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ZEBRA TECHNOLOGIES CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) Results of Operations: Fourth Quarter of 2012 versus Fourth Quarter of 2011
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Three Months Ended Percent of Percent of
December 31, December 31, Percent Net Sales - Net Sales -
2012 2011 Change 2012 2011
Net Sales
Tangible products $ 241,257 $ 235,714 2.4 95.3 95.3
Service & software 11,922 11,594 2.8 4.7 4.7
Total net sales 253,179 247,308 2.4 100.0 100.0
Cost of Sales
Tangible products 121,869 118,792 2.6 48.1 48.1
Service & software 6,850 6,996 (2.1) 2.7 2.8
Total cost of sales 128,719 125,788 2.3 50.8 50.9
Gross profit 124,460 121,520 2.4 49.2 49.1
Operating expenses 80,342 79,397 1.2 31.7 32.1
Operating income 44,118 42,123 4.7 17.5 17.0
Other income (expense) (56) (1,011) (94.5) (0.1) (0.4)
Income from continuing
operations before income taxes 44,062 41,112 7.2 17.4 16.6
Income taxes 9,263 8,253 12.2 3.7 3.3
Income from continuing
operations 34,799 32,859 5.9 13.7 13.3
Income from discontinued
operations, net of tax 191 2,185 (91.3) 0.1 0.9
Net income $ 34,990 $ 35,044 (0.2) 13.8 14.2
Diluted earnings per share:
Income from continuing
operations $ 0.68 $ 0.63 7.9
Income from discontinued
operations 0.00 0.04 100.0
Net income $ 0.68 $ 0.67 1.5
Consolidated Results of Operations - Fourth quarter
Sales
Net sales for the fourth quarter of 2012 compared with the 2011 quarter
increased 2.4% primarily due to increased sales in supplies and aftermarket
services. Printer unit volume increased 2.9% for 2012 compared to 2011
principally from unit volume increases in desktop and tabletop printers.
Sales by product category were as follows (amounts in thousands, except
percentages):
Three Months Ended
December 31, December 31, Percent Percent of Percent of
Product category 2012 2011 Change Net Sales 2012 Net Sales 2011
Hardware $ 182,267 $ 188,198 (3.2) 72.0 76.1
Supplies 57,607 46,135 24.9 22.8 18.6
Service and software 11,922 11,594 2.8 4.7 4.7
Subtotal products 251,796 245,927 2.4 99.5 99.4
Shipping and handling 1,383 1,381 0.1 0.5 0.6
Total net sales $ 253,179 $ 247,308 2.4 100.0 100.0
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Sales declines in Europe, Middle East and Africa, and Asia Pacific, primarily
from a challenged business environment, were offset by increased sales in North
America and Latin America. Sales increased in Latin America in part from
improved geographic coverage, with notable increases in supplies, tabletop,
desktop, and mobile printers. Sales in North America increased due to increased
sales in supplies and aftermarket services. Zebra continues to build a broader
base of customers to penetrate targeted industries more deeply. Movements in
foreign exchange rates decreased sales by $1,858,000 in the Europe, Middle East
and Africa region for the quarter, due to a weaker euro against the U.S. dollar
compared to the same period in the prior year.
Sales to customers by geographic region were as follows (in thousands, except
percentages):
Three Months Ended
December 31, December 31, Percent Percent of Percent of
Geographic region 2012 2011 Change Net Sales 2012 Net Sales 2011
Europe, Middle East and Africa $ 83,355 $ 88,360 (5.7) 32.9 35.7
Latin America 26,255 21,578 21.7 10.4 8.7
Asia-Pacific 31,665 32,470 (2.5) 12.5 13.1
Total International 141,275 142,408 (0.8) 55.8 57.5
North America 111,904 104,900 6.7 44.2 42.5
Total net sales $ 253,179 $ 247,308 2.4 100.0 100.0
Gross profit
Gross profit increased 2.4% reflecting reduced overhead and freight costs,
partially offset by unfavorable movements in foreign exchange rates and product
mix. Unfavorable foreign currency movements decreased fourth quarter gross
profit by $1,806,000. As a percentage of sales, gross margin improved from 49.1%
to 49.2%.
Printer unit volumes and average selling price information is summarized below:
Three Months Ended
December 31, December 31, Percent
2012 2011 Change
Total printers shipped 321,314 312,409 2.9
Average selling price of printers shipped $ 477 $ 506 (5.7)
For the fourth quarter of 2012, unit volumes increased in tabletop and desktop
printers. Desktop printers achieved record sales. The decrease in average
selling price is a result of a change in product mix toward lower priced
products in the 2012 quarter compared to the 2011 quarter.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Three Months Ended
December 31, December 31, Percent Percent of Percent of
Operating expenses 2012 2011 Change Net Sales 2012 Net Sales 2011
Selling and marketing $ 33,313 $ 36,377 (8.4) 13.2 14.7
Research and development 22,605 23,174 (2.5) 8.9 9.4
General and administrative 20,964 18,973 10.5 8.3 7.7
Amortization of intangible assets 1,463 806 81.5 0.6 0.3
Acquisition costs 1,037 116 N/M 0.4 0.0
Exit and restructuring costs 960 (49) N/M 0.4 0.0
Total operating expenses $ 80,342 $ 79,397 1.2 31.7 32.1
Operating expenses for the quarter increased 1.2% due mainly to higher general
and administrative expenses, amortization and acquisition expenses, and exit and
restructuring costs. Compensation costs and depreciation increased over 2011
levels. Amortization expense increases are primarily related to the intangibles
acquired with the LaserBand acquisition. Acquisition costs relate to
investigated and completed merger and acquisition activity during the period.
Exit and restructuring costs in 2012 relate to the restructuring of the location
solutions business management structure.
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Other income (expense)
Zebra's non-operating income and expense items are summarized in the following
table (in thousands):
Three Months Ended
December 31, December 31,
2012 2011
Investment income $ 526 $ 594
Foreign exchange loss (5) (706)
Other, net (577) (899)
Total other income (expense) $ (56) $ (1,011)
Other expense decreased in the fourth quarter of 2012 as a result of decreases
in foreign exchange losses.
