2 0 1 3 A N N U A L R E P O R T
CHANGING THE GAME T O O U R S H A R E H O L D E R S
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I am proud to report that Zebra’s sales surpassed
$1 billion for the first time in the company’s history.
For 2013, sales increased 4 percent, as business conditions improved in the second half of the year. For the year, sales increased in three out of our four geographic regions. Several product lines contributed to our growth, most notably supplies, which increased 15 percent. Stronger relationships with strategic customers, together with our enhanced ability to deliver more hardware, software and service solutions were also important elements to our success. Earnings from continuing operations increased 12 percent to a record $2.63 per share, and we generated a strong $175 million in free cash flow. During the year, we returned $63 million to our stockholders with the repurchase of 1.4 million shares of Zebra stock. We also invested $95 million in the acquisition of Hart Systems, which has further positioned Zebra to benefit from significant technology trends including the Internet of Things, Big Data, and Cloud Computing. At year-end, we maintained a solid financial condition, with $416 million in cash and investments and no debt. Anders Gustafsson Chief Executive OfficerON THE COVER: The acquisition of Hart Systems plus the launches of our Zatar platform and MotionWorks™ Sports Solution were just a few of the exciting game-changing developments for Zebra in 2013. with barcoding, RFID, and other technology solutions. Our achievements are extending our leadership in a fundamentally attractive industry. Our core business continues to hold multiple avenues for growth with high returns – among them further geographic expansion and deeper penetration of targeted industries. We are optimistic about increasing recurring revenues from services and supplies to complement our leading industry position in thermal printers. Longer term, Zebra is well positioned to deliver a broader suite of solutions that address vital customer needs in a rapidly changing business environment. Our high-value portfolio now includes more software content for improving asset visibility and customer engagement. Our Location Solutions are capturing greater attention as customers recognize the benefits of managing things in motion. Together with our partners, we are working to create a more connected world. We are confident in our ability to expand our business further across multiple dimensions to enhance shareholder value. With a steadfast focus on strategies to serve more customers in targeted industries and extend the range of innovative products and solutions we offer, we will continue to strive to improve our industry position, optimize costs, and deliver better customer service. At the same time, we will invest our resources in those activities that will deliver the highest returns for the long-term benefit of our shareholders. I want to thank our 2,500 employees for their dedication to reach this milestone, and you, our shareholders, for your continued support.Anders Gustafsson Chief Executive OfficerIn 2013, more companies looked to Zebra as a strategic partner to help them gain greater visibility into their extended value chains. Our record results underscore the global strength of the Zebra brand and the value of our enabling technologies. They also highlight the great resiliency of our business across our products, customers, geographies, and industries. Product innovation continued at a brisk pace to position us for further growth. In 2013, we introduced 17 printer-related products, including RFID printers to support further adoption of RFID technology and high-performance card printers for personal identification applications. We also continued to incorporate more software and connectivity tools to make our products easier to integrate, manage, and maintain. These innovations, which further set our products and solutions apart from competing products, include the Link-OS™ environment, an open platform that pairs an operating system for smart Zebra devices with powerful software apps. We leveraged our competitive advantages to move beyond printers, as demonstrated by the launch of our MotionWorks™ Sports Solution. Based on proprietary active RFID technology, our MotionWorks Sports Solution gives organizations the ability to track players on the field in real time to gain insight with objective performance data. It serves as the engine for accurate visualization to improve athlete and team success. We piloted this innovative solution at two professional football stadiums during games in the 2013 season. It is an exciting platform for growth as we develop further opportunities in the sports and leisure industries. We also introduced Zatar, the world’s first Internet of Things Platform for enterprise applications. With Zatar, our customers now have an easy way to remotely manage any internet-connected device anywhere in the world. It is yet another example of how Zebra is bringing more innovation to yield deeper insights on the identity, location, condition and movement of valued assets throughout the enterprise and across the extended supply chain. The future for Zebra is bright. The need for greater visibility into extended value chains creates significant opportunities for us. Zebra is well positioned for further success as we sit at the nexus of the digital and physical worlds 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
2013
% Change
2012
% Change
2011
Net sales
Gross profit
Operating income
Income from continuing operations
Net income
Diluted earnings per share:
$ 1,038,159
503,610
160,264
134,225
134,358
Income from continuing operations
Income (loss) from discontinued operations
Net income
2.63
0.00
2.63
Diluted weighted average shares outstanding
51,063
4.2%
2.4
(2.5)
10.1
9.3
11.9
•
11.0
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
2013
$ 415,795
635,049
1,119,812
958,658
1.3%
1.0
(9.7)
(6.5)
(29.6)
(2.1)
•
(26.4)
$ 996,168
491,644
164,351
121,897
122,904
2.35
0.02
2.37
51,843
December 31,
2012
$ 394,075
615,649
967,748
857,002
$ 983,488
486,769
182,036
130,343
174,643
2.40
0.82
3.22
54,191
2011
$ 326,695
475,899
899,006
776,925
net sales (In thousands)
operating income (In thousands)
earnings per share* (In dollars)
$1,040,000
1,020,000
1,000,000
980,000
960,000
940,000
920,000
900,000
$200,000
150,000
100,000
50,000
0
$3.00
2.40
1.80
1.20
0.60
0
* diluted, from
continuing
operations
111213111213111213
Zebra Technologies Corporation 2013 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, 2013
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 29, 2013, the aggregate market value of
each of the registrant’s Class A Common held by
non-affiliates was approximately $2,102,525,626.
The closing price of the Class A Common Stock on
June 28, 2013, as reported on the Nasdaq Stock
Market, was $43.44 per share.
As of February 7, 2014, 50,369,005 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 15, 2014, are incorporated by
reference into Part III of this report.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
PART I
INDEX
PAGE
References in this document to “Zebra,” “we,” “us,” or “our” refer to Zebra Technologies
Corporation and its subsidiaries, unless the context specifically indicates otherwise.
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . 23
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . 26
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. When used in
this document and documents referenced, the words “anticipate,” “believe,” “intend,”
“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. The forward-looking statements
include, but are not limited to, Zebra’s financial outlook for the first quarter and full year
of 2014. 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,
• Risks related to the manufacturing of Zebra’s products in foreign countries as well
as business operations in foreign countries including the risk of depending on key
suppliers who are also in foreign countries,
• Zebra’s ability to purchase sufficient materials, parts and components to meet
customer demand, particularly in light of global economic conditions,
• The availability of credit and the volatility of capital markets, which may affect our
suppliers and customers,
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
• Success of integrating acquisitions, including the Hart Systems business we
Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 13. Certain Relationships and Related Transactions,
and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 14. Principal Accounting Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART IV
acquired in December 2013,
• Interest rate and financial market conditions because of our large investment portfolio,
• The impact of the percentage of cash and cash equivalents held outside the
United States,
• The effect of natural disasters on our business,
• The impact of changes in foreign and domestic governmental policies, laws or
regulations,
• Foreign exchange rates due to the large percentage of our international sales and
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
operations,
SIGNATURES
• The outcome of litigation in which Zebra is involved, particularly litigation or claims
related to infringement of third-party intellectual property rights and,
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
• The outcome of any future tax matters.
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Index to Consolidated Financial Statements and Schedule . . . . . . . . . . . . . . . . . . . . . . . . F-1
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.
2
Item 1. Business
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, tracking and printing technologies, which include
barcode, RFID 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 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.
In December 2013, Zebra acquired Hart Systems, a leading provider of self-directed
physical inventory management solutions to the retail industry. Hart has distinguished
itself in the market by offering retailers high ROI, self-managed inventory solutions. This
acquisition enables us to expand our presence in the retail market segment by offering
additional inventory management services as part of Zebra’s dedicated retail solutions. It
adds software as a service (SaaS) to Zebra’s product portfolio.
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 businesses 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 identification 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.
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 which 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 and the drive to reduce errors in healthcare 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.
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 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.
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 unique
printing solutions for particular applications.
As of December 31, 2013, we offered 57 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.
4
• 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, analyzing movement of professional athletes,
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, tracking, and motion monitoring.
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
Zebra’s software products give assets a Digital Voice - enabling them to deliver
Meaningful Data that leads to Smarter Decisions. The Zebra Digital Voice Solutions
are Link-OS, Zatar, Zebra Commerce and Motion Works. These solutions create value
for end users by enhancing process efficiency and by delivering insights about their
business. The Digital Voice solutions enable our Partners to sell new devices, replace
existing devices and deliver value over the life of those devices, via software & hardware
service contracts, device management and analytics products. We leverage connectivity,
mobility and Internet of Things technologies delivered via packaged, on premise software
products, as well as through SaaS, PaaS and HaaS models.
Our solutions 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 and software 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™, deliver seamless
integration between Oracle and Zebra printers, creating a versatile, easily managed,
cost-effective printing platform. Our Profile Manager printer management system allows
networked Link-OS™ printers to be managed from the cloud.
Printer maintenance and services
Zebra provides maintenance and repair services at our repair centers located 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.
Thermal printheads are warranted for six months and batteries are warranted for one year.
Battery-based products, such as location tags, are covered by a 90 day warranty. 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, extreme
temperatures, 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.
5
Zebra’s printers integrate company-designed mechanisms, electrical systems and printer
operating systems. 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.
Our printer operating systems support 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 the 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), direct marketers, 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 inside
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 using Zebra solutions that
span multiple 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.
6
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 position. 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.
Final assembly of our printer products is performed by Jabil Circuit, Inc., a third-party
electronics manufacturer. 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 components. Jabil is responsible for the
procurement of the components 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 portion 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; 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; Honeywell International 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 certain that a 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 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,
2013
16.8%
13.1%
12.3%
2012
20.4%
11.4%
10.3%
2011
20.7%
10.5%
8.9%
No other customer accounted for 10% or more of total net sales during these years.
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,
2013
2012
$ 735,123
243,965
53,627
1,032,715
5,444
$1,038,159
$730,489
212,499
47,941
990,929
5,239
$996,168
2011
$743,308
187,457
47,206
977,971
5,517
$983,488
Net sales to international customers, as a percent of total net sales, were as follows:
Percent of net sales
Year Ended December 31,
2013
55.6%
2012
56.2%
2011
58.4%
The percentage of international sales decreased in 2012 and 2013 due to the LaserBand
acquisition in July of 2012, which principally sells in North America. However, organically,
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 as well as 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,
2013
2012
2011
Research and development expenses
Percent of net sales
$ 91,147
8.8%
$ 87,364
8.8%
$ 89,926
9.1%
7
We devote significant resources to developing new innovative solutions for our target
markets and ensuring that our products and solutions 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 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 25, 2014, Zebra employed approximately 2,583 persons, of which 265 were
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.
8
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 most of 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 not able to exercise direct control over the
assembly or related operations of its thermal printers and location solutions 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 solutions 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 going forward.
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. Zebra has significant operations outside of the United
States which create significant risks. In addition, Zebra sells a substantial amount of
its products to customers outside of 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 operations for 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 the financial well-being of 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 on our products or cause Zebra to refrain from selling
in certain geographic territories;
• Staffing may be difficult and turnover higher at international operations;
• 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
• Effectively managing and overseeing operations that are distant and remote from
corporate headquarters may be difficult.
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.
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. 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
• Increasing international operations.
