Annual Report 2018
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zebra.com
NA and Corporate Headquarters
+1 847 634 6700
Asia-Pacific Headquarters
+65 6858 0722
EMEA Headquarters
+44 1628 556000
Latin America Headquarters
+1 754 900 4050
ZEBRA and the stylized Zebra head are trademarks of Zebra Technologies
Corporation, registered in many jurisdictions worldwide. All other trademarks
are the property of their respective owners. ©2019 Zebra Technologies
Corporation and/or its affiliates. All rights reserved.
zebra-annual-report-2018-cover_REV32919.indd 1
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To Our Investors,
Zebra is advancing our Enterprise Asset Intelligence vision of enabling every front-line asset
and worker to be visible, connected, and optimally utilized. We have made strong progress as
we help businesses across many industries digitize their operations and gain a performance
edge. Zebra is benefiting from key technology megatrends including mobility, automation,
cloud computing, and the proliferation of smart devices, each of which are critical components
to this transformation.
Our Solutions at Work
Our products and solutions sense data from assets, products, and processes. This information,
including status and location, is analyzed in real time to determine the best possible
operational action to improve productivity and give greater insight into business operations.
Our ultra-rugged and reliable products include a software layer which makes them easy to integrate and intuitive to manage.
Additionally, our new software applications and tools improve automated data collection and analysis, maximize device
security, and enhance ease of use. Another integral part of our solutions ecosystem is Zebra Savanna™, which is our intelligent
edge platform that powers our cloud-based data-driven solutions such as Zebra MotionWorks™, Zebra SmartPack™, and
Workforce Connect with real-time data. We are collaborating with an increasing number of our independent software partners
to leverage this platform to deploy new solutions that address our customers’ challenges.
Exceptional 2018 Results
Excellent execution on our strategy drove industry leadership and value for all stakeholders in 2018. Highlights include:
• A record number of launches across our product and solution categories
• 13 percent sales growth, or 11 percent on an organic basis,* with broad-based growth across our major product and service
categories and the vertical markets that we serve
• 210 basis point adjusted EBITDA margin expansion* through strong profitable sales growth and operating expense leverage
• 56 percent growth in non-GAAP diluted earnings per share and record free cash flow of $721 million*
Committed to an Innovative Future
To drive attractive and sustainable profitable growth, Zebra is focused on further penetrating vibrant markets, including
both existing categories and new markets. We expect to gain traction in these markets through both organic and inorganic
investments, including highly selective acquisitions. We recently completed two acquisitions; Xplore Technologies, which
closed in 2018, enhances our product lineup by completing our enterprise tablet portfolio, and Temptime Corporation, which
closed in early 2019, enhances our supplies business and gives us a competitive advantage in healthcare through a time-
temperature monitoring product portfolio. Our financial flexibility remains a key priority as we invest in our business.
While Zebra has evolved considerably over the years, a strong commitment to innovation and operational excellence has
enabled our company to stand the test of time. We are encouraged by our strong momentum entering the new year and we are
well positioned for continued success. In 2019, we celebrate the company’s 50th anniversary by honoring the 7,400 employees
who make up our Zebra Nation today and all who have contributed to Zebra’s growth over the past five decades.
I would also like to express my sincere gratitude and appreciation for the ongoing support of our partners and customers over
the years.
Sincerely,
Anders Gustafsson
*For a reconciliation of these non-GAAP measures to
similar GAAP measures, please see Zebra's 4Q 2018
earnings press release located at investors.zebra.com.
Executive Officers
Anders Gustafsson
Chief Executive Officer
Olivier C. Leonetti
Chief Financial Officer
William J. Burns
Chief Products and Solutions
Officer
Michael Cho
Senior Vice President,
Corporate Development
Joachim Heel
Senior Vice President,
Global Sales
Cristen L. Kogl
Senior Vice President,
General Counsel and
Corporate Secretary
Jeffrey F. Schmitz
Senior Vice President,
Chief Marketing Officer
Michael H. Terzich
Senior Vice President,
Chief Administrative Officer
Stephen E. Williams
Global Supply Chain Officer
Colleen M. O’Sullivan
Vice President,
Chief Accounting Officer
Form 10-K
The Zebra Technologies Corporation Form 10-K Report filed
with the Securities and Exchange Commission is incorporated
in this annual report. The Code of Ethics for Senior Financial
Officers is posted on Zebra’s website. Please contact the
Investor Relations Department at the Corporate Headquarters
for additional copies of the Form 10-K, or visit our website to
view an online version of the Form 10-K, or the Code of Ethics
for Senior Financial Officers.