Operating income
Operating income for the fourth quarter of 2012, compared to the same period in
2011, increased 4.7%. See comments above for explanation of changes in
individual categories.
Income taxes
The effective income tax rate for the fourth quarter of 2012 was 21.0% compared
with 20.1% for the same quarter in the prior year. The fourth quarter 2012
effective tax rate increased slightly due to an increase in income in higher
rate tax jurisdictions in 2012 when compared to the prior years quarter. The
increase in 2012 was offset by an August 2012 decrease in the UK statutory tax
rate from 25.5% to 24.5%. During 2012 Zebra implemented a new international
holding company structure to facilitate the investment of overseas cash and
international acquisitions. This new structure has also decreased our
international income taxes. In addition, the fourth quarter of 2012 benefitted
from one-time adjustments resulting from amended tax returns for 2010 and prior
years.
Income from discontinued operations
The income in the fourth quarter of 2012 is related to a reversal of amounts
previously reserved, which were related to the finalization of the accounting
and taxes related to discontinued operations transactions during 2011.
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Results of Operations: Year ended December 31, 2012 versus Year ended
December 31, 2011
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Year Ended
December 31, December 31, Percent of Percent of
Percent Net Sales - Net Sales -
2012 2011 Change 2012 2011
Net Sales
Tangible products $ 948,227 $ 936,282 1.3 95.2 95.2
Service & software 47,941 47,206 1.6 4.8 4.8
Total net sales 996,168 983,488 1.3 100.0 100.0
Cost of Sales
Tangible products 479,633 469,834 2.1 48.1 47.8
Service & software 24,891 26,885 (7.4) 2.5 2.7
Total cost of sales 504,524 496,719 1.6 50.6 50.5
Gross profit 491,644 486,769 1.0 49.4 49.5
Operating expenses 327,293 304,733 7.4 32.9 31.0
Operating income 164,351 182,036 (9.7) 16.5 18.5
Other income (expense) (177) (2,317) (92.4) (0.0) (0.2)
Income from continuing operations before
income taxes 164,174 179,719 (8.6) 16.5 18.3
Income taxes 42,277 49,376 (14.4) 4.3 5.0
Income from continuing operations 121,897 130,343 (6.5) 12.2 13.3
Income from discontinued operations, net of
tax 1,007 44,300 (97.7) 0.1 4.5
Net income $ 122,904 $ 174,643 (29.6) 12.3 17.8
Diluted earnings per share:
Income from continuing operations $ 2.35 $ 2.40 (2.1)
Income from discontinued operations 0.02 0.82 (97.6)
Net income $ 2.37 $ 3.22 (26.4)
Consolidated Results of Operations - Full Year
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):
Year Ended Percent of Percent of
December 31, December 31, Percent Net Sales Net Sales
Product category 2012 2011 Change 2012 2011
Hardware $ 730,489 $ 743,308 (1.7) 73.4 75.5
Supplies 212,499 187,457 13.4 21.3 19.1
Service and software 47,941 47,206 1.6 4.8 4.8
Subtotal products 990,929 977,971 1.3 99.5 99.4
Shipping and handling 5,239 5,517 (5.0) 0.5 0.6
Total net sales $ 996,168 $ 983,488 1.3 100.0 100.0
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.
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Sales to customers by geographic region were as follows (in thousands, except
percentages):
Year Ended
December 31, December 31, Percent Percent of Percent of
Geographic region 2012 2011 Change Net Sales 2012 Net Sales 2011
Europe, Middle East and Africa $ 322,970 $ 342,578
(5.7) 32.4 34.8
Latin America 100,101 89,715 11.6 10.0 9.1
Asia-Pacific 137,577 141,987 (3.1) 13.8 14.5
Total International 560,648 574,280 (2.4) 56.2 58.4
North America 435,520 409,208 6.4 43.8 41.6
Total net sales $ 996,168 $ 983,488 1.3 100.0 100.0
Gross profit
Gross profit increased 1.0% due to higher volumes and lower material costs.
Lower freight costs in 2012 of $5,042,000 versus 2011 helped improve gross
profit while unfavorable movements in foreign currency decreased gross profit by
$9,923,000. The above factors contributed to the slight decrease in gross margin
from 49.5% to 49.4%.
Printer unit volumes and average selling price information is summarized below:
Year Ended
December 31, December 31, Percent
2012 2011 Change
Total printers shipped 1,260,141 1,188,892 6.0
Average selling price of printers shipped $ 485 $ 527 (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):
Year Ended
December 31, December 31, Percent Percent of Percent of
Operating Expenses 2012 2011 Change Net Sales 2012 Net Sales 2011
Selling and marketing
$ 129,906 $ 127,797 1.7 13.0 13.1
Research and development 87,364 89,926 (2.8) 8.8 9.1
General and administrative 92,167 81,345 13.3 9.3 8.3
Amortization of intangible assets 4,673 3,320 40.8 0.5 0.3
Acquisition costs 3,109 304 N/M 0.3 0.0
Exit and restructuring costs 960 2,041 (53.0) 0.1 0.2
Asset impairment charge 9,114 0 N/M 0.9 0.0
Total operating expenses $ 327,293 $ 304,733 7.4 32.9 31.0
Operating expenses for 2012 increased 7.4%. This is primarily due to greater
selling and marketing and general and administrative expenses. The asset
impairment charge was accounted for 40.4% of the total increase in 2012. Several
categories accounted for these increases, including compensation costs, outside
professional services, rent, depreciation and information systems expenses.
Acquisition costs are related to investigated and completed acquisitions during
the period. Exit and restructuring costs in 2012 relate to the restructuring of
the location solutions business management structure while costs in 2011 relate
to the relocation and consolidation of administrative, accounting and
distribution functions of our location solutions operations to Illinois. The
asset impairment charge in 2012 relates to the goodwill associated with Zebra's
smaller reporting unit.
