ZBRA » Topics » Note 16 Commitments and Contingencies

This excerpt taken from the ZBRA 10-K filed Feb 27, 2009.

Note 17 Commitments and Contingencies

Leases. Minimum future obligations under all non-cancelable operating leases as of December 31, 2008 are as follows (in thousands):

 

         Operating    
Leases
    
      

2009

     $ 12,023   

2010

     9,951   

2011

     8,123   

2012

     7,069   

2013

     6,351   

Thereafter

     4,946   
      

Total minimum lease payments

     $ 48,463   
      

Rent expense for operating leases charged to operations was as follows (in thousands):

 

          Year Ended December 31,
              2008                2007                     2006    
         

Rent expense

        $   15,695            $   10,675         $   9,011   

The operating lease information includes a variety of properties around the world. These properties are used as manufacturing facilities, distribution centers and sales offices. Lease terms range from one year to 17 years with breaking periods specified in the lease agreements.

During 2008, Zebra entered into a sale and leaseback transaction for the building we owned in Camarillo, California. The resulting lease has a term of 30 months and the minimum monthly lease payments are $111,850 with no rent escalation clause. We are also moving our corporate headquarters from the current Vernon Hills, Illinois, location to a new location in Lincolnshire, Illinois as of March 1, 2009. The lease on this building has a term of 5 years, 4 months with minimum monthly lease payments beginning at $53,644 increasing approximately 2% per year through the end of the lease term.

Letters of credit. In connection with various customer contracts, Zebra has entered into three letters of credit agreements with a bank. The contingent liability of Zebra under these agreements as of December 31, 2008 is $756,000.

Revolving credit agreement. On August 14, 2008, Zebra entered into a revolving credit agreement for a five-year $100 million revolving credit facility. The loans under this credit facility will be available for general corporate purposes of Zebra and its subsidiaries in the ordinary course of business and other purposes permitted by the agreement.

This credit agreement is guaranteed by certain of Zebra’s domestic subsidiaries. Loans under the agreement shall bear interest at a rate equal to the prime rate or a spread over the applicable LIBOR rate, as selected by Zebra. This spread for LIBOR-based loans is dependent on our ratio of Total Debt to EBITDA, as defined in the agreement, and ranges from 0.50% to 1.25%. The spread in effect at closing for LIBOR-based loans was .50%.

The credit agreement includes customary representations, warranties, affirmative and negative covenants (including, among others, restrictions on the payment of cash dividends) and events of default (and related remedies, including acceleration and increased interest rates following an event of default). It also contains financial covenants tied to Zebra’s leverage ratio and fixed charge coverage ratio. As of December 31, 2008, we had established letters of credit amounting to $456,000, which reduce the funds available for borrowing under the agreement. At that date, no amounts were outstanding under the credit agreement.

Legal proceedings. On January 31, 2003, a Writ of Summons was filed in the Nantes Commercial Court, Nantes, France, by Printherm, a French corporation, and several of its shareholders (collectively, “Printherm”), against Zebra Technologies France (“ZTF”), a French corporation and wholly-owned subsidiary of Zebra. Printherm seeks damages in the amount of €15,304,000 and additional unspecified damages in connection with ZTF’s termination of negotiations in December 2000 respecting the proposed acquisition by Zebra of the capital stock of Printherm. The

 

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negotiation was terminated based on unsatisfactory results of the ongoing due diligence. We believe that Printherm’s claims are without merit and that a loss is not likely to occur. We will vigorously defend the action.

Printherm filed bankruptcy proceedings on August 30, 2004, and the Commercial Court ordered its liquidation on November 30, 2004. A final hearing to consider statute of limitations and substantive arguments was held December 11, 2008. The Court is expected to enter a judgment on March 26, 2009.

On April 9, 2008, a complaint was filed in the U.S. District Court for the Northern District of Illinois by Barcode Informatica, Ltd. (“Barcode”), a former Brazilian reseller, against Zebra. The complaint alleges that Zebra wrongfully terminated Barcode’s reseller status and tortiously interfered with Barcode’s alleged bid for the sale of printers to Brazilian Post. Barcode’s claim seeks an unspecified amount of damages. We believe that Barcode’s claims are without merit and we will vigorously defend the action.

This excerpt taken from the ZBRA 10-K filed Feb 29, 2008.

Note 16 Commitments and Contingencies

Leases. Minimum future obligations under all non-cancelable operating leases as of December 31, 2007 are as follows (in thousands):

 

     Operating
Leases

2008

     9,360

2009

     7,821

2010

     4,999

2011

     4,568

2012

     3,905

Thereafter

     8,291

Total minimum lease payments

   $ 38,944

Rent expense for operating leases charged to operations was as follows (in thousands):

 

     Year Ended December 31,
     2007    2006    2005

Rent expense

   $ 10,675    $ 9,011    $ 7,822

The operating lease information includes a variety of properties around the world. These properties are used as manufacturing facilities, distribution centers and sales offices. Lease terms range from three months to 25 years with breaking periods specified in the lease agreements.

 

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Letters of credit. In connection with various customer contracts, Zebra has entered into two letter of credit agreements with a bank. The contingent liability of Zebra under these agreements as of December 31, 2007 is $652,000.

Legal proceedings. On January 31, 2003, a Writ of Summons was filed in the Nantes Commercial Court, Nantes, France, by Printherm, a French corporation, and several of its shareholders (collectively, “Printherm”), against Zebra Technologies France (“ZTF”), a French corporation and wholly-owned subsidiary of Zebra. Printherm seeks damages in the amount of €15,304,000 and additional unspecified damages in connection with ZTF’s termination of negotiations in December 2000 respecting the proposed acquisition by Zebra of the capital stock of Printherm. The negotiation was terminated based on unsatisfactory results of the ongoing due diligence. We believe that Printherm’s claims are without merit and that a loss is not likely to occur. We will vigorously defend the action.

Printherm filed bankruptcy proceedings on August 30, 2004, and the Commercial Court ordered its liquidation on November 30, 2004. The case was put on hold until the Court appointed liquidator filed a submission in August 2005, which started the proceedings again. ZTF filed its answer on November 19, 2005, in anticipation of a Court-ordered December 19, 2005, hearing date. In response to a request by Printherm’s liquidator, the Court postponed the hearing date so as to provide time for Printherm to respond to ZTF’s answer. The hearing has not been scheduled. We have applied to the Court for dismissal of the case. The Court has not yet ruled on our application for dismissal.

As discussed in Note 4, as part of the closing of the WhereNet acquisition, an escrow balance of approximately $13,600,000 was established against the total purchase price of $127,450,000. On January 24, 2008, Zebra filed a claim against the sellers of WhereNet for the entire escrow balance. If Zebra is successful in recovering some or all of the escrow balance, the amount recovered will be recorded as an adjustment to goodwill. In addition, during the fourth quarter of 2007, we recorded a reserve of $5,074,000 for the estimated additional liability as of the acquisition date. This reserve was treated as an adjustment to purchase price and resulted in an increase to goodwill.

EXCERPTS ON THIS PAGE:

10-K
Feb 27, 2009
10-K
Feb 29, 2008

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