2,767,887
0
(273,564)
(62,798)
(90,566)
2,340,959
1,893,346
$2,214,000
There were no stock options granted in 2012, 2011 or 2010.
The following table summarizes information about stock options outstanding at December 31, 2012.
Aggregate intrinsic value
Weighted-average remaining contractual term
Outstanding
Exercisable
$1,379,000
$1,306,000
3.4 years
3.4 years
F-20
F-21
SAR activity for the years ended December 31, 2012, 2011, and 2010, was as follows:
SARs
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
Intrinsic value of exercised SARs
2012
Weighted-Average
Exercise Price
$28.91
38.51
23.83
34.10
41.57
$31.66
$26.52
Shares
1,287,724
431,040
(102,972)
(75,978)
(4,010)
1,535,804
514,787
$1,500,000
2011
Weighted-Average
Exercise Price
$23.82
41.14
22.20
25.15
19.56
$ 28.91
$ 23.27
Shares
1,234,787
387,847
(95,672)
(238,965)
(273)
1,287,724
305,228
$1,700,000
2010
Weighted-Average
Exercise Price
$19.97
27.82
19.56
22.14
19.56
$23.82
$20.19
Shares
684,058
612,681
(31,001)
(30,678)
(273)
1,234,787
149,318
$353,000
The terms of the SARs are established under the applicable 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 2012 is as
follows: 20,155 SARs vested upon grant and 410,885 SARs vest annually in four equal
amounts on each of the first four anniversaries of the grant date. Vesting of SARs granted
in 2011 is as follows: 16,045 SARs vested after one year, 371,802 SARs vest annually in
four equal amounts on each of the first four anniversaries of the grant date. All SARs
expire 10 years after the grant date.
The following table summarizes information about SARs outstanding at December 31, 2012:
Aggregate intrinsic value
Outstanding
Exercisable
$10,551,000
$5,926,000
Weighted-average remaining contractual term
7.7 years
6.9 years
Restricted stock award activity, granted under the 2011 and 2006 Plans, for the years ended December 31, 2012, 2011 and 2010 was as follows:
Restricted Stock Awards
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
2012
Weighted-Average
Grant Date Fair Value
$28.20
38.45
21.39
34.90
$35.43
Shares
529,880
169,081
(235,580)
(19,019)
444,362
2011
Weighted-Average
Grant Date Fair Value
$25.51
41.17
30.08
29.08
$ 28.20
Shares
594,090
152,636
(197,472)
(19,374)
529,880
Performance share award activity, granted under the 2011 and 2006 Plans, for the years ended December 31, 2012, 2011 and 2010 was as follows:
Performance Share Awards
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
F-22
2012
Weighted-Average
Grant Date Fair Value
$28.58
38.68
41.57
23.06
$35.55
Shares
306,261
72,470
(1,802)
(111,100)
265,829
2011
Weighted-Average
Grant Date Fair Value
$25.35
41.47
28.79
0.0
$ 28.58
Shares
250,596
62,874
(7,209)
0
306,261
2010
Weighted-Average
Grant Date Fair Value
$24.43
27.85
29.11
26.19
$25.51
2010
Weighted-Average
Grant Date Fair Value
$21.68
27.82
0.0
0.0
Shares
406,682
225,985
(22,325)
(16,252)
594,090
Shares
100,660
149,936
0
0
250,596
$25.35
As of December 31, 2012, there was $18,534,000 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.
Deferred income taxes are not provided on undistributed earnings of foreign subsidiaries,
aggregating approximately $256,000,000 at December 31, 2012 and $175,000,000 at
December 31, 2011.
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.
Fair market value
Option price
Expected dividend yield
Expected volatility
Risk free interest rate
2012
$ 35.43
$33.66
0%
21%
0.07%
2011
$34.77
$33.03
0%
33%
0.07%
2010
$27.95
$26.55
0%
25%
0.14%
Note 17 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 mutual funds in the form of
stock or bond funds.