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Selling and marketing expenses
Selling and marketing expenses are summarized below (in thousands):
Year Ended
December 31, December 31,
2012 2011 Increase / (Decrease)
Payroll and benefit costs $ 78,894 $ 75,436 $ 3,458
Business development 23,434 23,022 412
Travel and entertainment expenses 8,451 8,068 383
Offsite meetings 1,141 3,362 (2,221)
Other changes 17,986 17,909 77
Total selling and marketing expenses $ 129,906 $ 127,797 $ 2,109
Selling and marketing expenses were higher in 2012 primarily due to increased
payroll and benefit costs related to the addition of more sales-related Zebra
personnel in geographic regions with high-growth opportunities. Payroll and
benefit cost increases include salaries, commissions, benefits, and payroll
taxes. Other selling and marketing expense categories also increased over 2011
levels due to higher expenses relating to the addition of Zebra sales
representatives to expand Zebra's global reach into new developing geographic
regions.
Research and development costs
The development of new products and enhancement of existing products are
important to Zebra's business and growth prospects. To maintain and build our
product pipeline, we continue to make investments in research and development.
In 2012 we introduced 14 new printer related products and 19 location software
and hardware releases. Zebra introduced its latest generation of print engine
during the year which enables Zebra to expand into new markets. The ZE500 is
designed for reliable operations in mission critical applications and is well
suited for use in the food and beverage industries and other environments where
dust and moisture can create printing challenges. Zebra has enhanced its
printers for cloud based connectivity through Zebra's Link-OS, an ecosystem
enabled by Zebra's printer architecture which makes Zebra printers significantly
easier to integrate, manage and use in a company's operations, with greater
capabilities for customization with the development of specialized apps.
Quarterly product development expenses fluctuate depending on the status of
ongoing projects. We are committed to a long-term strategy of significant
investment in product development. Research and development costs are summarized
below (in thousands):
Year Ended
December 31, December 31,
2012 201110 Increase / (Decrease)
Payroll and benefit costs $ 58,464 $ 59,087 $ (623)
Project expenses 5,710 7,838 (2,128)
Other changes 23,190 23,001 189
Total research and development costs $ 87,364 $ 89,926
$ (2,562)
The decreases in research and development costs relate to decreased payroll and
benefit costs and project expenses. Project expenses decreased due primarily due
to the completion on new mid-range and print engine products in 2012.
General and administrative expenses
General and administrative expenses are summarized below (in thousands):
Year Ended
December 31, December 31,
2012 2011 Increase / (Decrease)
Payroll and benefit costs $ 46,606 $ 40,975 $ 5,631
Professional services expenses 13,890 10,544 3,346
Information systems expenses 13,046 12,138 908
Other changes 18,625 17,688 937
Total general and administrative expenses $ 92,167 $ 81,345
$ 10,822
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General and administrative expenses increased over 2011due to larger incentive
costs related to merit increases and equity incentives. Professional fees
increased slightly due to the acquisition of LaserBand and other long-term
investments in 2012. Professional services were also utilized for the
implementation of Zebra's new international structure and to expand geographic
regions. Information systems costs increased slightly in the maintenance and
service contracts area.
Amortization of intangible assets
Amortization of intangible assets increased $1,353,000 during 2012 due to
additions of current technology, patent and patent rights and customer
relationships during the year as a result of the acquisition of LaserBand.
Exit and restructuring costs
Exit and restructuring costs in 2012 of $960,000 relate to the restructuring of
our location solutions business management structure. Costs in 2011 of
$2,041,000 relate to the consolidation of our location solutions operations
following the divestiture of Navis in the first quarter of 2011.
Operating income
The operating income decrease for 2012 was the result of operating expense
increases as noted above.
Other income (expense)
Zebra's non-operating income and expense items are summarized in the following
table (in thousands):
Year Ended
December 31, December 31,
2012 2011
Investment income $ 2,485 $ 1,944
Foreign exchange loss (941 ) (2,006 )
Other, net (1,721 ) (2,255 )
Total other income (expense) $ (177 ) $ (2,317 )
Other expense decreased in 2012 as a result of
decreases in foreign exchange losses.
Year Ended
December 31, December 31,
Rate of return analysis: 2012 2011Average cash and marketable securities balances $ 360,385
$ 292,646
Annualized rate of return 0.7 % 0.7 %
Investment income increased overall from higher cash and investment balances in
2012 versus 2011.
Income taxes
The effective income tax rate for 2012 was 25.8% compared with an income tax
rate of 27.5% for 2011. During 2012 Zebra implemented a new international
holding company structure to facilitate the investment of overseas cash and
international acquisitions. This new structure also decreased our international
income taxes. In addition, the UK statutory rate decreased from 25.5% to 24.5%
in August 2012. These reductions were offset by a discrete item in the third
quarter of 2012 related to a non-deductible asset impairment charge which
increased the effective tax rate for 2012 by 1.9%. The rate in 2011 included a
tax valuation allowance in the first quarter of 2011 against a subsequently
divested subsidiary.
Income from discontinued operations
The income from discontinued operations in 2012 is related to an amendment and
extension of the proveo loan agreement and reversal of amounts previously
reserved which were related to the finalization of the accounting and taxes. The
income from discontinued operations in 2011 relates to the sale of Navis LLC and
proveo AG, offset by losses on discontinued operations.