Inability to consummate future acquisitions at appropriate prices could negatively impact
our growth rate and stock price. Zebra’s ability to grow revenues, earnings and cash
flow depends in part upon our ability to identify and successfully acquire and integrate
businesses at appropriate prices and to realize anticipated synergies. Acquisitions can
be difficult to identify and consummate due to unreasonable asking prices, competition
among prospective buyers and the need to satisfy applicable closing conditions and
obtain antitrust and other regulatory approval on acceptable terms.
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 our 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 the further development of our existing business.
The expected benefits of any acquisition may not be realized.
9
Acquisitions also may involve a number of risks, including:
• Difficulties and uncertainties in retaining the customers or other business
relationships from the acquired entities,
• The loss of key employees of acquired entities,
• The ability of acquired entities to fulfill their customer’s obligations,
• The discovery of unanticipated issues or liabilities,
• Pre-closing and post-closing acquisition-related earnings charges could adversely
impact operating results in any given period, and the impact may be substantially
different from period to period,
• The failure of acquired entities to meet or exceed expected returns could result in
impairment of goodwill or intangible assets acquired, and
• The acquired entities’ ability to implement internal controls and accounting systems
necessary 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 the intellectual property rights of parties in such technologies can be uncertain.
As a result, Zebra’s 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 us from selling our products in a certain country. In addition,
these regulations may increase our cost of supplying 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.
Cybersecurity incidents could disrupt business operations. Like many companies, Zebra
continually strives to meet industry information security standards relevant to our
business. We regularly perform vulnerability assessments, remediate vulnerabilities,
review log/access, perform system maintenance, manage network perimeter protection
and implement and manage disaster recovery testing.
A cyber-attack that breaches our external perimeter may lead to a material disruption
of our core business systems and/or lead to the loss or corruption of confidential
business information that could result in an adverse business impact, as well as, possible
damage to the Zebra brand. This could also lead to a public disclosure or theft of private
intellectual property and a possible loss of customer confidence.
While we have experienced, and expect to continue to experience, these types of threats
and incidents, there have been no material incidents incurred to-date at Zebra. If Zebra’s
core business operations, or that of one of our third-party service providers, were to be
breached, this could affect the confidentiality, integrity and availability of our systems
and data. While we continue to perform security due diligence, there is always the
possibility of a significant breach effecting the confidentiality, integrity and availability of
our systems and/or data.
10
Zebra products that are deployed in customer environments also have the possibility of
being breached, which could result in damage to a customer’s confidentiality, integrity
and availability of the customer’s data and systems.
Defects or errors in Zebra’s software products could harm its reputation, result in
significant cost to Zebra and impair Zebra’s ability to market such products. Zebra’s
software may contain undetected errors, defects or bugs. Although Zebra has not suffered
significant harm from any errors, defects or bugs to date, we may discover significant
errors, defects or bugs in the future that we may not be able to correct or correct in a
timely manner. It is possible that errors, defects or bugs will be found in Zebra’s existing or
future software products and related services with the possible results of delays in, or loss
of market acceptance of, Zebra’s products and services, diversion of our resources, injury
to our reputation, increased service and warranty expenses and payment of damages.
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. Future changes in tax law in various jurisdictions around the world and
income tax holidays could have a material impact on Zebra’s effective tax rate, foreign
rate differential, future income tax expense and cash flows.
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. Financial markets throughout
the world experienced extreme disruption from 2008 through 2009, resulting in
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 cash flows.
A natural disaster may cause supply disruptions that could adversely affect Zebra’s
business and results of operations. As 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.
11
Item 2. Properties
Item 4. Mine Safety Disclosures
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. The additional 230,870
square footage is meant for occupancy in 2015, this lease replaces the Vernon Hills and
Lincolnshire leases expiring in June 2015.
Zebra’s principal facilities as of December 31, 2013, are listed below:
Location
Lincolnshire, Illinois, USA
Vernon Hills, Illinois, USA
Greenville, Wisconsin, USA
Heerenveen, The Netherlands
Agoura Hills, California, USA
Buffalo Grove, Illinois, USA
Preston, UK
Lincolnshire, Illinois, USA
Flowery Branch, Georgia, USA
Lincoln, Rhode Island, USA
Guangzhou, China
Hauppauge, New York, USA
Bourne End, UK
Otay Mesa, California, USA
San Jose, California, USA
McAllen, Texas, USA
Germantown, Maryland, USA
Chicago, Illinois, USA
Rogersville, Tennessee, USA
Clayton, Missouri, USA
Singapore, Singapore
Shanghai, China
Detroit, Michigan, USA
Mexico City, Mexico
Sao Paulo, Brazil
Miami, Florida, USA
Shanghai, China
Square Footage
Manufacturing, Administrative,
Production &
Warehousing
Research
& Sales
Total
Lease Expires
0
110,000
100,500
47,286
0
63,189
51,450
0
40,520
0
0
0
0
26,639
0
18,000
0
0
0
0
0
0
0
3,400
0
0
0
230,870
115,000
0
47,286
75,077
0
8,600
47,334
0
40,116
32,655
32,500
27,251
0
24,630
0
13,134
10,417
9,780
9,688
9,472
8,287
7,085
3,488
5,812
5,786
5,287
230,870
225,000
100,500
94,572
75,077
63,189
60,050
47,334
40,520
40,116
32,655
32,500
27,251
26,639
24,630
18,000
13,134
10,417
9,780
9,688
9,472
8,287
7,085
6,888
5,812
5,786
5,287
November 2026
June 2015
April 2028
July 2017
March 2021
July 2015
Owned by Zebra
June 2015
June 2017
April 2016
January 2014
October 2015
June 2019
September 2014
July 2015
September 2016
January 2016
June 2015
April 2014
April 2019
February 2017
December 2017
February 2018
October 2015
February 2015
October 2017
January 2015
Total
460,984
769,555 1,230,539
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
Not applicable.
PART II
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
2013 and 2012, as reported by The NASDAQ Stock Market.
2013
High
Low
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$47.24 $40.04
42.51
42.86
45.00
47.20
49.38
55.22
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$41.88 $34.61
31.79
33.25
34.92
41.79
38.74
40.41
Source: The NASDAQ Stock Market
At February 7, 2014, the last reported price for the Class A Common Stock was $54.62 per
share, and there were 438 registered stockholders of record for Zebra’s Class A Common
Stock. In addition, we had approximately 15,300 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 2013, Zebra purchased 88,100 shares of Zebra’s Class A
Common Stock at a weighted average share price of $52.70 per share, as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 2013
(September 29 – October 26)
November 2013
(October 27 – November 23)
December 2013
(November 24 – 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
100
$45.03
100
753,475
88,000
$ 52.71
88,000
665,475
0
$ 0.00
0
665,475
(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 551 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 $48.28 per share.
Item 6. Selected Financial Data
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) DATA
(In thousands, except per share amounts)
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
Year Ended December 31,
December 31,
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
$1,038,159
$ 996,168
$ 983,488
$ 894,359
$ 738,482
Cash and cash equivalents,
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income
Income from continuing
operations before
income taxes
Income from
continuing operations
Income (loss) from
discontinued operations,
net of tax
534,549
504,524
496,719
473,584
420,895
503,610
343,346(1)
160,264
491,644
327,293(2)
164,351
486,769
304,733(3)
182,036
420,775
272,560(4)
148,215
317,587
247,308(5)
70,279
163,827
164,174
179,719
149,607
72,319
134,225
121,897
130,343
104,614
48,491
133
1,007
44,300
(2,836)
(1,387)
Net income
$ 134,358
$ 122,904
$ 174,643
$ 101,778
$ 47,104
Basic earnings per share:
Income from
continuing operations
$
2.65
$
2.36
$
2.42
$
1.83
$
0.81
Income (loss) from
discontinued operations
Net income
Diluted earnings per share:
Income from
continuing operations
Income (loss) from
discontinued operations
$
$
0.00
0.02
0.82
(0.05)
(0.02)
2.65
$
2.38
$
3.24
$
1.78
$
0.79
2.63
$
2.35
$
2.40
$
1.82
$
0.81
0.00
0.02
0.82
(0.05)
(0.02)
Net income
$
2.63
$
2.37
$
3.22
$
1.77
$
0.79
Weighted average
shares outstanding
Basic
Diluted
50,693
51,063
51,566
51,843
53,854
54,191
57,143
57,428
59,306
59,425
restricted cash, investments
and marketable securities
(current and long-term)
$ 415,795
$ 394,075
$ 326,695
$ 258,598
$ 245,027
Working capital(6)
Total assets
Long-term obligations(7)
Stockholders’ equity
635,049
1,119,812
15,477
615,649
967,748
14,229
475,899
899,006
11,515
455,143
878,864
10,191
429,277
830,479
9,012
958,658
857,002
776,925
730,032
712,129
(1) Includes exit and restructuring costs of $5,890,000
(2) Includes asset impairment charges of $9,114,000 and exit and restructuring costs of $960,000.
(3) Includes exit and restructuring costs of $2,041,000.
(4) Includes litigation settlement proceeds received of $1,082,000 and exit and restructuring costs of $2,262,000.
(5) Includes exit and restructuring costs of $9,902,000.
(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.
13
Item 7. Management’s Discussion and Analysis of Financial Condition
Consolidated Results of Operations – Fourth quarter
and Results of Operations
Results of Operations: Fourth Quarter of 2013 versus Fourth Quarter of 2012
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Three Months Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
2013
94.7
5.3
100.0
95.3
4.7
100.0
48.0
2.4
50.4
49.6
32.3
17.3
0.3
17.6
3.0
14.6
0.0
14.6
48.1
2.7
50.8
49.2
31.7
17.5
(0.1)
17.4
3.7
13.7
0.1
13.8
11.7
25.4
12.4
12.0
1.7
11.5
13.3
14.4
11.2
N/M
Net Sales
Tangible products
$269,583
$241,257
Service & software
14,956
11,922
Total net sales
Cost of Sales
284,539
253,179
Tangible products
136,547
121,869
Service & software
6,964
6,850
Total cost of sales
Gross profit
Operating expenses
Operating income
Other income (expense)
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
143,511
128,719
141,028
124,460
91,949
49,079
1,127
80,342
44,118
(56)
50,206
44,062
8,681
9,263
13.9
(6.3)
41,525
34,799
19.3
125
191
$ 41,650
$ 34,990
(34.6)
19.0
$ 0.82
$ 0.68
20.6
0.00
0.00
0.0
20.6
Net income
$ 0.82
$ 0.68
14
Sales
Net sales for the fourth quarter of 2013, compared with the same quarter in 2012,
increased 12.4% as a result of increased sales across all product and service categories.
Sales benefited from a general improvement in business conditions, with notable sales
growth to customers in retail and manufacturing. Printer unit volume growth of 14.6%
was partially offset by a 3.1% decline in average printer selling price. The acquisition of
Hart Systems LLC, which occurred in December 2013, did not have a material effect on
2013 fourth quarter sales or financial results.