The following table shows the income, asset and liability amounts related to this plan
(in thousands):
As of December 31,
2011
2012
Mutual funds included in other assets
$3,553
$3,199
Deferred compensation liability included
in other long-term liabilities
$3,553
$3,199
Note 18 Income Taxes
The geographical sources of income before income taxes were as follows (in thousands):
United States
Outside United States
Total
Year Ended December 31,
2011
2012
2010
$ 60,388
103,786
$ 164,174
$ 78,593
$ 72,298
101,126
77,309
$179,719
$149,607
Zebra earns a significant amount of our operating income outside the U.S., which is
deemed to be permanently reinvested in foreign jurisdictions. Zebra does not currently
foresee a need to repatriate funds, however, should Zebra require more capital in the U.S.
than is generated by our operations locally, Zebra could elect to repatriate funds held in
foreign jurisdictions or raise capital in the U.S. through debt or equity issuances. These
alternatives could result in higher effective tax rates or increased interest expense.
The provision for income taxes consists of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total
Year Ended December 31,
2011
2012
2010
$ 17,744
$ 7,250
$25,795
1,324
14,258
33,326
1,191
28,175
36,616
8,656
12,477
375
(80)
8,951
405
(122)
3,108
17,157
46,060
(3,591)
2,524
0
12,760
(1,067)
$ 42,277
$49,376
$44,993
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):
Year Ended December 31,
2011
2012
2010
Provision computed at statutory rate
$ 57,461
$ 62,905
State income tax, net of Federal tax benefit
Asset impairment charge
Tax-exempt interest income
Acquisition related items
Domestic manufacturing deduction
Research and experimental credit
Foreign rate differential
Other
1,353
3,190
(8,118)
322
(105)
0
(13,710)
1,884
1,432
0
(334)
0
(212)
(508)
(13,899)
(8)
$ 51,714
1,884
0
(554)
(315)
(70)
(713)
(8,134)
1,181
Provision for income taxes
$42,277
$ 49,376
$ 44,993
In conjunction with the opening of Zebra’s Singapore distribution center and the
establishment of Singapore as a regional headquarter location in 2009, Zebra negotiated
a 10% income tax rate with the Singapore Economic Development Board. The negotiated
rate is a reduction from the then current statutory rate of 17%. The 10% rate expires at
the end of 2014 unless Zebra meets agreed commitments for employees and business
expenditures in Singapore. If these requirements are met, the 10% rate extends through
2018. This agreement reduced Zebra’s consolidated income taxes by $2,002,000 in 2012,
$2,030,000 in 2011, and $1,247,000 in 2010.
F-23
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.
Tax effects of temporary differences that give rise to deferred tax assets and liabilities are
as follows (in thousands):
Deferred tax assets:
Deferred rent
Accrued vacation
Accrued bonus
Deferred compensation
Inventory items
Allowance for doubtful accounts and other receivables
Other accruals
Equity based compensation expense
Unrealized gain on securities
Unrealized loss on other investments
Net operating loss carry-forwards
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized loss on other investments
Depreciation and amortization
Total deferred tax liabilities
Net deferred tax assets
As of December 31,
2011
2010
$
508
2,480
2,747
1,497
6,967
211
6,531
16,620
438
419
$
623
1,926
4,342
1,451
7,072
355
7,355
16,124
288
0
2,462
4,511
(267)
(267)
40,613
43,780
0
(24,527)
(24,527)
$ 16,086
(931)
(17,052)
(17,983)
$25,797
On January 1, 2007, Zebra 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, Zebra identified, evaluated, and measured the amount
of income tax benefits to be recognized for all of its income tax positions. During
2008, Zebra recognized an increase of approximately $4,000,000 in the liability for
unrecognized tax benefits related to an acquisition. During 2012 Zebra recognized an
increase of $680,000 in one of its UK subsidiaries.
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, 2012,
Zebra had approximately $2,518,000 of federal net operating loss carryforwards available
to offset future taxable income which expire in 2022 through 2027. As of December 31,
2011, Zebra also had approximately $27,391,000 of state net operating loss carryforwards
which expire in 2013 through 2021. 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.