Equal Employment Opportunities/Affirmative Action
It is the policy of Zebra Technologies Corporation to provide
equal opportunities and affirmative action in all areas of
its employment practices without regard to race, religion,
national origin, sex, age, ancestry, citizenship, disability,
veteran status, marital status, sexual orientation
or any other reason prohibited by law.
Board of Directors
Michael A. Smith,
Chairman 1,2,3
Chairman and Chief
Executive Officer
FireVision, LLC
Anders Gustafsson
Chief Executive Officer
Zebra Technologies
Corporation
Chirantan J. Desai 2
Chief Product Officer
ServiceNow
Richard L. Keyser 2,3
Chairman
(Retired)
W. W. Grainger, Inc.
Stockholder
Information
Global Corporate
Headquarters
Zebra Technologies
Corporation
3 Overlook Point
Lincolnshire, Illinois 60069
U. S. A.
Phone: +1 847 634-6700
Fax +1 847 913-8766
Annual Meeting
Zebra’s Annual Meeting
of Stockholders will be
held on May 16, 2019, at
10:30 a.m. (Central Time) in
Lincolnshire, Illinois.
Independent Auditors
Ernst & Young LLP
Chicago, Illinois
Investor Relations
Investors are invited
to learn more about
Zebra Technologies
Corporation by accessing
the company’s website at
investors.zebra.com.
Andrew K. Ludwick 1
Chief Executive Officer
(Retired)
Bay Networks
Ross W. Manire 1,3
Chief Executive Officer
(Retired)
ExteNet Systems, Inc.
Frank B. Modruson 1
Chief Information Officer
(Retired)
Accenture
Janice M. Roberts 2
Partner
Benhamou Global
Ventures, LLC
1 - Member of Audit Committee
2 - Member of Compensation
Committee
3 - Member of Nominating and
Governance Committee
Transfer Agent
and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight Delivery:
Computershare
462 South 4th Street,
Suite 1600
Louisville, KY 40202
Telephone:
+1 800 522-6645 or
+1 201 680-6578
TDD for hearing impaired:
+1 800 231-5469 or
+1 201 680-6610
Website:
www.computershare.com/
investor
zebra-annual-report-2018-cover_REV32919.indd 2
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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
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 000-19406
Zebra Technologies Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-2675536
(I.R.S. Employer
Identification No.)
3 Overlook Point, 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:
Title of Each Class
Class A Common Stock, par value $.01 per share
Name of Exchange on which Registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities
Act). Yes 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
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 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 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. Yes No
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”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Securities Act (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if smaller reporting company) Smaller reporting company
Emerging growth company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act).
Yes No
The aggregate market value of the shares of Class A Common Stock held by non-affiliates of the registrant, computed by
reference to the closing price of such stock as of the last business day of the registrant’s most recently completed second
quarter, was $7.6 billion.
As of February 7, 2019, there were 53,870,497 shares of Class A Common Stock, par value $.01 per share, outstanding.
Certain sections of the registrant’s Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual
Meeting of Stockholders to be held on May 16, 2019, are incorporated by reference into Part III of this report, as indicated
herein.
Documents Incorporated by Reference
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Results of Operations
Critical Accounting Policies and Estimates
Recently Issued Accounting Pronouncements
Liquidity and Capital Resources
Contractual Obligations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1: Description of Business and Basis of Presentation
Note 2: Significant Accounting Policies
Note 3: Revenues
Note 4: Inventories
Note 5: Business Acquisition and Divestiture
Note 6: Goodwill and Other Intangibles, net
Note 7: Property, Plant and Equipment
Note 8: Costs Associated with Exit and Restructuring Activities
Note 9: Fair Value Measurements
Note 10: Derivative Instruments
Note 11: Long-Term Debt
Note 12: Commitments and Contingencies
Note 13: Share-Based Compensation
Note 14: Income Taxes
Note 15: Earnings (Loss) Per Share
Note 16: Accumulated Other Comprehensive Income (Loss)
Note 17: Accounts Receivable Factoring
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Note 18: Segment Information & Geographic Data
Note 19: Supplementary Financial Information
Note 20: Subsequent Event
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
Item 15.
Item 16.