Sales by product category were as follows (amounts in thousands, except percentages):
Product category
2013
Three Months Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Hardware
Supplies
Service and software
$202,772
$182,267
65,327
14,956
57,607
11,922
Subtotal products
283,055
251,796
Shipping and handling
1,484
1,383
Total net sales
$284,539
$253,179
11.2
13.4
25.4
12.4
7.3
12.4
71.2
23.0
5.3
99.5
0.5
72.0
22.8
4.7
99.5
0.5
100.0
100.0
Printer unit volumes and average selling price information is summarized below:
Total printers shipped
Three Months Ended
December 31,
2013
2012
368,204
321,314
Average selling price of printers shipped
$ 462
$ 477
Percent
Change
14.6
(3.1)
For the fourth quarter of 2013, unit volumes increased across all printer categories. The
decrease in average selling price is a result of a change in product mix toward lower
priced products in the 2013 quarter compared to the corresponding 2012 quarter.
Sales growth in North America, Asia Pacific and the Europe, Middle East and Africa
region was partially offset by a sales decline in Latin America. Movement in foreign
currency, net of hedge activity, increased sales by $1,979,000.
Sales to customers by geographic region were as follows (in thousands, except percentages):
Geographic region
2013
Three Months Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Europe, Middle East
and Africa
Latin America
Asia-Pacific
Total International
North America
Total net sales
$ 88,660
$ 83,355
25,335
40,936
26,255
31,665
154,931
141,275
129,608
111,904
$284,539
$253,179
6.4
(3.5)
29.3
9.7
15.8
12.4
31.2
8.9
14.4
54.5
45.5
32.9
10.4
12.5
55.8
44.2
100.0
100.0
Gross profit
Gross profit increased 13.3% for the fourth quarter of 2013 versus the fourth quarter of
2012. As a percentage of sales, gross margin increased from 49.2% to 49.6%, primarily
due to higher volume. Favorable foreign currency movements, net of hedges, increased
fourth quarter gross profit by $1,672,000.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Operating expenses
2013
Three Months Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Selling and marketing
$ 36,280
$ 33,313
Research and development
General and administrative
23,712
24,434
Amortization of intangible assets
1,826
Acquisition costs
Exit and restructuring costs
3,322
2,375
22,605
20,964
1,463
1,037
960
Total operating expenses
$ 91,949
$ 80,342
8.9
4.9
16.6
24.8
N/M
N/M
14.4
12.8
13.2
8.3
8.6
0.6
1.2
0.8
8.9
8.3
0.6
0.4
0.4
32.3
31.7
Operating expenses for the quarter increased 14.4% primarily from increased expenses
for compensation, outside professional services, information systems, and depreciation.
The increase in amortization expense is related to the acquisition of certain patent rights
in December 2012. Acquisition costs relate to investigated, and completed mergers
and acquisitions during the period. Exit and restructuring costs in 2013 relate to the
restructuring of the location solutions business management structure.
Operating income
Operating income for the fourth quarter of 2013 compared to the same period in 2012,
increased 11.2%. The combination of sales growth and related improvement in gross
margin contributed to the increase in operating income.
Income taxes
The effective income tax rate for the fourth quarter of 2013 was 17.3% compared with
21.0% for the same quarter in the prior year. This decrease is due to a combination of
higher profits in lower-rate international jurisdictions and the implementation of the
foreign holding company structure. In addition, the company recorded a favorable
provision to return adjustment of $394,000, resulting in a reduction to the effective tax
rate following the filing of the companies UK & Singapore income tax returns.
Results of Operations: Year ended December 31, 2013 versus Year ended December 31, 2012
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Year Ended
December 31,
2013
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Net Sales
Tangible products
$ 984,532
$948,227
Service & software
53,627
47,941
Total net sales
Cost of Sales
1,038,159
996,168
Tangible products
507,513
479,633
Service & software
27,036
24,891
Total cost of sales
Gross profit
534,549
504,524
503,610
491,644
Operating expenses
343,346
327,293
Operating income
160,264
164,351
Other income (expense)
3,563
(177)
3.8
11.9
4.2
5.8
8.6
6.0
2.4
4.9
(2.5)
N/M
Income from continuing
operations before
income taxes
Income taxes
Income from continuing
operations
Income from discontinued
operations, net of tax
163,827
164,174
29,602
42,277
(0.2)
(30.0)
134,225
121,897
10.1
133
1,007
(86.8)
Net income
$134,358
$122,904
9.3
Diluted earnings per share:
Income from continuing
operations
Income from
discontinued operations
$ 2.63
$ 2.35
11.9
Net income
$ 2.63
$ 2.37
0.00
0.02
N/M
11.0
94.8
5.2
100.0
95.2
4.8
100.0
48.9
2.6
51.5
48.5
33.1
15.4
0.4
15.8
2.9
12.9
0.0
12.9
48.1
2.5
50.6
49.4
32.9
16.5
(0.0)
16.5
4.3
12.2
0.1
12.3
15
Consolidated Results of Operations – Full Year
Sales to customers by geographic region were as follows (in thousands, except percentages):
Sales
Net sales for 2013 compared with 2012 increased 4.2% as a result of growth across most
product categories with notable increases in supplies, service and software. The growth
in supplies, due to the LaserBand acquisition in July 2012, partially offset weak business
conditions from the first half of 2013. Printer unit volumes increased 4.9% for 2013
compared to 2012 due to volume increases in desktop, mobile, kiosk and card printers.
Movement towards lower-priced printers partially offset unit volume increases. Movement
in foreign currency, net of hedge activity, partially offset sales growth by $2,807,000.
Sales by product category were as follows (amounts in thousands, except percentages):
Product category
2013
Year Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Hardware
Supplies
$ 735,123
$730,489
243,965
212,499
Service and software
53,627
47,941
Subtotal products
1,032,715
990,929
Shipping and handling
5,444
5,239
Total net sales
$1,038,159
$996,168
0.6
14.8
11.9
4.2
3.9
4.2
70.8
23.5
5.2
99.5
0.5
73.4
21.3
4.8
99.5
0.5
100.0
100.0
Geographic region
2013
Year Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Europe, Middle East
and Africa
Latin America
Asia-Pacific
$ 326,470
$322,970
99,041
100,101
152,740
137,577
Total International
578,251
560,648
North America
459,908
435,520
Total net sales
$1,038,159
$996,168
1.1
(1.1)
11.0
3.1
5.6
4.2
31.4
9.5
14.7
55.6
44.4
32.4
10.0
13.8
56.2
43.8
100.0
100.0
Gross profit
Gross profit increased 2.4% due to higher volumes partially offset by unfavorable
movements in product mix. Movements in foreign currency, net of hedges, decreased
gross profit by $1,014,000.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Year Ended
December 31,
Percent
2012 Change
Percent of Percent of
Net Sales Net Sales
2012
2013
Printer unit volumes and average selling price information is summarized below:
Operating expenses
2013
Total printers shipped
1,321,624
1,260,141
Average selling price of printers shipped
$ 469
$ 485
Year Ended
December 31,
2013
2012
Percent
Change
4.9
(3.3)
Product unit volumes increased 4.9% in 2013 over the prior year. This was due to
increased volumes in desktop, mobile, kiosk and card printers. The average selling price
reflects a change in product mix toward lower priced products from year to year.
North America, Asia Pacific and Europe, Middle East and Africa contributed to an overall
growth of 4.2% with notable increases in supplies and printer sales. The growth in
supplies, which includes labels and wristbands, is the result of the LaserBand acquisition
in July of 2012 plus organic growth in supplies.
16
Selling and marketing
$138,020
$129,906
Research and development
General and administrative
Amortization of intangible assets
Acquisition costs
Exit and restructuring costs
Asset impairment charge
91,147
96,216
7,383
4,690
5,890
0
87,364
92,167
4,673
3,109
960
9,114
Total operating expenses
$343,346 $ 327,293
6.2
4.3
4.4
58.0
50.9
N/M
N/M
4.9
13.2
13.0
8.8
9.3
0.7
0.5
0.6
0.0
8.8
9.3
0.5
0.3
0.1
0.9
33.1
32.9
Operating expenses for 2013 increased 4.9%. The increase is due to increased expenses
across all functional areas offset by the absence of a goodwill impairment charge which
represents 2.8% of 2012 operating expenses. The acquisition of both LaserBand and
StepOne contributed to the increase in Zebra’s operating expenses. Several categories
accounted for these increases, including compensation costs, outside professional
services, depreciation and information systems expenses. Acquisition costs are related
to investigated and completed acquisitions during the period. Amortization of intangible
assets increased from additions of current technology, patent and patent rights and
customer relationships during the year, including the acquisition of LaserBand in July
2012. Exit and restructuring costs in 2012 and 2013 primarily relate to the restructuring of
the location solutions business management structure.
Exit and restructuring costs
During the third quarter of 2012, revenue from location solutions fell below plan from
slower than anticipated growth in the automotive and process manufacturing industries
and weakness in the government sector. As a result, we initiated the Locations Solutions
2012 restructuring plan.
In the second quarter of 2013, management determined that additional restructuring
actions would be required to meet our financial goals for the location solutions business.
We anticipate that the results of our restructuring actions will reduce costs of the location
solutions business by $4,000,000 per year. These savings should be fully realized by the
first quarter 2014. The savings from the location solutions restructuring plan will primarily
benefit cost of goods sold, engineering and selling and marketing expenses.
During 2007, Zebra began a plan to outsource printer manufacturing to a third-party
contract manufacturer. The transition to the third-party manufacturer was completed
during 2010. During the fourth quarter of 2012, we determined that further supply chain
cost reductions were possible by moving certain supply chain support operations closer
to our contract printer manufacturer’s facility, which is located in China. We anticipate
these actions will generate $2,600,000 in annual savings to our cost of goods sold. These
actions were completed by the end of 2013.
ownership of its significant foreign affiliates under a single holding company. In addition,
the structure introduced leverage which gives Zebra the ability to facilitate cash pooling
and improve the capital structure of its non-US operations. The new capital structure
and global financing favorably impacts the Zebra’s effective tax rate and facilitates the
tax efficient movement of Zebra’s foreign cash to finance the ongoing operating and
investment needs of the foreign subsidiaries. The restructuring was completed in the
second quarter of 2012 and was in place for the full year in 2013. In addition, the US R&D
credit reinstatement for the 2012 income tax year resulted in a tax benefit of $900,000.
Finally, Zebra recorded a favorable provision to return adjustment resulting in a reduction
to the effective tax rate of 1.1% following the filing of Zebra’s 2012 income tax returns.
Comparison of Years Ended December 31, 2012 and 2011
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
Operating income
The operating income decrease for 2013 was the result of operating expense increases as
noted above and partially offset by higher gross profit.
Other income (expense)
Zebra’s non-operating income and expense items are summarized in the following table
(in thousands):
Year Ended
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
December 31, 2013
December 31, 2012
Service & software
24,891
26,885
Investment income
Foreign exchange loss
Other, net
Total other income (expense)
$2,366
(524)
1,721
$3,563
$ 2,485
(941)
(1,721)
$ (177)
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
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
Operating income
164,351
182,036
(9.7)
Other income (expense)
(177)
(2,317)
(92.4)
(0.0)
(0.2)
The increase in other income is the result of a net $1,557,000 favorable litigation
settlement associated with an investment loss that was recorded in prior years.
Year Ended
Income from continuing
operations before
income taxes
Rate of return analysis:
December 31, 2013
December 31, 2012
Income taxes
Average cash and marketable securities balances
$404,935
Annualized rate of return
0.6%
$360,385
0.7%
Investment income decreased due to a lower yield on invested financial assets compared
with 2012, even though cash and investment balances were higher in 2013 versus 2012.