F-24
Deferred tax asset valuation allowances included in the temporary differences above are
as follows (in thousands):
The components of other comprehensive income (loss) included in the Consolidated
Statements of Comprehensive Income (Loss) are as follows (in thousands):
Valuation allowance
Balance at the beginning of the year
Additions
Subtractions
2012
$267
0
0
Year Ended December 31,
2011
$267
0
0
Balance at the end of the period
$267
$267
2010
$ 0
267
0
$267
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.
An audit of U.S. federal tax returns for years 2008 through 2010 was completed in 2012.
The tax years 2008 through 2010 remain open to examination by multiple state taxing
jurisdictions. Tax authorities in the United Kingdom have completed income tax audits
for tax years through 2009.
Year Ended December 31,
2012
2011
2010
Changes in unrealized gains and (losses) on
hedging transactions:
Gross
Income tax (benefit)
Net
$(9,936)
(2,695)
$ 8,878
2,669
$ (7,241)
$ 6,209
$ (1,522)
(573)
$ (949)
Changes in unrealized holding gains and
(losses) on investments classified
as available-for-sale:
Gross
$ 1,337
$ (597)
$ (652)
Income tax (benefit)
450
(212)
(246)
Net
$ 887
$ (385)
$ (406)
Foreign currency translation adjustments
$ 242
$ (688)
$ 67
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, 2012, 2011 and
2010, Zebra did not accrue any interest or penalties into income tax expense.
Changes in unrealized gains (losses) on hedging transactions included in net income
totaled $7,203,000 for the year ended December 31, 2012, $(5,109,000) for the year ended
December 31, 2011, and $3,689,000 for the year ended December 31, 2010.
Note 19 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 11 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 accumulated other comprehensive income (loss) included in the
Consolidated Balance Sheets are as follows (in thousands):
Unrealized gains and (losses) on hedging transactions:
Gross
Income tax expense (benefit)
Net
Unrealized gains and (losses) on investments
classified as available-for-sale:
Gross
Income tax expense (benefit)
Net
As of December 31,
2012
2011
$ (2,581)
(599)
(1,982)
$ 7,355
2,096
5,259
540
162
378
(797)
(288)
(509)
Foreign currency translation adjustments
(8,721)
(8,963)
Total accumulated other comprehensive income (loss)
$ (10,325)
$ (4,213)
Note 20 Geographic Data
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.
2012
Net sales
Long-lived assets
2011
Net sales
Long-lived assets
2010
Net sales
Long-lived assets
North Europe, Middle
East & Africa
America
Latin
America
Asia
Total
$ 435,520
90,363
$ 322,970
7,522
$ 100,101
538
$137,577
2,926
$ 996,168
101,349
$ 409,208
88,382
$ 342,578
5,965
$ 89,715
362
$141,987
3,113
$ 983,488
97,822
$ 394,865
78,938
$ 305,659
6,566
$ 80,679
332
$113,156
1,257
$ 894,359
87,093
Net sales by country that are greater than 10% of total net sales are as follows
(in thousands):
2012
2011
2010
United
States
$539,504
$504,283
$482,891
United
Kingdom
Singapore
Other
Total
$ 317,793
$134,349
$ 4,522
$ 996,168
$ 339,027
$136,757
$ 3,421
$ 983,488
$303,604
$105,286
$ 2,578
$894,359
Net sales by major product category are as follows (in thousands):
Hardware
Supplies
Service
and
Software
Shipping
and
Handling
Total
2012
2011
2010
$730,489
$743,308
$676,738
$ 212,499
$ 47,941
$ 5,239
$ 996,168
$ 187,457
$ 47,206
$ 5,517
$ 983,488
$ 167,633
$ 44,829
$ 5,159
$ 894,359
Note 21 Major Customers
Our net sales to significant customers as a percentage of total net sales were as follows:
Customer A
Customer B
Customer C
Year Ended December 31,
2011
2010
20.7%
10.5%
8.9%
19.8%
9.8%
8.0%
2012
20.4%
11.4%
10.3%
All three of the above customers are distributors and not end users. No other customer
accounted for 10% or more of total net sales during these years.
