ZEBRA TECHNOLOGIES CORP - Annual Report: 2013 (Form 10-K)

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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

For the fiscal year ended December 31, 2013

OR

COMMISSION FILE NUMBER 000-19406

Zebra Technologies Corporation

(Exact name of registrant as specified in its charter)

475 Half Day Road, Suite 500, Lincolnshire, IL 60069

(Address of principal executive offices)            (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

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):

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.

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ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

INDEX

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PART I

References in this document to “Zebra,” “we,” “us,” or “our” refer to Zebra Technologies Corporation and its subsidiaries, unless the context specifically indicates otherwise.

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:

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.

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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.

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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.

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.

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As of December 31, 2013, we offered 57 thermal printer models with numerous variations, in seven categories as follows:

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 branded 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.

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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.

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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.

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.

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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.

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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:

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):

Net sales to international customers, as a percent of total net sales, were as follows:

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):

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.

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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.

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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:

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.

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Zebra’s industry is characterized by:

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:

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:

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.

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Acquisitions also may involve a number of risks, including:

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.

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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.

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.

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Not applicable.

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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:

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.

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See Note 12 in the Notes to the Consolidated Financial Statements included in this Form 10-K.

Not applicable.

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PART II

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.

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

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CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) DATA

(In thousands, except per share amounts)

CONSOLIDATED BALANCE SHEET DATA

(In thousands)

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Results of Operations: Fourth Quarter of 2013 versus Fourth Quarter of 2012

Consolidated Results of Operations

(Amounts in thousands, except percentages)

Consolidated Results of Operations – Fourth quarter

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):

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

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):

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):