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Comparison of Years Ended December 31, 2011 and 2010
Consolidated Results of Operations
(Amounts in thousands, except percentages)
Year Ended
December 31, December 31, Percent Percent of Percent of
2011 2010 Change Net Sales - 2011 Net Sales - 2010
Net Sales
Tangible products $ 936,282 $ 849,530 10.2 95.2 95.0
Service & software 47,206 44,829 5.3 4.8 5.0
Total net sales 983,488 894,359 10.0 100.0 100.0
Cost of Sales
Tangible products 469,834 450,630 4.3 47.8 50.4
Service & software 26,885 22,954 17.1 2.7 2.6
Total cost of sales 496,719 473,584 4.9 50.5 53.0
Gross profit 486,769 420,775 15.7 49.5 47.0
Operating expenses 304,733 272,560 11.8 31.0 30.5
Operating income 182,036 148,215 22.8 18.5 16.5
Other income (expense) (2,317) 1,392 N/M (0.2) 0.2
Income from continuing operations
before income taxes 179,719 149,607 20.1 18.3 16.7
Income taxes 49,376 44,993 9.7 5.0 5.0
Income from continuing operations 130,343 104,614 24.6 13.3 11.7
Income (loss) from discontinued
operations, net of tax 44,300 (2,836) N/M 4.5 (0.3)
Net income $ 174,643 $ 101,778 71.6 17.8 11.4
Diluted earnings per share:
Income from continuing operations $ 2.40 $ 1.82 31.9
Income (loss) from discontinued
operations 0.82 (0.05) N/M
Net income $ 3.22 $ 1.77 81.9
Consolidated Results of Operations - year to date
Sales
Net sales for the 2011 year compared with 2010 increased 10.0% due to a
broad-based increase in demand, complemented by a focused business strategy of
geographic expansion, new product introductions and expansion of go-to-market
channels. New products introduced over the past year helped us meet more of our
customers' needs for improving asset visibility in complex supply chain
environments. The increase in sales was largely attributable to increased
hardware sales with notable volume increases in high-performance and mid-range
tabletop, desktop, mobile printers and aftermarket parts. Supplies sales
increased from greater shipments of labels and thermal ribbons. Printer unit
volume increased 12.4% for 2011 compared to levels in 2010.
Sales by product category were as follows (amounts in thousands, except
percentages):
Year Ended
December 31, December 31, Percent Percent of Percent of
Product Category 2011 2010 Change Net Sales 2011 Net Sales 2010
Hardware $ 743,308 $ 676,738 9.8 75.5 75.7
Supplies 187,457 167,633 11.8 19.1 18.7
Service and software 47,206 44,829 5.3 4.8 5.0
Subtotal 977,971 889,200 10.0 99.4 99.4
Shipping and handling 5,517 5,159 6.9 0.6 0.6
Total net sales $ 983,488 $ 894,359 10.0 100.0 100.0
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Sales increased in all geographic regions, in part from the impact of our
investments in sales and sales-related personnel to expand Zebra's presence in
high-growth regions including China, Brazil and Eastern Europe. Sales in the
regions targeted by Zebra for geographic expansion increased by 22%. Movements
in foreign exchange rates increased sales by $14,412,000 in the Europe, Middle
East and Africa region due principally to a stronger euro against the U.S.
dollar for the first three quarters of 2011.
Sales to customers by geographic region were as follows (in thousands, except
percentages):
Year Ended
December 31, December 31, Percent Percent of Percent of
Geographic Region 2011 2010 Change Net Sales 2011 Net Sales 2010
Europe, Middle East and Africa $ 342,578 $ 305,659 12.1 34.8 34.2
Latin America 89,715 80,679 11.2 9.1 9.0
Asia-Pacific 141,987 113,156 25.5 14.5 12.7
Total International 574,280 499,494 15.0 58.4 55.9
North America 409,208 394,865 3.6 41.6 44.1
Total net sales $ 983,488 $ 894,359 10.0 100.0 100.0
Gross profit
Gross profit increased 15.7% due to higher volumes and lower material costs.
Lower freight costs in 2011 of $4,963,000 versus 2010 helped improve profit.
Gross profit was also affected by favorable foreign currency movements which
also improved gross profit by $12,730,000. The above factors contributed to the
increase in gross margin from 47.0% to 49.5%.
Printer unit volumes and average selling price information is summarized below:
Year Ended December 31,
2011 2010 Percent Change
Total printers shipped 1,188,892 1,057,744 12.4Average selling price of printers shipped $ 527 $ 533
(1.1)
For 2011, product unit volumes increased in nearly all printer product lines
with notable volume increases in high-performance and mid-range table top,
desktop, and mobile.
Operating expenses
Operating expenses are summarized below (in thousands, except percentages):
Year Ended
December 31, December 31, Percent Percent of Percent of
Operating Expenses 2011 2010 Change Net Sales 2011 Net Sales 2010
Selling and marketing $ 127,797 $ 112,365 13.7 13.1 12.5
Research and development 89,926 82,575 8.9 9.1 9.2
General and administrative 81,345 73,229 11.1 8.3 8.2
Amortization of intangible assets 3,320 3,211 3.4 0.3 0.4
Litigation settlement 0 (1,082) (100.0) 0.0 (0.1)
Acquisition costs 304 0 N/M 0.0 0.0
Exit and restructuring costs 2,041 2,262 (9.8) 0.2 0.3
Total operating expenses $ 304,733 $ 272,560 11.8 31.0 30.5
Operating expenses for 2011 increased 11.8% due to higher expenses in all three
operating expense line items. Several categories accounted for these increases,
including compensation costs which include salaries, stock option expense, and
commissions. These increases are primarily related to more employees in 2011
versus 2010. Business development, outside professional services, travel and
entertainment, rent, information systems, recruiting, offsite meetings, shipping
and depreciation expenses all increased over 2010 levels.
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Selling and marketing expenses
Selling and marketing expenses are summarized below (in thousands):
Year Ended
December 31, December 31,
2011 2010 Increase / (Decrease)
Payroll and benefit costs $ 75,436 $ 70,539 $ 4,897
Business development 23,022 20,608 2,414
Professional services
expense 3,538 2,308 1,230
Travel and entertainment
expenses 8,068 6,421 1,647
Offsite meetings 3,362 884 2,478
Other changes 14,371 11,605 2,766
Total selling and marketing
expenses $ 127,797 $ 112,365 $ 15,432
Selling and marketing expenses were higher in 2011 primarily due to increased
payroll and benefit costs related to the addition of more sales-related Zebra
personnel in geographic regions with high-growth opportunities and increased
sales volume. Payroll and benefit cost increases include salaries, bonus,
commissions, benefits and payroll taxes. Other selling and marketing expense
categories also increased over 2010 levels due to higher expenses relating to
the addition of Zebra sales representatives to expand Zebra's global reach into
new developing geographic regions and a global partner conference in 2011.