F-25
Note 22 Quarterly Results of Operations (unaudited)
(Amounts in thousands, except per share data)
2012
Net Sales
Net sales of
Cost of Sales
Cost of sales of
tangible products
Cost of sales services
and software
Cost of sales
Gross Profit
Operating expenses:
119,033
119,980
118,751
121,869
4,959
6,720
6,362
6,850
123,992
126,700
125,113
128,719
119,883
120,377
126,924
124,460
Selling and marketing
32,114
32,158
32,321
Research and development
20,416
22,336
22,007
General and administrative
24,320
24,402
22,481
Amortization of
intangible assets
Acquisition costs
Exit and restructuring costs
Asset impairment charge
770
254
0
0
770
1,252
0
0
Total operating expenses
77,874
80,918
Operating income
42,009
39,459
Other income (loss)
Investment income
Foreign exchange loss
Other, net
Total other income (loss)
592
(342)
(364)
(114)
826
(80)
(486)
(260)
1,670
566
0
9,114
88,159
38,765
541
(514)
(294)
(267)
33,313
22,605
20,964
1,463
1,037
960
0
80,342
44,118
526
(5)
(577)
(56)
Income from continuing
operations before income taxes 41,895
39,719
38,498
44,062
Income taxes
11,731
9,366
11,917
9,263
Income from continuing operations 30,164
30,353
26,581
34,799
Income from discontinued
operations, net of tax
0
300
516
191
Net income
$ 30,164
$ 30,653
$ 27,097
$ 34,990
F-26
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2012
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2011
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
tangible products
$ 232,476
$ 234,708
$ 239,786
$ 241,257
Revenue from services
and software
11,399
12,369
12,251
11,922
$
0.58
$
0.58
$
0.52
$
0.69
tangible products
$ 226,120
$ 232,762
$ 241,686
$ 235,714
$
0.54
$
0.60
$
0.64
$
0.63
0.00
0.01
0.01
Revenue from services
and software
11,181
12,779
11,652
11,594
0.57
0.00
0.20
Total net sales
243,875
247,077
252,037
253,179
Net Income
$
0.58
$
0.59
$
0.53
$
Total net sales
237,301
245,541
253,338
247,308
Net Income
$
1.11
$
0.60
$
0.84
$
$
0.58
$
0.58
$
0.51
$
0.68
$
0.54
$
0.60
$
0.64
$
0.63
Basic earnings per share:
Income from
continuing operations
Income from
discontinued operations
Diluted earnings per share:
Income from
continuing operations
Income from
discontinued operations
Net Income
$
0.58
$
0.59
$
0.52
$
0.00
0.01
0.01
Basic weighted average
shares outstanding
51,998
51,771
51,566
50,968
Diluted weighted average and
equivalent shares outstanding 52,301
52,030
51,809
51,262
2011
Net Sales
Net sales of
0.00
0.69
0.00
0.68
Cost of Sales
Cost of sales of
tangible products
Cost of sales services
and software
Cost of sales
Gross Profit
Operating expenses:
110,781
117,732
122,529
118,792
6,522
6,111
7,256
6,996
117,303
123,843
129,785
125,788
119,998
121,698
123,553
121,520
Selling and marketing
28,528
30,950
31,942
36,377
Research and development
21,681
22,487
22,584
23,174
General and administrative
22,706
20,688
18,978
18,973
Amortization of
intangible assets
Acquisition costs
835
0
Exit and restructuring costs
1,886
836
0
66
843
188
138
806
116
(49)
Total operating expenses
75,636
75,027
74,673
79,397
Operating income
44,362
46,671
48,880
42,123
Other income (loss)
Investment income
Foreign exchange loss
Other, net
Total other income (loss)
560
(294)
(254)
12
656
(833)
(243)
(420)
134
(173)
(859)
(898)
594
(706)
(899)
(1,011)
Income from continuing
operations before income taxes 44,374
Income taxes
14,246
Income from continuing operations 30,128
46,251
13,082
33,169
47,982
13,795
34,187
41,112
8,253
32,859
Income (loss) from discontinued
operations, net of tax
31,506
(205)
10,814
2,185
Net income
$ 61,634
$ 32,964
$ 45,001
$ 35,044
Basic earnings per share:
Income from
continuing operations
Income from
discontinued operations
Diluted earnings per share:
Income from
continuing operations
Income from
discontinued operations
0.04
0.67
0.04
0.67
Net Income
$
1.10
$
0.60
$
0.84
$
0.56
0.00
0.20
Basic weighted average
shares outstanding
55,353
54,546
55,339
52,108
Diluted weighted average and
equivalent shares outstanding 55,774
54,958
53,628
52,354
F-27
Note 23 Discontinued Operations
Sale of Navis, LLC – On March 18, 2011, we sold our Navis marine terminal solutions
business and the related WhereNet marine terminal solutions product line of our Zebra
Enterprise Solutions (“ZES”) business segment for approximately $188,588,000 in cash
to Cargotec Corporation. As of December 31, 2011, Zebra had a short term receivable
from the buyer in the amount of $27,580,000 which represented funds held in escrow,
of which, we received $13,790,000 in the first quarter of 2012 and the remaining
$13,790,000 in the third quarter of 2012.