Signatures
Schedule II - Valuation and Qualifying Accounts
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PART I
References in this document to “the Company,” “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 the Company 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, the Company’s financial outlook
for the first quarter and full year of 2019. These forward-looking statements are based on current expectations, forecasts and
assumptions and are subject to the risks and uncertainties inherent in the Company’s industry, market conditions, general
domestic and international economic conditions, and other factors. These factors include:
• Market acceptance of the Company’s products and solution offerings and competitors’ offerings and the potential
effects of technological changes,
• The effect of global market conditions, including North America; Europe, Middle East, and Africa; Latin America; and
Asia-Pacific regions in which we do business,
• The impact of foreign exchange rates due to the large percentage of our sales and operations being outside the United
States (“U.S.”),
• Our ability to control manufacturing and operating costs,
• Risks related to the manufacturing of the Company’s products and conducting business operations in non-U.S.
countries, including the risk of depending on key suppliers who are also in non-U.S. countries,
• The Company’s ability to purchase sufficient materials, parts, and components to meet customer demand, particularly
considering global economic conditions,
• The availability of credit and the volatility of capital markets, which may affect our suppliers, customers, and
ourselves,
Interest rate and financial market conditions,
• Success of integrating acquisitions,
•
• Access to cash and cash equivalents held outside the U.S.,
• The effect of natural disasters on our business,
• The impact of changes in foreign and domestic governmental policies, laws, or regulations,
• The outcome of litigation in which the Company may be involved, particularly litigation or claims related to
infringement of third-party intellectual property rights, and
• The outcome of any future tax matters or tax law changes.
We encourage readers of this report to review Item 1A, “Risk Factors,” in this report for further discussion of issues that could
affect the Company’s future results. We undertake 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.
Item 1.
Business
The Company
We are a global leader in the Automatic Identification and Data Capture (“AIDC”) market. The AIDC market consists of mobile
computing, data capture, radio frequency identification devices (“RFID”), barcode printing, and other automation products and
services. The Company’s solutions are proven to help our customers and end-users achieve their mission critical strategic
business objectives, including improved operational efficiency, optimized workflows, increased asset utilization, and better
customer experiences.
4
We design, manufacture, and sell a broad range of AIDC products, including: mobile computers, barcode scanners, RFID
readers, specialty printers for barcode labeling and personal identification, real-time location systems (“RTLS”), related
accessories and supplies, such as self-adhesive labels and other consumables, and software utilities and applications. We also
provide a full range of services, including maintenance, technical support, repair, managed and professional services, including
cloud-based subscriptions. End-users of our products and services include retail and e-commerce, transportation and logistics,
manufacturing, health care, hospitality, warehouse and distribution, energy and utilities, government, and education enterprises
around the world. We provide our products and services globally through a direct sales force and extensive network of channel
partners. We provide products and services in over 180 countries, with 109 facilities and approximately 7,400 employees
worldwide.
Through innovative application of our technologies, we are leading an evolution of the AIDC market into Enterprise Asset
Intelligence (“EAI”). Specifically, EAI encompasses solutions which “sense” information from enterprise assets, including
packages moving through a supply chain, equipment in a factory, workers in a warehouse, and shoppers in a store. Operational
data from enterprise assets, including status, location, utilization, and preferences, is then analyzed to provide actionable
insights. Finally, with the benefits of mobility, these insights can be delivered to the right user at the right time to drive more
effective actions. As a result, our solutions and technologies enable enterprises to “sense, analyze, and act” more effectively to
improve operational effectiveness and achieve critical business objectives.
The evolution of the AIDC market toward a more strategically oriented EAI focus is being driven by strong underlying secular
trends in technology. These trends include internet of things (“IoT”), cloud-based data analytics, and mobility. The IoT is
enabling a proliferation of smart, connected devices. EAI solutions, which include these smart, connected devices, capture a
much broader range of information than is possible with traditional AIDC solutions and communicate this information in real-
time. Cloud computing and expanded data analytics are allowing enterprises to make better business decisions through
improved timeliness and visibility to information and workflows. While traditional AIDC solutions sporadically capture limited
amounts of data and populate static enterprise systems, EAI solutions continuously analyze real-time data from many sources to
generate actionable insights. Finally, the continued rapid growth of mobile devices and applications are significantly expanding
mobile computing use cases to levels of near ubiquity in the enterprise. With this expanded mobility, end-users can consume or
act upon dynamic enterprise data and information anytime and anywhere. The broad availability of wireless and internet
connectivity also supports the adoption and deployment of the Company’s solutions to enable organizations to collect more data
in real-time on the location, movement, and condition of their assets.