Research and development costs
The development of new products and enhancement of existing products are
important to Zebra's business and growth prospects. To maintain and build our
product pipeline, we continue to make investments in research and development.
In 2011 we introduced 13 new printer related products and 10 location software
and hardware releases. Products introduced in 2011 include printers in the
mobile, desktop, and card lines as well as related accessories. Zebra is
receiving positive customer responses to its recently introduced QLn wireless
mobile printer which incorporates a flexible user interface for easy
configuration. Zebra's ZXP8 retransfer card printer which is utilized for
printing secure employee IDs. In 2010, we introduced an updated two inch light
duty printer and a new Xi4 high-performance printer. We also introduced
innovative new IQ color labels which enables customers to print spot colors on
predetermined areas of a label using any Zebra thermal label printer. This
breakthrough product enhances readability, increases business efficiency and
improves safety.
Quarterly product development expenses fluctuate depending on the status of
ongoing projects. We are committed to a long-term strategy of significant
investment in product development. Research and development costs are summarized
below (in thousands):
Year Ended
December 31, December 31,
2011 2010 Increase / (Decrease)
Payroll and benefit costs $ 59,087 $ 54,602 $ 4,485
Professional services expenses 8,708 7,802 906
Travel and entertainment expenses 2,585 2,164 421
Shipping expense 693 238 455
Other changes 18,853 17,769 1,084
Total research and development
costs $ 89,926 $ 82,575 $ 7,351
The increases in research and development costs relate to increased payroll and
benefit costs, compliance and project expenses to bring new products to market.
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General and administrative expenses
General and administrative expenses are summarized below (in thousands):
Year Ended
December 31, December 31,
2011 2010 Increase /(Decrease)
Payroll and benefit costs $ 40,975 $ 36,833 $ 4,142
Professional services expenses 10,544 9,987 557
Information systems expenses 12,138 10,547 1,591
Depreciation expense 9,232 8,221 1,011
Other changes 8,456 7,641 815
Total general and
administrative expenses $ 81,345 $ 73,229 $ 8,116
General and administrative expenses increased over 2010 amounts from larger
incentive costs related to merit increases and equity incentives. Professional
fees increased slightly due to the Navis and proveo dispositions in 2011, and
the utilization of professional services in the expanding geographic regions.
Information systems costs increased slightly primarily in the maintenance and
service contracts area.
Amortization of intangible assets
Amortization of intangible assets increased $109,000 during 2011 due to
additions of patents during the year.
Litigation settlement
In 2010 Zebra received litigation settlement proceeds of $1,082,000 related to
our acquisition of MSSI in 2008.
Exit and restructuring costs
Exit and restructuring costs in 2011 of $2,041,000 relate to the consolidation
of our Location solutions product line following the divestiture of Navis in the
first quarter of 2011. Costs in 2010 of $2,262,000 relate to the completion of
the production transfer to Jabil. See Note 10 of the Consolidated Financial
Statements included in this Annual Report on Form 10-K for a more detailed
discussion of exit and restructuring charges.
Operating income
The operating income increase for 2011 was the result of increased sales and
gross profit as noted above.
Other income (expense)
Zebra's non-operating income and expense items are summarized in the following
table (in thousands):
Year Ended
December 31, December 31,
2011 2010
Investment income $ 1,944 $ 2,678
Foreign exchange loss (2,006) (169)
Other, net (2,255) (1,117)
Total other income (expense) $ (2,317) $ 1,392
Year Ended
December 31, December 31,
Rate of return analysis: 2011 2010Average cash and marketable securities balances $ 292,646 $ 251,812
Annualized rate of return
0.7% 1.1%
Investment income declined overall from lower short-term interest rates in 2011
compared with 2010 even though cash and investment balances were higher in 2011
versus 2010.
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Income taxes
The effective income tax rate for 2011 was 27.5% compared with an income tax
rate of 30.1% for 2010. Zebra's effective tax rate for the first quarter of 2010
included a $2,764,000 reduction of federal taxes related to improperly
accounting for the tax impact on intercompany profit generated from intercompany
sales in 2009. This adjustment reduced our effective rate for 2010 by
approximately 1.8%. Zebra's effective rate has also decreased in 2011 due to
higher profits in lower rate international jurisdictions.
Income (loss) discontinued operations
The income from discontinued operations in 2011 relates to the sale of Navis LLC
and proveo AG, offset by losses on discontinued operations. The loss from
discontinued operations for 2010 represents the results of operations for the
entities we divested in 2011.
Critical Accounting Policies and Estimates
Management prepared the consolidated financial statements of Zebra under
accounting principles generally accepted in the United States of America. These
principles require the use of estimates, judgments and assumptions. We believe
that the estimates, judgments and assumptions we used are reasonable, based upon
the information available.
Our estimates and assumptions affect the reported amounts in our financial
statements. The following accounting policies comprise those that we believe are
the most critical in understanding and evaluating Zebra's reported financial
results.
Revenue Recognition
Product revenue is recognized once four criteria are met: (1) we have persuasive
evidence that an arrangement exits; (2) delivery has occurred and title has
passed to the customer, which happens at the point of shipment (except in Asia
where the terms are FOB destination) provided that no significant obligations
remain; (3) the price is fixed and determinable; and (4) collectability is
reasonably assured. Other items that affect our revenue recognition include:
Customer returns
Customers have the right to return products that do not function properly within
a limited time after delivery. We monitor and track product returns and record a
provision for the estimated future returns based on historical experience and
any notification received of pending returns. Returns have historically been
within expectations and the provisions established, but Zebra cannot guarantee
that it will continue to experience return rates consistent with historical
patterns. Historically, our product returns have not been significant. However,
if a significant issue should arise, it could have a material impact on our
financial statements.
Growth Rebates
Some of our channel program partners are offered incentive rebates based on the
attainment of specific growth targets related to products they purchase from us
over a quarter or year. These rebates are recorded as a reduction to revenue.
Each quarter, we estimate the amount of outstanding rebates and establish a
reserve for them based on shipment history. Historically, actual rebates have
been in line with our estimates.