Income taxes
The effective income tax rate for 2013 was 18.1% compared with an income tax rate
of 25.8%. The 2012 rate reflects a discrete item for nondeductible asset impairment
charge, increasing the tax rate by 1.9% for the full year. Further, in 2012, in order to
streamline the management, financing and capital structure of its foreign affiliates, Zebra
established a foreign holding company and restructured the ownership structure of its
foreign affiliates. This new holding company structure allows Zebra to consolidate the
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
$ 2.35
$ 2.40
(2.1)
Net income
$ 2.37
$ 3.22
0.02
0.82
(97.6)
(26.4)
18.3
5.0
13.3
4.5
17.8
17
Consolidated Results of Operations – Full Year
Printer unit volumes and average selling price information is summarized below:
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
0.6
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.
Sales to customers by geographic region were as follows (in thousands,
except percentages):
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%.
18
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
accounted for 40.4% of the total increase in 2012. Several other 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. Amortization of intangible
assets increased due to additions of current technology, patent and patent rights and
customer relationships during the year as a result of the acquisition of LaserBand.
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.
Operating income
The operating income decrease for 2012 was the result of operating expense increases as
noted above and partially offset by higher gross profit.
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)
December 31, 2012
December 31, 2011
Year Ended
$ 2,485
(941)
(1,721)
$ (177)
$ 1,944
(2,006)
(2,255)
$ (2,317)
Other expense decreased in 2012 as a result of decreases in foreign exchange losses.
Rate of return analysis:
December 31, 2012
December 31, 2011
Average cash and marketable securities balances
$360,385
Annualized rate of return
0.7%
$292,646
0.7%
Year Ended
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 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 introduced
leverage and gives Zebra the ability to facilitate cash pooling for its non-US operations.
This favorably impacts the Zebra’s effective tax rate, and provides for the tax efficient
movement of cash within the structure to efficiently deploy cash generated by the foreign
subsidiaries for various uses, including potential acquisitions. The structure was put
in place in the second quarter of 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.
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.
19
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
The composition of investments and marketable securities at December 31, 2013, was
as follows:
U.S. government and agency securities
Obligations of government sponsored enterprises(1)
State and municipal bonds
Corporate securities
Other investments
25.4%
9.5%
14.6%
47.2%
3.3%
(1) Includes investments in notes issued by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association and the Federal Home Loan Bank.
20
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.
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 future 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 0.3% to 0.9% of total accounts receivable. Accounts receivable reserves
as of December 31, 2013, were $453,000, or 0.3% of the balance due. We believe this
reserve level is appropriate considering the quality of the portfolio as of December 31,
2013. While credit losses have historically been within expectations and the provisions
established, we cannot guarantee that our credit loss experience will continue to be
consistent with historical experience.
Inventories
We value our inventories at the lower of the actual cost to purchase or manufacture using
the first-in, first-out (FIFO) method, or the current estimated market value. We review
inventory quantities on hand and record a provision for excess and obsolete inventory
based on forecasts of product demand and production requirements for the subsequent
twelve months.
Over the last three years, our inventory reserves have ranged from 8.8% to 11.9% of
gross inventory. As of December 31, 2013, inventory reserves were $12,561,000, or 9.4%
of gross inventory. We believe this reserve level is appropriate considering the quantities
and quality of the inventories as of December 31, 2013.
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.
Valuation of Goodwill
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. We
completed our annual qualitative assessment, in accordance with ASU 2011-08 Goodwill
and Other (Topic 350), during June 2013 and determined that our goodwill was not
impaired as of the end of May 2013.
Goodwill of a reporting unit is 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 of a significant asset group within a reporting unit,
• Allocation of a portion of goodwill to a business to be disposed of.
In accordance with ASU 2011-08, Zebra’s qualitative analysis determined that it is not
more likely than not that the fair value of our goodwill is less than the carrying amount
and therefore, performing the two-step impairment test was not necessary. If Zebra
concluded otherwise, we would perform the first step of the two-step impairment test
by calculating the fair value and comparing the fair value to the carrying amount. If the
carrying amount exceeded the fair value, we would perform the second step of 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. Zebra will
monitor future results and will perform a test if indicators trigger an impairment review.
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.
Net intangible assets, long-lived assets and goodwill amounted to $334,356,000 as of
December 31, 2013.
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.
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, 2013 and
December 31, 2012, we did not accrue any interest or penalties into income tax expense.
We are currently undergoing an audit of the 2011 and 2012 US federal income tax returns.
The tax years 2009 through 2012 remain open to examination by multiple state taxing
jurisdictions. Tax authorities in the United Kingdom have completed income tax audits for
tax years through 2011.
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, 2013, Zebra
had approximately $8,252,000 of net operating loss carryforwards available to offset future
taxable income which expire in 2022 through 2027. As of December 31, 2013, Zebra had
approximately $26,980,000 of state net operating loss carryforwards which expire in 2013
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.
Effective tax rate
December 31, 2013
December 31, 2012
Year Ended
18.1%
25.8%
During 2012, in order to streamline the management, financing and capital structure of
its foreign affiliates, Zebra established a foreign holding company and restructured the
ownership structure of its foreign affiliates. 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 introduced leverage which gives Zebra the
ability to facilitate cash pooling and improve the capital structure of its non-US operations.
The new capital structure and global financing favorably impacts the Zebra’s effective
tax rate, and facilitates the tax efficient movement of Zebra’s foreign cash to finance the
ongoing operating and investment needs of the foreign subsidiaries. The restructuring was
completed in the second quarter of 2012 and was in place for the full year in 2013.
21
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.
Equity-Based Compensation
As of December 31, 2013, 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.
Liquidity and Capital Resources
(Amounts in thousands, except percentages):
Rate of Return Analysis:
2013
Average cash and marketable securities balances
$404,935
Annualized rate of return
0.6%
2012
$360,385
0.7%
Year Ended December 31,
Average cash and marketable securities balances for 2013 increased compared to 2012
as a result of increased cash provided by operations, partially offset by the acquisition of
LaserBand and Hart as well as stock repurchases.
As of December 31, 2013, Zebra had $415,795,000 in cash, restricted cash, investments
and marketable securities, compared with $394,075,000 at December 31, 2012. Factors
affecting cash and investment balances during 2013 include the following (changes below
include the impact of foreign currency):
• Accounts receivable increased $6,488,000 due to the increased sales and the timing
of receipts.
• Accounts payable increased $7,544,000 due to the timing of payments at period end.
• Purchases of property and equipment totaled $20,211,000.
• Acquisition of businesses totaled $95,328,000.
• Purchases of treasury stock totaled $63,102,000.
Management believes that existing capital resources and funds generated from
operations are sufficient to meet anticipated capital requirements.
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 $251,658,000 as of December 31, 2013,
and $173,483,000 as of December 31, 2012 of foreign cash and investments, which are
primarily invested in U.S. dollar-denominated holdings.
Contractual Obligations
Zebra’s contractual obligations as of December 31, 2013 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 $ 83,375
$ 15,619
$ 19,210
$13,741
$34,805
Deferred compensation
liability
4,827
—
—
Deferred revenue
26,157
15,506
10,651
Purchase obligations
118,081
118,081
—
—
—
—
4,827
—
—
Total
$232,440
$149,206
$29,861
$13,741
$39,632
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, 2013, we
had established letters of credit totaling $1,800,000, which reduce the funds available
for borrowing under the agreement. No amounts were outstanding under the credit
agreement as of December 31, 2013.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
22
Recently Issued Accounting Pronouncements
In February 2013, the FASB issued update 2013-02, ASC 220, Comprehensive Income:
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.
This updated guidance sets requirements for presentation for significant items
reclassified to net income in their entirety during the period and for items not reclassified
to net income in their entirety during period. This standard is effective for annual and
interim periods beginning after December 15, 2012. The adoption of this standard
includes additional disclosures in the notes to the consolidated financial statements.
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 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,
2012
2013
$ (3,502)
$ (0.06)
$ (3,657)
$ (0.05)
$ 3,502
$ 0.06
$ 3,657
$ 0.05
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.
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,
2012
2013
313
$
$ 0.00
$ 5,562
$ 0.09
824
$
$ 0.01
$ 5,193
$ 0.07
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.
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.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Not applicable.
23
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, 2013. 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 as
released in 1992 (original framework). Based on this assessment and those criteria, our
management believes that, as of December 31, 2013, our internal control over financial
reporting is effective. Management’s assessment of internal control over financial reporting
as of December 31, 2013 excludes the internal control over financial reporting related to
Hart Systems (acquired on December 18, 2013). Hart is included in the 2013 consolidated
financial statements and constituted 9.1% and 10.0% of total net assets, respectively, as
of December 31, 2013 and 0.03% and 0.11% of revenues and net income, respectively, for
the year then ended. 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 25 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.
24
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, 2012 and 2013.
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 and 2013.
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’s internal control over financial
reporting as of December 31, 2013, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) (the COSO criteria). Zebra Technologies
Corporation’s management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.
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.
As indicated in the accompanying Management’s Report on Internal Control over
Financial Reporting, management’s assessment of and conclusion on the effectiveness
of internal control over financial reporting did not include the internal controls of
Topspin Hart Systems, which is included in the 2013 consolidated financial statements
of Zebra Technologies Corporation and constituted 9.1% and 10.0% of total and net
assets, respectively, as of December 31, 2013 and 0.03% and 0.11% of revenues and net
income, respectively, for the year then ended. Our audit of internal control over financial
reporting of Zebra Technologies Corporation also did not include an evaluation of the
internal control over financial reporting of Topspin Hart Systems.
In our opinion, Zebra Technologies Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2013, 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 as of December 31, 2013 and 2012, and the related
consolidated statements of income, comprehensive incomes, shareholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2013, of
Zebra Technologies Corporation and our report dated February 19, 2014, expressed an
unqualified opinion thereon.
/s/Ernst & Young LLP
Chicago, Illinois
February 20, 2014
25
Item 9B. Other Information
PART IV
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics for Senior Financial Officers that applies to Zebra’s
Chief Executive Officer, Chief Financial Officer and the Vice President, Finance. The Code
of Ethics is posted on the Investor Relations – Corporate Governance page of Zebra’s
Internet Web site, www.zebra.com, and is available for download. Any waiver from the
Code of Ethics and any amendment to the Code of Ethics will be disclosed on such page
of Zebra’s Web site.
All other information in response to this item is incorporated by reference from the Proxy
Statement sections entitled “Corporate Governance,” “Election of Directors,” “Board and
Committees of the Board,” “Executive Officers,” 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.”
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.”
26
Item 15. Exhibits, Financial Statement Schedules
The financial statements and schedule filed as part of this report are listed in the
accompanying Index to Financial Statements and Schedule. The exhibits filed as a part
of this report are listed in the accompanying Index to Exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized, on the 20th day of February 2014.
ZEBRA TECHNOLOGIES CORPORATION
By: /s/ Anders Gustafsson
Anders Gustafsson
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, the report has
been signed below by the following persons in the capacities and on the dates indicated.