Sale of proveo AG – On August 3, 2011, we entered into a Share Purchase Agreement
with F Two NV (a Belgium company) to sell all of our interest in Zebra Enterprise
Solutions GmbH (formerly proveo AG) business. The loss recorded upon divestiture was
$1,248,000. As part of the sale, Zebra agreed with the buyer to provide a revolving loan
of up to €1,000,000 which was due on August 3, 2012 and bore interest at 6.5%. Zebra
realized tax benefits in the amount of $13,308,000 with the divestiture of proveo AG.
These tax benefits are primarily related to the difference in book basis versus tax basis.
On June 29, 2012 F Two NV (a Belgium company) sold the business and assigned the
revolving loan to OBQ SA (a Luxembourg company) with Zebra’s consent. The revolving
loan commitment was reduced to a lesser amount of up to €526,058. The due date for
borrowings under the agreement was extended from August 3, 2012 to December 31,
2012. The interest rate remains unchanged at 6.5%. In 2012, Zebra realized a gain of
$930,000 related to payments received under the loan agreement. The balance of the
loan outstanding at December 31, 2012 was €376,058.
Beginning in the first quarter of 2011, Zebra reported the results of these businesses as
discontinued operations. The amounts presented below for discontinued operations
include Navis and proveo assets and liabilities, and the operating results of these
businesses for the years ended December 31, 2012, 2011 and 2010. With the Navis sale,
Zebra consolidated the remaining ZES location solutions operations.
Summary results for discontinued operations in our consolidated statement of earnings
are as follows (in thousands):
Net sales
Year Ended December 31,
2011
2010
$ 13,945
$62,489
2012
$ 0
Loss from discontinued operations
$ (141)
$(13,971)
$ (4,673)
Income tax benefit
Gain on sale of discontinued operations
Income tax expense on sale
218
930
0
1,299
68,745
(11,773)
1,837
0
0
Income (loss) from discontinued operations
$1,007
$ 44,300
$ (2,836)
The components of cash flows of discontinued operations in our consolidated statement
of cash flows are as follows (in thousands):
The following table (in thousands) summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of acquisition:
Cash flows from discontinued operations:
Net cash (used) by
operating activities
Net cash provided by (used in)
investing activities
Net cash provided by (used in)
financing activities
Effect of exchange rate changes on cash
Net decrease in cash and
cash equivalents
Cash and cash equivalents at
beginning of period
Year Ended December 31,
2011
2012
2010
$ 0
$ (1,301)
$ (2,164)
0
0
0
0
0
0
0
0
0
0
1,771
(1,301)
(393)
1,301
1,694
Cash and cash equivalents at end of period
$ 0
$ 0
$ 1,301
Note 24 Business Combinations
LaserBand LLC. On July 13, 2012, Zebra acquired all of the outstanding membership
interests in LaserBand LLC (a Missouri limited liability company) for a cash purchase
price of $59,874,000, included in this amount is cash acquired of $1,431,000. As part of
the acquisition closing, an escrow balance of approximately $8,700,000 was established
against the total purchase price.
LaserBand LLC is based in St. Louis, Missouri, and is a leader in patient identification
wristbands and related products. LaserBand strengthens Zebra’s product and patent
portfolio and enables Zebra to offer a wider array of products to hospitals, other
healthcare organizations and other wristband customers. The consolidated financial
statements include the operating results of LaserBand from the date of acquisition.