Price Protection
Some of our customers are offered price protection by Zebra as an incentive to
carry inventory of our product. These price protection plans provide that if we
lower prices, we will credit them for the price decrease on inventory they hold.
We estimate future payments under price protection programs quarterly and
establish a reserve, which is charged against revenue. Our customers typically
carry limited amounts of inventory, and Zebra infrequently lowers prices on
current products. As a result, the amounts paid under these plans have been
minimal.
Software Revenue
We sell four types of software and record revenue as follows:
• Our printers contain embedded firmware, which is part of the hardware
purchase. We consider the sale of this firmware to be incidental to the
sale of the printer and do not attribute any revenue to it.
• We sell a limited amount of prepackaged, or off-the-shelf, software for
the creation of barcode labels using our printers. There is no
customization required to use this software, and we have no post-shipment
obligations on the software. Revenue is recognized at the time this
prepackaged software is shipped.
• We sometimes provide custom software as part of a printer installation
project. We bill custom software development services separate from the
related hardware. Revenue related to custom software is recognized once
the custom software development services have been completed and accepted
by the customer.
• We recognize license revenue under ASC (Accounting Standards Codification)
985, when (1) a signed contract is obtained; (2) delivery of the product
has occurred; (3) the license fee is fixed or determinable; and
(4) collection is probable.
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Maintenance and Support Agreements
We enter into post-contract maintenance and support agreements. Revenues are
recognized ratably over the service period and the cost of providing these
services is expensed as incurred.
Shipping and Handling
We charge our customers for shipping and handling services based upon our
internal price list for these items. The amounts billed to customers are
recorded as revenue when the product ships. Any costs incurred related to these
services are included in cost of sales.
Zebra enters into sales transactions that include more than one product type.
This bundle of products might include printers, current or future supplies, and
services. When this type of transaction occurs, we allocate the purchase price
to each product type based on the fair value of the individual products
determined by vendor specific objective evidence. The revenue for each
individual product is then recognized when the recognition criteria for that
product is fully met.
Investments and Marketable Securities
Investments and marketable securities at December 31, 2012, consisted of the
following:
U.S. government and agency securities 29.4 %
Obligations of government sponsored enterprises (1) 1.5 %
State and municipal bonds 29.3 %
Corporate securities 39.8 %
(1) Includes investments in notes issued by the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association and the Federal
Home Loan Bank.
Trading securities are bought and held principally for the purpose of selling
them in the near term. Held-to-maturity securities are those debt securities
that Zebra has the ability and intent to hold until maturity. Securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of discounts or premiums. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized.
Zebra's investments in marketable debt securities are classified as
available-for-sale except for securities held in Zebra's deferred compensation
plan which are considered to be trading securities. Investments in marketable
debt securities are classified based on intent and ability to sell investment
securities. Zebra's available-for-sale securities are used to fund further
acquisitions and other operating needs and therefore can be sold prior to
maturity. Investments in marketable debt securities for which Zebra intends to
sell within the next year are classified as current and those that we intend to
hold in excess of one-year are classified as non-current.
Accounts Receivable
We have standardized credit granting and review policies and procedures for all
customer accounts, including:
• Credit reviews of all new customer accounts,
• Ongoing credit evaluations of current customers,
• Credit limits and payment terms based on available credit information,
• Adjustments to credit limits based upon payment history and the customer's
current credit worthiness,
• Active collection efforts by regional credit functions, reporting directly
to the corporate financial officers, and
• Limited credit insurance on the majority of our international revenues.
We reserve for estimated credit losses based upon historical experience and
specific customer collection issues. Over the last three years, accounts
receivable reserves varied from 0.4% to 1.2% of total accounts receivable.
Accounts receivable reserves as of December 31, 2012, were $669,000, or 0.4% of
the balance due. We believe this reserve level is appropriate considering the
quality of the portfolio as of December 31, 2012. While credit losses have
historically been within expectations and the provisions established, we cannot
guarantee that our credit loss experience will continue to be consistent with
historical experience.
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Inventories
We value our inventories at the lower of the actual cost to purchase or
manufacture using the first-in, first-out (FIFO) method, or the current
estimated market value. We review inventory quantities on hand and record a
provision for excess and obsolete inventory based on forecasts of product demand
and production requirements for the subsequent twelve months.
Over the last three years, our inventory reserves have ranged from 8.0% to 11.9%
of gross inventory. As of December 31, 2012, inventory reserves were
$13,655,000, or 10.0% of gross inventory. We believe this reserve level is
appropriate considering the quantities and quality of the inventories as of
December 31, 2012.
Valuation of Goodwill
Goodwill of a reporting unit is tested for impairment between annual tests if an
event occurs or circumstances would more likely than not reduce the fair value
of a reporting unit below its carrying amount. Examples of such events or
circumstances include:
• Significant adverse change in legal factors or in the business climate,
• Adverse action or assessment by a regulator,
• Unanticipated competition,
• Loss of key personnel,
• More-likely-than-not expectation that a reporting unit or a significant
portion of a reporting unit will be sold or otherwise disposed of,
• Testing for recoverability of a significant asset group within a reporting
unit, or
• Allocation of a portion of goodwill to a business to be disposed of.
If we believe that one or more of the above indicators of impairment have
occurred, we perform an impairment test. The performance of the test involves a
two-step process. The first step of the impairment test involves comparing the
fair values of the applicable reporting units with their aggregate carrying
values, including goodwill. We generally determine the fair value of our
reporting units using three valuation methods: Income Approach - Discounted Cash
Flow Analysis, Market Approach - Guideline Public Company Method, and Market
Approach - Comparative Transactions Method. The approach defined below is based
upon our last impairment test conducted in June 2012 as of the end of May 2012.
Zebra did perform an interim impairment test in October 2012 for its smaller
reporting unit as of the end of September 2012. The October 2012 test only
utilized the income approach as discussed below.