Signature
Title
/s/Anders Gustafsson
Anders Gustafsson
Chief Executive Officer and Director
(Principal Executive Officer)
/s/Gerhard Cless
Gerhard Cless
Executive Vice President,
Director
/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
/s/Richard Keyser
Richard Keyser
/s/Andrew Ludwick
Andrew Ludwick
/s/Ross W. Manire
Ross W. Manire
/s/Robert J. Potter
Robert J. Potter
/s/Janice M. Roberts
Janice M. Roberts
Director
Director
Director
Director
Director
Date
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
To the Board of Directors and Stockholders of
Zebra Technologies Corporation
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Earnings for the years ended
December 31, 2013, 2012, and 2011
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2013, 2012, and 2011
Consolidated Statements of Stockholders’ Equity
for the years ended December 31, 2013, 2012, and 2011
Consolidated Statements of Cash Flows
for the years ended December 31, 2013, 2012, and 2011
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-3
F-3
F-4
F-5
F-6
Financial Statement Schedule
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts
F-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.
We have audited the accompanying consolidated balance sheets of Zebra Technologies
Corporation (the Company) as of December 31, 2013 and 2012, and the related
consolidated statements of income, comprehensive income, shareholders’ equity and
cash flows for each of the three years in the period ended December 31, 2013. Our audits
also included the financial statement schedule listed in Index at Item 15. These financial
statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements 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 at
December 31, 2013 and 2012, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 2013, 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, 2013, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) and our report dated
February 20, 2014 expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Chicago, Illinois
February 20, 2014
F-1
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31,
2013
December 31,
2012
December 31,
2013
December 31,
2012
ASSETS
Current assets:
Cash and cash equivalents
Investments and marketable securities
Accounts receivable, net
Inventories, net
Deferred income taxes
Income tax receivable
Prepaid expenses and other current assets
$ 62,827
350,380
176,917
121,023
19,810
7,622
15,524
$ 64,740
324,140
168,732
123,357
13,484
0
16,410
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes payable
Total current liabilities
Long-term deferred tax liability
Deferred rent
Total current assets
754,103
710,863
Other long-term liabilities
Property and equipment at cost,
less accumulated depreciation and amortization
Long-term deferred income taxes
Goodwill
Other intangibles, net
Long-term investments and marketable securities
Other assets
Total assets
109,588
101,349
0
155,800
68,968
2,588
28,765
2,602
94,942
39,151
5,195
13,646
$ 1,119,812
$ 967,748
Total liabilities
Stockholders’ equity:
Class A Common Stock
Additional paid-in capital
Treasury stock
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
$
34,688
$
23,045
61,962
15,506
6,898
119,054
25,492
1,131
15,477
161,154
57,234
13,326
1,609
95,214
0
1,303
14,229
110,746
722
143,295
(678,456)
722
139,523
(641,438)
1,502,878
1,368,520
(9,781)
958,658
(10,325)
857,002
$ 1,119,812
$ 967,748
F-2
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share data)
Year Ended December 31,
2012
2013
2011
Net sales
Basic earnings per share
Net sales of tangible products
$ 984,532
$ 948,227
$ 936,282
Income from continuing operations
Revenue from services and software
53,627
47,941
47,206
Income from discontinued operations
1,038,159
996,168
983,488
Net Income
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:
507,513
27,036
479,633
24,891
535,549
504,524
503,610
491,644
Selling and marketing
138,020
129,906
Research and development
General and administrative
Amortization of intangible assets
Acquisition costs
Exit and restructuring costs
Asset impairment charge
91,147
96,216
7,383
4,690
5,890
0
87,364
92,167
4,673
3,109
960
9,114
469,834
26,885
496,719
486,769
127,797
89,926
81,345
3,320
304
2,041
0
Year Ended December 31,
2012
2013
2011
$
$
$
$
2.65
0.00
2.65
2.63
0.00
2.63
$
$
$
$
2.36
0.02
2.38
2.35
0.02
2.37
$
$
$
$
2.42
0.82
3.24
2.40
0.82
3.22
Diluted earnings per share
Income from continuing operations
Income from discontinued operations
Net Income
Basic weighted average shares outstanding
50,693
51,566
53,854
Diluted weighted average and
equivalent shares outstanding
51,063
51,843
54,191
See accompanying notes to consolidated financial statements.
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
343,346
160,264
327,293
164,351
304,733
182,036
2,366
(524)
1,721
3,563
2,485
(941)
(1,721)
(177)
1,944
(2,006)
(2,255)
(2,317)
163,827
29,602
164,174
42,277
179,719
49,376
Income from continuing operations
134,225
121,897
130,343
Income from discontinued operations,
net of tax
Net income
133
1,007
$ 134,358
$ 122,904
44,300
$ 174,643
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Year Ended December 31,
2012
2013
2011
Net income
$134,358
$122,904
$174,643
Other comprehensive income (loss):
Unrealized gain (loss) on hedging
transactions, net of income taxes
Unrealized holding gain (loss)
on investments, net of income taxes
Foreign currency translation adjustment
118
(7,241)
6,209
(456)
882
887
242
(385)
(688)
Comprehensive income
$ 134,902
$116,792
$179,779
See accompanying notes to consolidated financial statements.
F-3
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
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
Repurchase of 1,356,861 shares of Class A Common Stock
Issuance of 980,999 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
Class A
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Retained Comprehensive
Earnings
Income (Loss)
Total
$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
—
—
—
—
—
—
—
—
—
(63,102)
(11,432)
2,095
13,109
—
—
—
—
26,084
—
—
—
—
—
—
—
—
—
—
134,358
—
—
—
—
—
—
—
—
(456)
118
882
(63,102)
14,652
2,095
13,109
134,358
(456)
118
882
Balance at December 31, 2013
$722
$ 143,295
$(678,456)
$1,502,878
$ (9,781)
$958,658
See accompanying notes to consolidated financial statements.
F-4
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended December 31,
2013
2012
2011
Year Ended December 31,
2013
2012
2011
Cash flows from operating activities:
Cash flows from investing activities:
Net income
$134,358
$122,904
$174,643
Purchases of property and equipment
(20,211)
Proceeds from the sale of business
0
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
32,110
13,109
0
0
(4,277)
224
(201)
7,929
(6,488)
2,743
(342)
7,544
6,220
2,133
(242)
(54)
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
194,766
183,331
78,308
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:
(22,443)
27,580
(59,876)
(3,500)
(9,125)
(26,918)
161,206
0
(1,232)
0
(95,328)
(1,500)
(12,021)
(410,283)
(347,609)
(991,633)
49,453
145,028
607,996
336,741
164,410
303,801
(153,149)
(105,535)
53,220
Purchase of treasury stock
(63,102)
(54,373)
(160,200)
Proceeds from exercise of stock options
and stock purchase plan purchases
14,652
3,361
13,009
Excess tax benefit from
equity-based compensation
4,277
1,578
1,392
Net cash used in financing activities
(44,173)
(49,434)
(145,799)
Effect of exchange rate changes on cash
643
(40)
1,835
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
(1,913)
28,322
(12,436)
0
0
0
0
1,301
0
64,740
36,418
47,553
Cash and cash equivalents at end of period
$ 62,827
$ 64,740
$ 36,418
Supplemental disclosures of cash flow information:
Income taxes paid
$ 18,418
$ 20,059
$ 65,364
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.
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 2013
fiscal year, our quarter end dates were as follows:
• March 30,
• June 29,
• September 28, 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, 2013, consisted of U.S. government and agency securities, obligations of
government-sponsored enterprises, 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.
F-6
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.
Goodwill of a reporting unit is 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,
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.
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.
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. We
completed our annual qualitative assessment, in accordance with ASU 2011-08 Goodwill
and Other (Topic 350), during June 2013 and determined that our goodwill was not
impaired as of the end of May 2013.
• 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,
• Allocation of a portion of goodwill to a business to be disposed of.
In accordance with ASU 2011-08, Zebra’s qualitative analysis determined that it is not
more likely than not that the fair value of our goodwill is less than the carrying amount
and therefore, performing the two-step impairment test was not necessary. If Zebra
concluded otherwise, we would perform the first step of the two-step impairment test
by calculating the fair value and comparing the fair value to the carrying amount. If the
carrying amount exceeded the fair value, we would perform the second step of 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. Zebra will
monitor future results and will perform a test if indicators trigger an impairment review.
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 6.5 years, which approximates the
estimated useful lives. Weighted average lives remaining by intangible asset class are
as follows: Current technology 3.7 years; Patent and patent rights 3.6 years; Customer
relationships 9.8 years.
F-7
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 $7,688,000 for
the year ended December 31, 2013, $8,983,000 for the year ended December 31, 2012 and
$8,070,000 for the year ended December 31, 2011.
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. Thermal printheads are warranted for six months
and batteries are warranted for one year. Battery-based products, such as location
tags, are covered by a 90 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
2013
$ 4,252
7,440
(7,567)
$ 4,125
Year Ended December 31,
2012
2011
$ 4,613
$ 4,554
6,828
(7,189)
5,856
(5,797)
$ 4,252
$ 4,613
F-8
Fair Value of Financial Instruments. Zebra estimates the fair value of its financial
instruments as follows:
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):
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, 2013, 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 upon grant of
up to 5 years.
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,
2011
2012
2013
$ 871
$ 1,061
$ 1,029
2,100
1,616
8,522
$13,109
$ 4,531
1,792
1,593
10,281
$14,727
$ 5,132
1,463
1,387
9,228
$13,107
$ 4,522
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 were $4,277,000 as of December 31, 2013,
$1,578,000 as of December 31, 2012, and $1,392,000 as of December 31, 2011.
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.
F-9
Concentration risks. Final assembly of our products 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.
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:
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.
Recently Issued Accounting Pronouncements. In February 2013, the FASB issued update
2013-02, ASC 220, Comprehensive Income: Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income. This updated guidance sets requirements
for presentation for significant items reclassified to net income in their entirety during
the period and for items not reclassified to net income in their entirety during period.
This standard is effective for annual and interim periods beginning after December 15,
2012. The adoption of this standard includes additional disclosures in the notes to the
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.
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, 2013, 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, 2013. 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 reaches maturity, we have classified it as a long-
term investment on the balance sheet.
F-10
Financial assets and liabilities carried at fair value as of December 31, 2013, are classified
below (in thousands):
Financial assets and liabilities carried at fair value as of December 31, 2012, 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
$ 89,626
$
0
$
33,510
51,627
0
0
0
0
0
0
0
$ 89,626
33,510
51,627
Assets:
U.S. government and
agency securities
Obligations of government-
sponsored enterprises(1)
State and municipal bonds
163,832
2,588
166,420
Corporate securities
11,785
0
11,785
Other investments
$ 83,532
$ 13,455
$
0
0
0
$ 96,987
4,840
96,516
4,840
96,516
0
0
0
0
128,368
2,588
130,956
36
0
36
Investments subtotal
89,626
260,754
2,588
352,968
Investments subtotal
83,532
243,215
2,588
329,335
Money market investments
related to the deferred
compensation plan
4,827
0
0
4,827
Money market investments
related to the deferred
compensation plan
3,553
0
0
3,553
Total assets at fair value
$ 94,453
$ 260,754
$ 2,588
$ 357,795
Total assets at fair value
$ 87,085
$ 243,215
$ 2,588
$ 332,888
Liabilities:
Liabilities:
Forward contracts(2)
Liabilities related to the
deferred compensation plan
$ 1,165
$
1,578
4,827
0
Total liabilities at fair value
$ 5,992
$
1,578
$
$
0
0
0
$ 2,743
4,827
$ 7,570
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
3,553
$ 5,598
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-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):
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
Year Ended,
December 31, December 31,
2012
2013
$ 2,588
$ 2,588
0
0
0
0
0
0
0
0
$ 2,588
$ 2,588
$ 0
$ 0
As of December 31, 2012
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 maturity dates of investments as of December 31, 2013 are as follows (in thousands):
As of December 31, 2013
Amortized
Cost
Estimated
Fair
Value
$ 130,430
$ 130,490
211,744
212,087
10,935
10,391
0
0
$ 353,109
$ 352,968
As of December 31, 2013 and December 31, 2012, 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, 2013 and 2012.