Pro forma results have not been presented because the effect of the acquisition is not
material to the company’s financial results.
Current assets
Property and equipment
Other assets
Goodwill
Other intangibles
Total assets acquired
Current liabilities
Net assets acquired
As of
July 13, 2012
$
7,017
46
17
24,353
29,560
$ 60,993
1,119
$ 59,874
On a preliminary basis pending the receipt of final valuations, 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 $24,353,000. The intangible
assets of $29,560,000 consist of the following (in thousands):
Current technology
Patents and patent rights
Customer relationships
Acquired other intangibles
Amount
Useful life
$ 6,260
4,580
5 years
7 years
18,720
5 to 9 years
$ 29,560
The goodwill is deductible for tax purposes.
StepOne Systems. On December 21, 2012, Zebra acquired StepOne Systems for a cash
purchase price of $1,543,000, included in this amount is cash acquired of $110,000.
The cash purchase price is subject to certain working capital conditions. As part of
the closing, an escrow balance of $320,000 was established against the total purchase
price. StepOne is a specialty software company focused on solving business retailer’s
challenges through mobile technology. StepOne is located in Pittsburgh, Pennsylvania.
StepOne has been able to increase sales via customer facing technologies, reduced
out-of-stock, labor cost reduction, increased inventory/shipping accuracy and reduction
in manual errors. Retail is an important part of our strategy to further penetrate existing
markets. Retail organizations worldwide are increasingly embracing technology to
improve the customer experience, build brand loyalty and enhance operational efficiency
in the front and back of the store. This investment gives Zebra’s a more comprehensive
solution in mobile POS and makes Zebra more competitive in this market space.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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:
Year ended December 31, 2012
Year ended December 31, 2011
Year ended December 31, 2010
Valuation accounts for inventories:
Year ended December 31, 2012
Year ended December 31, 2011
Year ended December 31, 2010
$ 1,560
$ 1,459
$ 1,406
$ 14,710
$ 9,837
$ 9,054
$
0
$ 343
$ 315
$ 6,758
$ 8,762
$ 5,470
$ 891
$ 669
$ 242
$ 1,560
$ 262
$ 1,459
$ 7,813
$ 13,655
$ 3,889
$ 14,710
$ 4,687
$ 9,837
See accompanying report of independent registered public accounting firm.
F-28
F-29
120
100
80
60
40
12/07
12/08
12/09
12/10
12/11
12/12
C O M P A R I S O N O F 5 Y E A R C U M U L AT I V E T O T A L R E T U R N *
Among Zebra Technologies Corporation, the NASDAQ Composite Index,
the RDG Tec hnology Composite Index, and Peer Group Index
Zebra Technologies Corporation
RDG Technology Composite
NASDAQ Composite
Peer Group Index
Board of Directors
Executive Officers
Stockholder Information
Stock Performance Graph
This graph compares the cumulative annual change since December 31, 2007,
of the total stockholder return of Zebra Technologies Corporation Class
A Common Stock with the cumulative return on the following published
indices: (i) the RDG Technology Composite1; and (ii) 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 RDG Technology Composite and the stocks comprising the
NASDAQ Composite Market Index on December 31, 2007. The comparison
assumes that all dividends were reinvested at the end of the month in which
they were paid.
120
100
80
60
40
20
0
12/07
12/08
12/09
12/10
12/11
12/12
12/07
12/08
12/09
12/10
12/11
12/12
Zebra Technologies
Corporation
NASDAQ Composite
Market Index
RDG Technology
Composite
Peer Group Index
$100.00
$58.39
$81.70
$109.48
$103.11
$113.29
100.00
59.03
82.25
97.32
98.63
110.78
100.00
100.00
56.89
46.44
91.53
71.03
103.10
103.14
69.15
42.07
117.75
42.08
*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
1. Research Data Group, Inc. publishes the RDG Technology Composite.
The RDG Technology Composite is comprised of: Acorn Energy Inc., Astro-Med Inc., AU Optronics
Corp., Electronics For Imaging Inc., Hauppauge Digital Inc., Identive Group Inc., Immersion Corp.,
Intermec Inc., Interphase Corp., Key-Tronic Corp., MAD Catz Interactive Inc., Mercury Computer
Systems Inc., Radcom Limited, Socket Mobile Inc., Synaptics Inc., Top Image Systems Limited,
Transact Technologies Inc., Universal Display Corp., Video Display Corp.