Acquisition of Xplore Business
On August 14, 2018, the Company acquired all outstanding equity interests of Xplore Technologies Corporation (“Xplore”), for
$87 million in cash, which included, $72 million for the net assets acquired, a $9 million payment of Xplore debt as well as $6
million of other Xplore transaction-related obligations. The Xplore business designs, integrates, markets and sells rugged
tablets that are primarily used by industrial, government, and field service organizations. The acquisition of Xplore is intended
to expand the Company’s portfolio of mobile computing devices to serve a wider range of customers. See Note 5, Business
Acquisition and Divestiture in the Notes to Consolidated Financial Statements.
Disposition
On October 28, 2016, the Company concluded the sale of Extreme Networks, Inc., its wireless LAN (“WLAN”) business, for
net proceeds of $39 million. See Note 5, Business Acquisition and Divestiture in the Notes to Consolidated Financial
Statements.
Integration of Enterprise Business
In October 2014, the Company acquired the Enterprise business (“Enterprise”), excluding its iDEN or Integrated Digital
Enhanced Network Business, from Motorola Solutions, Inc. (“MSI”) for $3.45 billion in cash.
The Company funded the acquisition of Enterprise through a combination of the sale of $1.1 billion senior notes due in 2022, a
credit agreement with various lenders that provided a $2.2 billion term loan due in 2021, and cash on hand. In 2017, the
Company executed a debt restructuring program to lower its cost of debt, which included amending its credit facilities,
establishing a Receivables Financing Facility and fully redeeming the $1.1 billion senior notes. In 2018, the Company executed
5
a second debt restructuring program, which included entering into Amendment No. 1 to the “A&R Credit Agreement”
(“Amendment No. 1”) that included an increase to the credit facility and partial extinguishment of the term loan, further
lowering the cost of debt. See Note 11, Long-Term Debt in the Notes to Consolidated Financial Statements.
Since closing the acquisition of Enterprise in October 2014, integration activities by the Company have focused on creating
“One Zebra” by integrating the operations of Enterprise to create a single business with common sales, service, supply chain,
marketing, finance, information technology (“IT”), and other functions. Our integration priorities centered on maintaining
business continuity while identifying and implementing cost synergies, operating efficiencies, and integration of functional
organizations and processes. Another key focus of the integration was to conclude MSI-provided transition service agreements
(“TSAs”) related primarily to IT support services. These TSAs were an interim measure to continue the operations of the
Enterprise business without disruption while integration activities were completed.
During 2017, the Company substantially completed its integration activities, including the implementation of a common
enterprise resource planning system, associated with the Enterprise acquisition. The Company also exited the TSAs with MSI.
Operations
Our operations consist of two segments: (1) Asset Intelligence & Tracking (“AIT”), comprised of barcode and card printing,
location solutions, supplies, and services; and (2) Enterprise Visibility & Mobility (“EVM”), comprised of mobile computing,
data capture, RFID, and services.
Asset Intelligence & Tracking
Barcode and Card Printing: We design, manufacture, and sell printers, which produce high-quality labels, wristbands, tickets,
receipts, and plastic cards on demand. Our customers use our printers in a wide range of applications, including routing and
tracking, patient safety, transaction processing, personal identification, and product authentication. These applications require
high levels of data accuracy, speed, and reliability. 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 (e.g. state
identification cards and drivers’ licenses, healthcare IDs), access control (e.g. employee or student building access), and
financial cards (e.g. credit, debit and ATM cards) by financial institutions. Our RFID printers/encoders are used to print and
encode passive RFID labels. We offer a wide range of accessories and options for our printers, including vehicle mounts and
battery chargers.
Supplies: We produce and sell stock and customized thermal labels, receipts, ribbons, plastic cards, and wristbands suitable for
use with our printers, and also wristbands which can be imaged in most commercial laser printers. We support our printing
products, resellers, and end-users with an extensive line of superior quality, high-performance supplies optimized to a particular
end-user’s needs. We promote the use of genuine Zebra branded supplies with our printing equipment. We also provide a family
of self-laminating wristbands for use in laser printers. These wristbands are marketed under the LaserBand® name. We operate
supplies production facilities located in the United States and Western Europe. We supplement our in-house production
capabilities with those of third-party manufacturers to offer genuine Zebra supplies, principally in Asia.
Services: We provide a full range of maintenance, technical support, and repair services. We also provide managed and
professional services including those which help customers manage their devices and related software applications. Our
offerings include cloud-based subscriptions and multiple service levels. They are typically contracted through multi-year
service agreements. We provide our services directly and through our global network of partners.