Under the "Income Approach - Discounted Cash Flow Analysis" the key assumptions
consider sales, cost of sales and operating expenses projected through the year
2021. These assumptions were determined by management utilizing our internal
operating plan and assuming growth rates for revenues and operating expenses,
and margin assumptions. The fourth key assumption under this approach is the
discount rate which is determined by looking at current risk-free rates of
capital, current market interest rates and the evaluation of risk premium
relevant to the business segment. If our assumptions relative to growth rates
were to change or were incorrect, our fair value calculation may change which
could result in impairment. The company's risk factors are discussed under
Item 1A of this Form 10-K.
Under the "Market Approach - Guideline Company Method" we identified 20 publicly
traded companies, including Zebra, which we believe have significant relevant
similarities. For these 20 companies we calculated the mean ratio of invested
capital to revenues and invested capital to EBITDA. Similar to the Income
approach discussed above, sales, cost of sales, operating expenses and their
respective growth rates were the key assumptions utilized. The market prices of
Zebra and other guideline company shares are key assumptions. If these market
prices increase, the estimated market value would increase. If the market prices
decrease, the estimated market value would decrease.
Under the "Market Approach - Comparative Transactions Method" we looked at 19
market based transactions for companies that have similarities to our business
segment, including similarities to one or more of the business lines, markets,
growth prospects, margins and size. We calculated mean revenue and EBITDA
multiples for the selected transactions. These multiples were applied to
forecasted Zebra results for that segment to estimate market value. The key
assumptions and impact to changes to those assumptions would be similar to those
assumptions under the "Income Approach - Discounted Cash Flow Analysis" and the
"Market Approach - Guideline Company Method".
The results of these three methods are weighted based upon managements'
determination with more weight attached to the Income approach because it
considers anticipated future financial performance. The Market approaches are
based upon historical and current economic conditions which might not reflect
the long term prospects or opportunities for our business segment being
evaluated.
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If the carrying amount of a reporting unit exceeds the reporting unit's fair
value, we perform the second step of the goodwill impairment test to determine
the amount of impairment loss. The second step of the goodwill impairment test
involves comparing the implied fair value of the affected reporting unit's
goodwill with the carrying value of that goodwill.
There have not been any significant changes to our impairment testing
methodology other than updating the assumptions to reflect the current market
environment. As discussed above, key assumptions used in the first step of the
goodwill impairment test were determined by management utilizing the internal
operating plan. The key assumptions utilized include forecasted growth rates for
revenues and operating expenses as well as a discount rate which is determined
by looking at current risk-free rates of capital, current market interest rates
and the evaluation of a risk premium relevant to the business segment. Zebra
will monitor future results and will perform a test if indicators trigger an
impairment review.
We test the impairment of goodwill each year as of the end of May or whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Zebra has two reporting units required for its annual goodwill
impairment test. We completed our annual assessment during June 2012 and
determined that our goodwill was not impaired as of the end of May 2012.As part
of Zebra's annual impairment test in the second quarter, Management determined
that the larger of the two reporting units' fair value exceeded its carrying
value by a significant amount. The second smaller reporting unit's amount by
which the fair value exceeded the carrying value ranged from approximately 8%
under the Income Approach to 31% under the Market Approach.
Due to the deterioration in the smaller reporting unit's operating results
during the third quarter, failing to meet our forecasted revenues and operating
expenses, and a decline in expected growth rates, our fair value calculation for
the smaller reporting unit changed and we determined our goodwill associated
with the smaller reporting unit was impaired. The above impairment indicators
led us to conclude an interim goodwill test was necessary. Zebra performed the
first step of the impairment test which failed. As a result, Zebra also
performed a second step analysis and recorded a goodwill impairment charge of
$9,114,000 as of September 29, 2012. After this impairment charge, there is no
remaining goodwill in the smaller reporting unit.
Valuation of Long-Lived and Other Intangible Assets
Zebra evaluates the impairment of identifiable intangibles and other long-lived
assets whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors considered that may trigger an impairment
review consist of:
• Significant underperformance relative to expected historical or projected
future operating results,
• Significant changes in the manner of use of the acquired assets or the
strategy for the overall business,
• Significant negative industry or economic trends,
• Significant decline in Zebra's stock price for a sustained period, and
• Significant decline in market capitalization relative to net book value.
If Zebra believes that one or more of the above indicators of impairment have
occurred and the undiscounted cash flow test has failed in the case of
amortizable assets, Zebra measures impairment based on projected discounted cash
flows using a discount rate that incorporates the risk inherent in the cash
flows.
Net intangible assets, long-lived assets and goodwill amounted to $235,442,000
as of December 31, 2012.
Income Taxes
On January 1, 2007, we adopted ASC 740. According to ASC 740, Zebra identified,
evaluated, and measured the amount of income tax benefits to be recognized for
all of our income tax positions. During 2008, Zebra recognized an increase of
approximately $4,000,000 in the liability for unrecognized tax benefits related
to an acquisition. During 2012 Zebra recognized an increase of $680,000 for tax
benefits related to the foreign restructuring.
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A reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
Balance at January 1, 2011 $ 4,000
Additions based on tax positions related to 2011 -
Additions based on tax positions related to 2012 680
Balance at December 31, 2012 $ 4,680
Zebra's continuing practice is to recognize interest and penalties related to
income tax matters as part of income tax expense. For the years ended
December 31, 2012 and December 31, 2011, we did not accrue any interest or
penalties into income tax expense.
An audit of U.S. federal income tax returns for years of 2008 through 2010 was
completed in 2012. The tax years 2008 through 2010 remain open to examination by
multiple state taxing jurisdictions. Tax authorities in the United Kingdom have
completed income tax audits for tax years through 2008.
Included in deferred tax assets are amounts related to federal and state net
operating losses that resulted from Zebra's acquisition of WhereNet Corp. As of
December 31, 2012, Zebra had approximately $2,518,000 of federal net operating
loss carryforwards available to offset future taxable income which expire in
2022 through 2027. As of December 31, 2012, Zebra also had approximately
$27,391,000 of state net operating loss carryforwards which expire in 2012
through 2020. Zebra's intention is to utilize these net operating loss
carryforwards to offset future income tax expense. Under the United States Tax
Reform Act of 1986, the amount of benefits from net operating loss carryforwards
may be impaired or limited in certain circumstances, including significant
changes in ownership interests.