Board of Directors Michael A. Smith, Chairman (1, 2, 3)Chairman and Chief Executive OfficerFireVision, LLC Anders GustafssonChief Executive OfficerZebra Technologies Corporation Gerhard ClessExecutive Vice PresidentZebra Technologies Corporation Richard L. Keyser (2)Chairman EmeritusW. W. Grainger, Inc. Andrew K. Ludwick (1)Private Investor Ross W. Manire (1, 3)Chairman and Chief Executive OfficerExteNet Systems, Inc. Dr. Robert J. Potter (2)President and Chief Executive OfficerR.J. Potter Company (1) Member of Audit Committee(2) Member of Compensation Committee(3) Member of Nominating CommitteeExecutive Officers Anders GustafssonChief Executive Officer Gerhard ClessExecutive Vice PresidentMichael ChoSenior Vice President, Corporate Development Hugh K. GagnierSenior Vice President, Operations Philip GerskovichSenior Vice President, New Growth Platforms Jim L. KaputSenior Vice President, General Counsel and Corporate Secretary Todd R. NaughtonVice President, Finance Michael C. SmileyChief Financial Officer Michael H. TerzichSenior Vice President, Global Sales and MarketingStockholder Information Corporate HeadquartersZebra Technologies Corporation475 Half Day Road, Suite 500Lincolnshire, Illinois 60069 U. S. A.Phone: +1 847 634 6700Fax +1 847 913 8766 Annual MeetingZebra’s Annual Meeting of Stockholders will be held on May 16, 2013 at 10:30 A.M. (Central Time), at Zebra’s headquarters, 475 Half Day Road, Lincolnshire, Illinois 60069 Independent AuditorsErnst & Young LLPChicago, Illinois Transfer Agent and RegistrarComputershare Trust Co., N.A.P.O. Box 43069Providence, RI 02940-3069 Overnight Delivery250 Royall St.Canton, MA 02021 Zebra Toll Free: 877 870-2368 TDD for hearing impaired: 800 231-5469Foreign Shareowners: 201 680-6578TDD for Foreign Shareowners: 201 680-6610Web Site address:Shareowner accounts: www.computershare.com/shareowner/equityaccessGeneral transfer agent: www.computershare.com E-mail contact: shrrelations@bnymellon.com Investor RelationsPlease contact Zebra’s Corporate Headquarters for corporate or product information. Or, visit our Web site at www.zebra.com. Form 10-KThe Zebra Technologies Corporation Form 10-K Report filed with the Securities and Exchange Commission is incorporated in this annual report. The Code of Ethics for Senior Financial Officers is posted on Zebra’s web site. Please contact the Investor Relations Department at the Corporate Headquarters for addition copies of the Form 10-K, or visit our web site to view an online version of the Form 10-K or the Code of Ethics for Senior Financial Officers. Web SiteInvestors are invited to learn more about Zebra Technologies Corporation by accessing the company’s Web site at www.zebra.com. Equal Employment Opportunities/Affirmative ActionIt 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.070809101112120100806040200
www.zebra .com
Corporate Headquarters
Asia Pacific Headquarters
475 Half Day Road, Suite 500
71 Robinson Road
Lincolnshire, IL 60069 USA
#05-02/03
+ 1 847 634 6700
North America Headquarters
333 Corporate Woods Parkway
Singapore 068895
Singapore
+ 65 6858 0722
Vernon Hills, IL 60061-3109 USA
Europe, Middle East and Africa Headquarters
+ 1 847 634 6700
Dukes Meadow, Millboard Road
Bourne End
Buckinghamshire SL8 5XF
Latin America Headquarters
UK
9850 NW 41st St., Suite 110
+44 (0)1628 556000
Doral, FL 33178 USA
+ 1 305 558 8470