The following is a summary of short-term and long-term investments at December 31,
2013 and December 31, 2012 (in thousands):
As of December 31, 2013
Less than 1 year
1 to 5 years
6 to 10 years
Thereafter
Total
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.
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
$ 89,617
$
27
$
(18)
$ 89,626
33,506
51,573
166,642
11,771
5
82
453
15
(1)
33,510
(28)
51,627
(675)
166,420
(1)
11,785
Total investments
$ 353,109
$ 582
$ (723)
$ 352,968
F-12
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 future
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):
Year Ended December 31,
2013
2012
2011
Changes in unrealized gains and losses
on available-for-sale securities, net of tax,
recorded in accumulated other
comprehensive income (loss)
$(456)
$887
$(385)
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,
2013. These lower market values are primarily caused by fluctuations in interest rates and credit spreads. Market values are expected to recover to the amortized cost prior to maturity.
Government securities
State and municipal bonds
Corporate Securities
Other
Total
Unrealized Loss < 12 months
Unrealized Loss > 12 months
Number of
investments
0
5
9
1
15
Aggregate
Market Value
$ 0
7,368
3,031
1,018
$ 11,417
Unrealized
Losses
$ 0
(8)
(2)
0
$ (10)
Number of
investments
Aggregate
Market Value
3
4
60
2
69
$23,207
6,559
51,757
2,982
$84,505
Unrealized
Losses
$ (19)
(20)
(673)
(1)
$ (713)
As of December 31, 2012, 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
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)
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):
Proceeds
Realized gains
Realized losses
Net realized gains included in
other comprehensive income (loss)
as of the end of the prior year
Year Ended December 31,
2012
2013
2011
$336,741
$164,410
$ 303,801
727
(81)
423
(78)
388
(306)
Buildings
Land
Machinery, equipment and tooling
Furniture and office equipment
603
285
159
Computers and software
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 $251,658,000 as of December 31, 2013, and
$173,483,000 as of December 31, 2012 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.
Automobiles
Leasehold improvements
Projects in progress – computers and software
Projects in progress – other
As of December 31,
2012
2013
$ 4,613
$ 2,134
504
110,728
13,448
139,723
18
17,880
2,079
6,675
504
88,222
12,672
130,357
18
16,380
2,217
15,561
295,668
268,065
Less accumulated depreciation and amortization
(186,080)
(166,716)
Net property and equipment
$ 109,588
$101,349
Other items related to property and equipment are as follows (in thousands):
As of December 31,
2012
2013
Unamortized computer software costs
$ 43,317
$ 48,873
Amortization of capitalized software
$ 8,688
Total depreciation expense charged to income 24,727
$ 7,912
21,504
$ 6,180
20,680
Year Ended December 31,
2012
2013
2011
Note 5 Accounts Receivable
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,
2013
2012
$ 177,370
$169,401
(453)
(669)
$ 176,917
$168,732
As of December 31,
2013
2012
$ 31,335
$ 31,350
415
294
101,540
133,584
(12,561)
921
604
104,137
137,012
(13,655)
Total inventories, net
$ 121,023
$123,357
F-14
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):
Amortized intangible assets
Current technology
Patent and patent rights
Customer relationships
Total
Amortization expense for the
year ended December 31, 2013
As of December 31, 2013
Gross Accumulated
Amount Amortization
Net
Amount
$ 23,778
$ (14,060)
29,569
52,893
(17,919)
(5,293)
$ 9,718
11,650
47,600
$106,240
$(37,272)
$68,968
Unamortized intangible assets:
Goodwill at gross cost
Impairment charge – 2008
Goodwill as of December 31, 2011
Acquisition – LaserBand
Impairment charge – 2012
Goodwill as of December 31, 2012
Acquisition – Hart Systems
Total
$ 180,731
(101,028)
79,703
24,353
(9,114)
94,942
60,858
$ 7,383
Goodwill as of December 31, 2013
$ 155,800
Estimated amortization expense:
For the year ended December 31, 2014
$ 10,533
For the year ended December 31, 2015
For the year ended December 31, 2016
For the year ended December 31, 2017
For the year ended December 31, 2018
Thereafter
Total
9,769
9,331
8,100
5,867
25,368
$ 68,968
In 2013, we acquired intangible assets in the amount of $37,200,000 for developed
technology, customer relationships and a trade names. These intangible assets have an
estimated useful life ranging from 1 to 15 years. See Note 24 Business Combinations for
specific information regarding the acquisition. In 2012, we acquired intangible assets in
the amount of $31,157,000 for patents, technology and customer relationships associated
with the acquisition of LaserBand. During 2013, Zebra paid $1,500,000 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, 2012
As of December 31, 2012
Gross Accumulated
Amount Amortization
Net
Amount
$ 18,978
$ (12,391)
29,569
20,493
(14,618)
(2,880)
$ 69,040
$(29,889)
$ 6,587
14,951
17,613
$39,151
$ 4,673
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
Other long-term assets
Deposits
Total
As of December 31,
2012
2013
$ 4,827
21,242
1,522
1,174
$ 3,553
9,195
0
898
$28,765
$13,646
During 2013, Zebra acquired interests ranging from 2.0% to 8.3% in two venture capital
technology companies for $12,021,000 during the year. 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.
Note 10 Costs Associated with Exit and Restructuring
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.
Costs incurred through December 31, 2013 and costs expected to be incurred relate to the
following: restructuring of Zebra’s manufacturing operations; relocation of a significant
portion of Zebra’s supply chain operations from the U.S. to China; consolidating activities
domestically; restructuring of our sales operations; restructuring certain corporate
functions; and amending the location solutions “2012 restructuring plan” by adding
additional restructuring charges to be incurred.
F-15
As of December 31, 2013, 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):
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.
Cost Costs incurred
Type of Cost
Severance, stay
bonuses, and
other employee-
related expenses
Professional services
Relocation and
transition costs
incurred
through months ended
Dec. 31
2012
for the twelve Total costs Additional
incurred as
costs Total costs
Dec. 31, of Dec. 31, expected to expected to
2013 be incurred be incurred
2013
$960
0
0
$5,690
180
$6,650
180
20
20
$61
$6,711
0
0
180
20
Total
$960
$5,890
$6,850
$61
$6,911
During 2011, costs related to the consolidation and relocation of the administrative and
accounting functions were due to the divestiture of our Navis marine terminal solutions
business and the related WhereNet marine terminal solutions product line. There were
no costs in 2012 related to this restructuring as this project was completed in 2011. 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):
Type of Cost
Severance, stay bonuses, and other
employee-related expenses
Professional services
Relocation and transition costs
Cost incurred
for the
year ended
December 31,
2012
Additional
costs
expected to
be incurred
Total costs
expected to
be incurred
$ 960
$4,590
$ 5,550
0
0
310
480
310
480
Total
$ 960
$5,380
$ 6,340
Liabilities and expenses related to exit activities were as follows (in thousands):
Balance at beginning of period
Charged to earnings
Cash paid
Balance at the end of period
Year Ended December 31,
2012
2013
2011
$ 967
5,890
(5,605)
$ 1,252
$ 1,048
$ 1,479
960
(1,041)
2,041
(2,472)
$ 967
$ 1,048
F-16
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.
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):
Summary financial information related to the cash flow hedges of future revenues follows
(in thousands, except percentages):
Year Ended December 31,
2013
2012
2011
Change in gains (losses) from
foreign exchange derivatives
$(1,998)
$ (1,347)
Gain (loss) on net foreign currency assets
1,474
406
Net foreign exchange loss
$ (524)
$ (941)
$ (825)
(1,181)
$(2,006)
Notional balance of outstanding contracts:
Euro/US dollar
Pound/US dollar
Net fair value of outstanding contracts
As of
December 31, December 31,
2012
2013
€ 41,021
0
£
$
33
€ 37,598
£ 3,810
$
18
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):
As of
December 31, December 31,
2012
2013
As of
December 31, December 31,
2012
2013
Notional balance of outstanding contracts versus the dollar
Hedge effectiveness
€ 85,627
100%
€ 88,680
100%
Net gains and (losses) included in revenue
$(4,294)
$ 4,201
$ (4,159)
Year Ended December 31,
2013
2012
2011
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):
Liabilities:
Accrued liabilities
Total
As of
December 31, December 31,
2012
2013
$ 2,743
$ 2,743
$ 2,045
$ 2,045
Note 12 Commitments and Contingencies
Leases. Minimum future obligations under all non-cancelable operating leases as of
December 31, 2013 are as follows (in thousands):
Net unrealized gains (losses) deferred
in other comprehensive income:
Gross
Income tax expense (benefit)
Net
$ 208
$ (9,936)
90
$ 118
(2,695)
$ (7,241)
2014
2015
2016
2017
2018
Thereafter
Total minimum lease obligations
Operating Leases
$ 15,619
11,842
7,368
7,636
6,105
34,805
$ 83,375
Rent expense for operating leases charged to operations was as follows (in thousands):
Rent expense
Year Ended December 31,
2012
2013
2011
$15,750
$15,254
$13,907
F-17
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.
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 0.00% to 0.75%.
Zebra did not borrow 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, 2013, we had
established letters of credit amounting to $1,800,000, which reduces funds available for
borrowing under the agreement. As of December 31, 2013 and 2012, no amounts were
outstanding under the company’s 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 matches 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.
F-18
Company contributions to these plans, which were charged to operations, approximated
the following (in thousands):
401(k)
Total
Year Ended December 31,
2012
2011
$5,138
$5,138
$4,813
$4,813
2013
$4,865
$4,865
Note 14 Stockholders’ Equity
Share count and par value data related to stockholders’ equity are as follows:
As of
December 31, December 31,
2012
2013
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
50,349,546
0.01
150,000,000
72,151,857
50,908,267
21,802,311
21,243,590
During the year ended December 31, 2013, Zebra purchased 1,356,861 shares of common
stock for $63,102,242 under board authorized share repurchase plans compared to the
year ended December 31, 2012, in which Zebra purchased 1,473,863 shares of common
stock for $54,373,000. During the year ended December 31, 2011, Zebra purchased
4,353,801 shares of common stock for $160,200,000.