Year Ended
December 31, 2012 December 31, 2011
Effective tax rate 25.8% 27.5%
During 2012, Zebra established a foreign holding company structure that is
designed to accomplish various international business objectives. This new
holding company structure allows Zebra to consolidate the ownership of its
significant foreign affiliates under a single holding company. In addition, the
structure gives the company the ability to facilitate cash pooling for its
non-US operations and provide for the tax efficient movement of cash within the
structure to efficiently deploy cash generated by the foreign subsidiaries.
Zebra's international income taxes have also decreased as result of this
project.
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, 2012, Zebra had an active equity-based compensation plan and
a stock purchase plan available for future grants. We accounted for these plans
in accordance with ASC 505 and ASC 718. Zebra recognizes compensation costs
using the straight-line method over the vesting period of up to 5 years. See
Notes 2 and 16 to the Consolidated Financial Statements included in the Form
10-K for further information.
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Liquidity and Capital Resources
(Amounts in thousands, except percentages):
Year Ended
Rate of Return Analysis: December 31, 2012 December 31, 2011
Average cash and marketable
securities balances $ 360,385 $ 292,646
Annualized rate of return 0.7 % 0.7 %
Average cash and marketable securities balances for 2012 increased compared to
2011 as a result of increased cash provided by operations.
As of December 31, 2012, Zebra had $394,075,000 in cash, restricted cash,
investments and marketable securities, compared with $326,695,000 at
December 31, 2011. Factors affecting cash and investment balances during 2012
include the following (changes below include the impact of foreign currency):
• Accounts receivable increased $8,647,000 due to the increased sales and
the timing of receipts.
• Inventories decreased $11,530,000 due to decreases in raw materials
inventory.
• Accounts payable decreased $14,605,000 due to the timing of payments at
period end.
• Income taxes increased $16,335,000 due to the timing of tax payments and
taxes incurred.
• Purchases of property and equipment totaled $22,443,000.
• Escrowed proceeds received from the sale of Navis totaled $27,580,000.
• Acquisition of businesses totaled $59,876,000.
• Purchases of treasury stock totaled $54,373,000.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
Zebra earns a significant amount of our operating income outside the U.S., which
is deemed to be permanently reinvested in foreign jurisdictions. Zebra does not
currently foresee a need to repatriate funds, however, should Zebra require more
capital in the U.S. than is generated by our operations locally, Zebra could
elect to repatriate funds held in foreign jurisdictions or raise capital in the
U.S. through debt or equity issuances. These alternatives could result in higher
effective tax rates or increased interest expense. Included in Zebra's cash,
restricted cash, investments and marketable securities are amounts held by
foreign subsidiaries. Zebra had $173,483,000 as of December 31, 2012, and
$96,829,000 as of December 31, 2011 of foreign cash and investments, which are
generally invested in U.S. dollar-denominated holdings.
Contractual Obligations
Zebra's contractual obligations as of December 31, 2012 were (in thousands):
Payments due by period
Less than 1 More than 5
Total year 1-3 years 3-5 years years
Operating lease obligations $ 31,497 $ 10,699 $ 11,125 $ 4,574 $ 5,099
Deferred compensation liability 3,553
- - - 3,553
Deferred revenue 24,001 13,326 10,675 - -
Purchase obligations 104,366 104,366 - - -
Total $ 163,417 $ 128,391 $ 21,800 $ 4,574 $ 8,652
Purchase obligations are for purchases made in the normal course of business to
meet operational requirements, primarily raw materials and finished goods.
On October 10, 2012, Zebra entered into a revolving credit agreement for a
five-year $250 million revolving credit facility with a syndicate of banks led
by J. P. Morgan Securities LLC as Administrative Agent. The funds under this
credit facility are available for general corporate purposes of Zebra and its
subsidiaries in the ordinary course of business and other
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purposes permitted by the agreement. As of December 31, 2012, we had established
letters of credit amounting to $2,300,000, which reduce the funds available for
borrowing under the agreement. No amounts were outstanding under the credit
agreement as of December 31, 2012.
Management believes that existing capital resources and funds generated from
operations are sufficient to finance anticipated capital requirements.
Recently Issued Accounting Pronouncements
In June 2011, the FASB issued update 2011-05, ASC 220, Comprehensive Income:
Presentation of Comprehensive Incomeand in December 2011, the FASB issued update
2011-12, ASC 220, Comprehensive Income: Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU
No. 2011-12 is to defer only those changes in ASU No. 2011-05 that relate to the
presentation of reclassification adjustments. Entities should continue to report
reclassifications out of accumulated other comprehensive income consistent with
the presentation requirements in effect before ASU No. 2011-05. All other
requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12, including
the requirement to report comprehensive income either in a single continuous
financial statement or in two separate but consecutive financial statements.
This standard is effective for interim and annual periods beginning after
December 15, 2011. The adoption of this standard moved the Other Comprehensive
Income statement disclosure from our footnote to its own financial statement for
our 10-Q filings in 2012.
In September 2011, the FASB issued update 2011-08, ASC 350, Intangibles Goodwill
and Other: Testing Goodwill for Impairment. This updated guidance simplifies how
companies test goodwill for impairment. Essentially, companies are no longer
required to calculate the fair value of a reporting unit unless the entity
determines that it is more-likely-than-not that its fair value is less than its
carrying amount using a qualitative assessment. This standard is effective for
fiscal years beginning after December 15, 2011. The adoption of this standard
did not have any effect upon our consolidated financial statements.
In July 2012, the FASB issued update 2012-03, ASC 350, Intangibles Goodwill and
Other: Testing Indefinite-Lived Intangible Assets for Impairment. This updated
guidance provides entities with the option to make qualitative assessments about
the likelihood that an indefinite-lived intangible asset is impaired to
determine whether it should perform a quantitative impairment test. This
standard is effective for annual and interim impairment tests performed for
fiscal years beginning after September 15, 2012. The adoption of this standard
did not have any effect upon our consolidated financial statements.
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