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,
2012
2013
50,908,267
52,095,166
(1,356,861)
(1,473,863)
739,148
241,851
(165,610)
(17,249)
246,625
242,238
(130,119)
(71,780)
50,349,546
50,908,267
Note 15 Earnings (Loss) Per Share
For the years ended December 31, 2013, 2012, and 2011, 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,
2012
2013
2011
50,693
51,566
53,854
370
277
337
51,063
51,843
54,191
Income from continuing operations
$134,225
$121,897
$130,343
Income (loss) from
discontinued operations
Net Income
Basic per share amounts:
133
1,007
$134,358
$122,904
44,300
$174,643
Income from continuing operations
$ 2.65
$ 2.36
$ 2.42
Income (loss) from
discontinued operations
Net Income
Diluted per share amounts:
0.00
0.02
0.82
$ 2.65
$ 2.38
$ 3.24
Income from continuing operations
$ 2.63
$ 2.35
$ 2.40
Income (loss) from
discontinued operations
Net Income
0.00
0.02
0.82
$ 2.63
$ 2.37
$ 3.22
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
168,472
1,753,311
1,425,880
Year Ended December 31,
2012
2013
2011
Note 16 Equity-Based Compensation
As of December 31, 2013, 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, 2013, 4,212,339 shares were available for grant under the plan, and
options for 691,874 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 2013 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
18,095
149,420
167,515
PSA’s
112,028
75,766
187,794
Total
130,123
225,186
355,309
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.
F-19
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, 2013, options
and SARs for 1,111,435 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, 2013, options for
471,990 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, 2013,
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, 2013, outstanding WhereNet options
were exercisable into 3,262 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, 2013 was $224,000. Stock
purchase plan expense for the year ended December 31, 2012 was $242,000 and for the
year ended December 31, 2011 was $321,000.
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
2013
0%
10.31%
32.00%
.82%
2012
0%
10.21%
35.90%
.94%
2011
0%
11.50%
35.33%
2.01%
– Range of interest rates
0.02%-1.78% 0.07% - 1.95% 0.01% - 3.18%
Expected weighted-average life
5.42 years
5.48 years
5.42 years
Fair value of SARs granted
$4,528,000
$5,533,000
$5,495,000
Weighted-average grant date fair
value of options and SARs granted
(per underlying share)
$13.86
$12.84
$14.29
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.
F-20
Stock option activity for the years ended December 31, 2013, 2012, and 2011, was as follows:
Options
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
2013
Weighted-Average
Exercise Price
$41.69
0
39.54
0
45.81
$42.78
$42.78
Shares
1,531,844
0
(543,922)
0
(32,145)
955,777
955,777
Intrinsic value of exercised options
$4,300,000
There were no stock options granted in 2013, 2012 or 2011.
The following table summarizes information about stock options outstanding at December 31, 2013.
Aggregate intrinsic value
Outstanding
Exercisable
$4,201,000
$4,201,000
Weighted-average remaining contractual term
2.5 years
2.5 years
SAR activity for the years ended December 31, 2013, 2012, and 2011, was as follows:
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
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
2013
Weighted-Average
Exercise Price
$31.66
46.13
25.44
37.54
33.70
$36.36
$30.51
Shares
1,535,804
326,811
(376,673)
(80,515)
(2,643)
1,402,784
520,426
$7,900,000
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
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
2013 is as follows: 326,811 SARs vest annually in four equal amounts on each of the
first four anniversaries of the grant date. 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. All SARs expire 10 years after
the grant date.
The following table summarizes information about SARs outstanding at December 31, 2013:
Aggregate intrinsic value
Outstanding
Exercisable
$14,144,000
$8,282,000
Weighted-average remaining contractual term
7.6 years
6.6 years
F-21
Restricted stock award activity, granted under the 2011 and 2006 Plans, for the years ended December 31, 2013, 2012 and 2011 was as follows:
Restricted Stock Awards
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
2013
Weighted-Average
Grant Date Fair Value
$35.43
46.17
31.28
40.79
$40.92
Shares
444,362
167,515
(161,976)
(14,524)
435,377
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
Performance share award activity, granted under the 2011 and 2006 Plans, for the years ended December 31, 2013, 2012 and 2011 was as follows:
Performance Share Awards
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
2013
Weighted-Average
Grant Date Fair Value
$35.55
35.17
27.90
41.46
$42.25
Shares
265,829
187,794
(253,484)
(4,980)
195,159
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
$25.51
41.17
30.08
29.08
$ 28.20
2011
Weighted-Average
Grant Date Fair Value
$25.35
41.47
28.79
0.0
$ 28.58
Shares
594,090
152,636
(197,472)
(19,374)
529,880
Shares
250,596
62,874
(7,209)
0
306,261
As of December 31, 2013, there was $17,646,000 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 2.3 years.
The fair value of the purchase rights issued to Zebra employees under the stock purchase
plan is estimated using the following weighted-average assumptions for purchase rights
granted. Expected lives of three months to one year have been used along with these
assumptions.
Fair market value
Option price
Expected dividend yield
Expected volatility
Risk free interest rate
2013
$42.45
$40.33
0%
19%
0.05%
2012
$ 35.43
$33.66
0%
21%
0.07%
2011
$34.77
$33.03
0%
33%
0.07%
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.
F-22
The following table shows the income, asset and liability amounts related to this plan
(in thousands):
As of December 31,
2012
2013
Mutual funds included in other assets
$4,827
$3,553
Deferred compensation liability included
in other long-term liabilities
$4,827
$3,553
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,
2012
2013
2011
$ 47,636
$ 60,388
$ 78,593
116,191
$163,827
103,786
$ 164,174
101,126
$179,719
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.
Deferred income taxes are not provided on undistributed earnings of foreign subsidiaries,
aggregating approximately $354,164,000 at December 31, 2013 and $256,000,000 at
December 31, 2012.
If these requirements are met, the 10% rate extends through 2018. This agreement
reduced Zebra’s consolidated income taxes by $1,860,000 in 2013, $2,002,000 in 2012, and
$2,030,000 in 2011.
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,
2012
2013
2011
$ 9,556
$ 17,744
$ 7,250
808
11,638
22,002
7,118
289
193
7,600
1,324
14,258
33,326
1,191
28,175
36,616
8,656
12,477
375
(80)
405
(122)
8,951
12,760
$29,602
$ 42,277
$49,376
In order to streamline the management, financing and capital structure of its foreign
affiliates, in 2012, Zebra established a foreign holding company and restructured the
ownership structure of its foreign affiliates. 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 introduced leverage which gives the Zebra the ability
to facilitate cash pooling and improve the capital structure of its non-US operations. The
new capital structure and global financing favorably impacts the Zebra’s effective tax
rate, and facilitates the tax efficient movement of Zebra’s foreign cash to finance the
ongoing operating and investment needs of the foreign subsidiaries. The restructuring was
completed in the second quarter of 2012 and was in place for the full year in 2013.
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):
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,
2012
2013
2011
Provision computed at statutory rate
$57,339
$ 57,461
$ 62,905
State income tax, net of Federal tax benefit
1,191
Asset impairment charge
Tax-exempt interest income
Acquisition related items
Domestic manufacturing deduction
Research and experimental credit
0
(174)
0
(490)
(970)
1,353
3,190
(230)
322
(105)
0
1,432
0
(334)
0
(212)
(508)
Foreign rate differential
(26,798)
(21,598)
(13,899)
Other
(496)
1,884
(8)
Provision for income taxes
$29,602
$42,277
$ 49,376
The primary reasons for the difference is due to a combination of higher profits in lower
rate international jurisdictions, decreasing foreign statutory rates, the Singapore tax
holiday and the restructuring of the foreign operations. 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.
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 (liabilities)
As of December 31,
2013
2012
$
409
2,153
2,916
1,816
6,061
118
11,149
12,337
558
410
597
(267)
$
508
2,480
2,747
1,497
6,967
211
6,531
16,620
438
419
2,462
(267)
38,257
40,613
(1,450)
(42,489)
(43,939)
$ (5,682)
0
(24,527)
(24,527)
$16,086
F-23
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. This amount was reduced as a result of
filing 2012 income tax returns in 2013.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
Balance at January 1, 2013
Additions based on tax positions related to 2013
Reductions based on 2012 tax returns as filed in 2013
Balance at December 31, 2013
$ 4,680
0
(680)
$ 4,000
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,
2013, Zebra had approximately $8,252,000 of net operating loss carryforwards available
to offset future taxable income which expire in 2022 through 2027. As of December 31,
2013, Zebra had approximately $26,980,000 of state net operating loss carryforwards
which expire in 2013 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. The company has reviewed the impact of ownership changes and believes
that this will not have an impact on the realizability on the related Deferred Tax Asset
recorded as of December 31, 2013.
Deferred tax asset valuation allowances included in the temporary differences above are
as follows (in thousands):
Valuation allowance
Balance at the beginning of the year
Additions
Subtractions
2013
$267
0
0
Year Ended December 31,
2012
$267
0
0
2011
$267
0
0
Balance at the end of the period
$267
$267
$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 California’s temporary suspension on the use of state net
operating losses for tax years 2010 & 2011. Although the carryforward period for those
temporarily suspended losses was increased, there is still some uncertainty as to the
ability to use such losses even though carryforward periods were extended.
We are currently undergoing an audit of the 2011 and 2012 US federal income tax
returns. The tax years 2009 through 2012 remain open to examination by multiple state
taxing jurisdictions. Tax authorities in the United Kingdom have completed income tax
audits for tax years through 2011.
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, 2011
through December 31, 2013, Zebra did not accrue any interest or penalties into income
tax expense.
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.
F-24
The components of other comprehensive income (loss) included in the Consolidated
Statements of Comprehensive Income (Loss) are as follows (in thousands):
Gain (Loss)
Twelve
reclassified Months
ended
from AOCI
to income
As of
Dec. 31, Dec. 31,
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.
North Europe, Middle
East & Africa
America
Latin
America
Asia
Total
$(3,089)
(1)
$ 208
$ (2,373)
(772)
(2,317)
90
118
(509)
(1,864)
(2)
603
188
415
316
(3)
(691)
(235)
(456)
(151)
(73)
(78)
882
(7,839)
2013
Net sales
Long-lived assets
2012
Net sales
Long-lived assets
2011
Net sales
Long-lived assets
$ 459,908
97,768
$ 326,470
8,149
$ 99,041
502
$152,740
3,169
$1,038,159
109,588
$ 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
$ 2,130
$(1,586)
$ 544
$ (9,781)
Net sales by country that are greater than 10% of total net sales are as follows
(in thousands):
$ 4,821
(1)
$(9,936) $ (2,581)
1,205
3,616
(2,695)
(599)
(7,241)
(1,982)
2013
2012
2011
United
States
$562,848
$539,504
$504,283
United
Kingdom
$ 323,708
$ 317,793
$ 339,027
Singapore
Other
Total
$140,588
$134,349
$136,757
$ 11,015
$ 4,522
$ 3,421
$1,038,159
$ 996,168
$ 983,488
285
(2)
1,337
101
184
(79)
(3)
450
887
242
540
162
378
(8,721)
Net sales by country are determined by the country from where the products are invoiced
when they leave Zebra’s warehouse. Generally, our United States sales company serves
North America and Latin America while our United Kingdom sales company serves the
Europe, Middle East and Africa markets and our Singapore sales company serves all of
the Asia Pacific market.
$ (9,833)
$ 3,721
$(6,112) $(10,325)
Net sales by major product category are as follows (in thousands):
$(3,318)
(1)
$ 8,878
$ 7,355
(946)
(2,372)
2,669
6,209
2,096
5,259
2013
2012
2011
Hardware
Supplies
$735,123
$730,489
$743,308
$ 243,965
$ 212,499
$ 187,457
Service
and
Software
$ 53,627
$ 47,941
$ 47,206
Shipping
and
Handling
Total
$ 5,444
$ 5,239
$ 5,517
$1,038,159
$ 996,168
$ 983,488
Gain (Loss)
recognized
in OCI
2013
Unrealized gains (losses) on hedging transactions:
$ 3,297
Gross
Income tax (benefit)
Net
Unrealized gains (losses) on investments:
Gross
Income tax (benefit)
Net
Foreign currency translation adjustments
Total accumulated other
comprehensive gains (losses)
862
2,435
(1,294)
(423)
(871)
566
2012
Unrealized gains (losses) on hedging transactions:
Gross
$(14,757)
Income tax (benefit)
Net
Unrealized gains (losses) on investments:
Gross
Income tax (benefit)
Net
Foreign currency translation adjustments
Total accumulated other
comprehensive gains (losses)
(3,900)
(10,857)
1,052
349
703
321
2011
Unrealized gains (losses) on hedging transactions:
$ 12,196
Gross
Income tax (benefit)
Net
Unrealized gains (losses) on investments:
Gross
Income tax (benefit)
Net
Foreign currency translation adjustments
Total accumulated other
comprehensive gains (losses)
3,615
8,581
(756)
(269)
(487)
178
$ 8,272
$(3,136)
$ 5,316
$ (4,213)
(1) Transfer of unrealized gains and (losses) from AOCI to income on hedging transactions are included in net sales of
tangible products.
(2) Transfer of unrealized gains and (losses) from AOCI to income on investments are included in investment income.
(3) Transfer of foreign currency translation gains and (losses) from AOCI to income, are included in foreign exchange.
(2)
159
57
102
(597)
(212)
(385)
(797)
(288)
(509)
(866)
(3)
(688)
(8,963)
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
2013
16.8%
13.1%
12.3%
Year Ended December 31,
2012
2011
20.4%
11.4%
10.3%
20.7%
10.5%
8.9%
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)
2013
Net Sales
Net sales of
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2013
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
tangible products
$ 225,121
$ 239,909
$ 249,919
$ 269,583
Revenue from services
and software
11,816
13,251
13,604
14,956
Basic earnings per share:
Income from
continuing operations
Income from
discontinued operations
$
0.46
$
0.60
$
0.76
$
0.83
0.00
0.00
0.00
0.00
Total net sales
236,937
253,160
263,523
284,539
Net Income
$
0.46
$
0.60
$
0.76
$
0.83
Diluted earnings per share:
Income from
continuing operations
Income from
discontinued operations
$
0.46
$
0.60
$
0.76
$
0.82
Net Income
$
0.46
$
0.60
$
0.76
$
0.00
0.00
0.00
0.00
0.82
Basic weighted average
shares outstanding
50,980
50,990
50,590
50,289
Diluted weighted average and
equivalent shares outstanding 51,366
51,283
50,924
50,666
Cost of Sales
Cost of sales of
tangible products
Cost of sales services
and software
Cost of sales
Gross Profit
Operating expenses:
117,111
125,664
128,191
136,547
6,761
6,589
6,722
6,964
123,872
132,253
134,913
143,511
113,065
120,907
128,610
141,028
Selling and marketing
33,515
33,830
34,395
Research and development
21,858
23,201
22,376
General and administrative
25,277
24,053
22,452
Amortization of
intangible assets
Acquisition costs
Exit and restructuring costs
1,863
482
1,895
1,863
618
1,101
Total operating expenses
84,890
84,666
Operating income
28,175
36,241
Other income (loss)
Investment income
Foreign exchange loss
Other, net
Total other income
677
(98)
10
589
473
(462)
1,464
1,475
1,831
268
519
81,841
46,769
550
(173)
(5)
372
36,280
23,712
24,434
1,826
3,322
2,375
91,949
49,079
666
209
252
1,127
Income from continuing
operations before income taxes 28,764
Income taxes
5,222
37,716
7,158
47,141
8,541
50,206
8,681
Income from continuing operations 23,542
30,558
38,600
41,525
Income from discontinued
operations, net of tax
0
8
0
125
Net income
$ 23,542
$ 30,566
$ 38,600
$ 41,650
F-26
2012
Net Sales
Net sales of
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2012
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
0.00
0.01
0.01
Total net sales
243,875
247,077
252,037
253,179
Net Income
$
0.58
$
0.59
$
0.53
$
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
Basic earnings per share:
Income from
continuing operations
Income from
discontinued operations
Diluted earnings per share:
Income from
continuing operations
Income from
discontinued operations
0.00
0.69
0.00
0.68
$
0.58
$
0.58
$
0.51
$
0.68
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
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. 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. 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 considered this loan unlikely to be repaid in full and established a reserve for the
maximum loss. During 2012, the maximum value on Zebra’s loan to the purchaser was
reduced to €526,058 and Zebra recorded a gain of $930,000 as a result of reducing the
loan loss reserve to the new maximum loss. During 2013, Zebra received some additional
payments on the loan and the remaining balance outstanding was forgiven. Zebra
recorded a gain of $201,000 as a result of the payments received and loan cancellation.
F-27
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, 2013, 2012 and 2011. With the Navis sale,
Zebra consolidated the remaining ZES location solutions operations.
Note 24 Business Combinations
Hart Systems. On December 18, 2013, Zebra acquired all of the outstanding membership
interests in Hart Systems, LLC (a New York limited liability company) for $95,669,326 in
cash, subject to a working capital adjustment. As part of the acquisition closing, an escrow
balance of approximately $9,402,500 was established against the total purchase price.
Summary results for discontinued operations in our consolidated statement of earnings
are as follows (in thousands):
Net sales
Loss from discontinued operations
Income tax benefit (expense)
Gain on sale of discontinued operations
Income tax expense on sale
Year Ended December 31,
2012
2011
$ 0
$ 13,945
$ (141)
$(13,971)
218
930
0
1,299
68,745
(11,773)
2013
$ 0
$ 7
(75)
201
0
Income from discontinued operations
$ 133
$1,007
$ 44,300
The components of cash flows of discontinued operations in our consolidated statement
of cash flows are as follows (in thousands):
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,
2012
2013
2011
$ 0
$ 0
$ (1,301)
0
0
0
0
0
0
0
0
0
0
0
0
0
(1,301)
1,301
Cash and cash equivalents at end of period
$ 0
$ 0
$ 0
F-28
Hart Systems, a leading provider of self-directed physical inventory management
solutions to the retail industry, has distinguished itself in the market by offering retailers
high ROI, self-managed inventory solutions. This acquisition enables us to expand our
presence in the retail market segment by offering additional inventory management
services as part of Zebra’s dedicated Retail Solutions. It adds software as a service (SaaS)
to Zebra’s product and service portfolio. The allocations of the purchase price for this
acquisition have been prepared on a preliminary basis and changes to these allocations
may occur as additional information becomes available. Acquired goodwill represents the
premium paid over the fair value of the net tangible and intangible assets acquired. Zebra
paid this premium for a number of reasons, including acquiring an experienced workforce
and enhancing technology capabilities. Pro forma results have not been presented
because the effect of the acquisition is not material to the company’s financial results.
The following table (in thousands) summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of acquisition:
Current assets
Property and equipment
Goodwill
Other intangibles
Total assets acquired
Current liabilities
Long term liabilities
Net assets acquired
As of
December 31, 2013
$ 2,600
11,134
60,858
37,200
$ 111,792
2,285
13,838
$ 95,669
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 $60,858,000. The intangible
assets of $37,200,000 consist of the following (in thousands):
Customer relationships
Developed technology/know-how
Trade name
Acquired other intangibles
The goodwill is not deductible for tax purposes.
Amount
Useful life
$ 32,100
15 years
4,800
300
$ 37,200
5 years
1 year
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 was cash acquired of $1,431,000.
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.
The following table (in thousands) summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of acquisition:
As of
Current assets
Property and equipment
Other assets
Goodwill
Other intangibles
Total assets acquired
Current liabilities
Net assets acquired
July 13, 2012
$
7,017
46
17
24,353
29,560
$ 60,993
1,119
$ 59,874
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
18,720
$ 29,560
5 years
7 years
5 to 9 years
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 was cash acquired of $110,000.
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, 2013
Year ended December 31, 2012
Year ended December 31, 2011
$
669
$ 1,560
$ 1,459
$ 373
$
0
$ 343
$ 589
$ 453
$ 891
$ 669
$ 242
$ 1,560
Valuation accounts for inventories:
Year ended December 31, 2013
Year ended December 31, 2012
$ 13,655
$ 14,710
$ 8,473
$ 6,758
$ 9,567
$ 12,561
$ 7,813
$ 13,655
Year ended December 31, 2011
$ 9,837
$ 8,762
$ 3,889
$ 14,710
See accompanying report of independent registered public accounting firm.
F-29
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 TA L R E T U R N *
Among Zebra Technologies Corporation, the NASDAQ Composite Index,
and the RDG Te c hnology Composite Index
Zebra Technologies Corporation
NASDAQ Composite Index
RDG Technology Composite Index
Stock Performance Graph
This graph compares the cumulative annual change since December 31, 2008,
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, 2008. The comparison
assumes that all dividends were reinvested at the end of the month in which
they were paid.
$300
$250
$200
$150
$100
$50
$0
12/08
12/09
12/10
12/11
12/12
12/13
Zebra Technologies
Corporation
NASDAQ Composite
Index
RDG Technology
Composite Index
12/08
12/09
12/10
12/11
12/12
12/13
$100.00
$139.93
$187.51
$176.60
$194.03
$266.93
100.00
144.88
170.58
171.30
199.99
283.39
100.00
160.94
181.64
181.83
208.18
274.77
*$100 invested on 12/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
080910111213$300$250$200$150$100$50$0
Board of Directors
Executive Officers
Stockholder Information
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. Frank B. Modruson (1)Chief Information Officer (Retired)Accenture Dr. Robert J. Potter (2)President and Chief Executive OfficerR.J. Potter CompanyJanice M. Roberts (2)Venture AdvisorMayfield Fund (1) Member of Audit Committee(2) Member of Compensation Committee(3) Member of Nominating CommitteeAnders GustafssonChief Executive Officer Gerhard ClessExecutive Vice PresidentMichael ChoSenior Vice President, Corporate Development Hugh K. GagnierSenior Vice President, Global 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 15, 2014 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 RegistrarComputershareP.O. Box 30170College Station, TX 77842-3170 Overnight Delivery211 Quality Circle, Suite 210College Station, TX 77845 Zebra Toll Free: 800 522-6645 TDD for hearing impaired: 800 231-5469Foreign Shareowners: 201 680-6578TDD for Foreign Shareowners: 201 680-6610Website address:Shareowner accounts: www.computershare.com/investorGeneral transfer agent: www.computershare.com Shareholder online inquiries:https://www-us.computershare.com/ investor/contact Investor RelationsPlease contact Zebra’s Corporate Headquarters for corporate or product information. Or, visit our website 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 website. Please contact the Investor Relations Department at the Corporate Headquarters for additional copies of the Form 10-K, or visit our website 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.
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