Location Solutions: The Company offers a range of RTLS and services which incorporate active and passive RFID and other
tracking technologies to enable users to locate, track, manage, and optimize the utilization of enterprise assets and personnel.
We provide substantially all elements of the location solution, including tags, sensors, exciters, middleware software, and
application software. Our location solutions are deployed primarily in manufacturing, aerospace, transportation and logistics,
sports, and healthcare industries. Various sports teams utilize our Zebra MotionWorks® sports solution to track the location and
movement of personnel and objects in real-time during sporting events, as well as in training and practice activities.
6
Enterprise Visibility & Mobility
Mobile Computing: We design, manufacture, and sell rugged and enterprise-grade mobile computing products and accessories
in a variety of specialized form factors and designs to meet a wide variety of enterprise applications. Industrial applications
include inventory management in warehouses and distribution centers; field mobility applications include field service, post and
parcel, and direct store delivery; and retail and customer facing applications include e-commerce, omnichannel, mobile point of
sale, inventory look-up, and staff collaboration. Our products incorporate both Android™ and Microsoft® Windows® operating
systems and support local-area and wide-area voice and data communications. Our mobile computing products often
incorporate barcode scanning, global position system (“GPS”) and RFID features, and other sensory capabilities. We also
provide related software tools, utilities, and applications.
Data Capture and RFID: We design, manufacture, and sell barcode scanners, image capture devices, and RFID readers. Our
portfolio of barcode scanners includes laser scanning and imager products and form factors, including fixed, handheld, and
embedded original equipment manufacturer (“OEM”) modules. The Company’s data capture products capture business-critical
information by decoding barcodes and images, and transmit the resulting data to enterprise systems for analysis and timely
decision making. Common applications include asset identification and tracking and workflow management in a variety of
industries, including retail, transportation and logistics, manufacturing, and healthcare. Our RFID line of data capture products
is focused on ultra-high frequency (“UHF”) technology. These RFID devices comply with the electronic product code (“EPC”)
global Generation 2 UHF standard and similar standards around the world. We also provide related accessories.
Services: We provide a full range of maintenance, technical support, and repair services. We also provide managed and
professional services that, among other things, help customers design, test, and deploy our solutions as well as manage their
mobility devices, software applications and workflows. Our offerings include cloud-based subscriptions and multiple service
levels. They are typically contracted through multi-year service agreements. We provide our services directly and through our
global network of partners.
Our Competitive Strengths
The following are core competitive strengths that we believe enable us to differentiate ourselves from our competitors:
An industry leader focused solely on improving enterprise operations
We are a market leader in the key technologies of Enterprise Asset Intelligence, including mobile computing, barcode and card
printing, data capture, and RFID readers. We also provide related software, services, and accessories. Our leadership position
enables us to work with and support customers globally, in a variety of industries, who are focused on implementing leading-
edge solutions.
High entry and switching barriers
On a global basis, we have long-standing relationships with end customers and with our extensive network of channel partners.
We believe these customer relationships and our strong partner network are critical to our success and would be difficult for a
new market entrant to replicate. We believe a significant portion of our products are deployed with specialized product
performance and software application requirements, which could result in high switching costs.
Commitment to innovation and deep industry-specific expertise
We leverage our strong commitment to innovation and deep industry-specific expertise to deliver end-to-end solutions to a wide
array of industries, with a broad portfolio of products and services.
Highly diversified business mix
We are highly diversified across business segments, end markets, geographies, customers, and suppliers. Additionally, we have
strong recurring business in services and supplies driven by an extensive global installed base of products.
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Global reach and brand
We sell to customers directly and through our network of channel partners around the world. This global presence gives us the
capability to supply our customers with products, solutions, and services no matter the location of their operations. In addition,
we believe we have strong brand recognition with a reputation in the industry as a trusted and strategic partner.
Scale advantages
We believe the size and scope of our operations, including market leadership, product development investment, portfolio
breadth, and global distribution, give us advantages over our competitors. We believe we have the largest installed base of
products compared with other companies in our industry. These characteristics enable us to compete successfully, achieve
economies of scale, and develop industry-leading solutions.
Our Business Strategies
Leverage our market leadership position and innovation to profitably grow our core business
We expect to drive revenue growth by continuing to outpace our competition in our core businesses, including mobile
computing, data capture, barcode printing, and services. We expect to achieve this by leveraging our broad portfolio of
solutions and product innovation and continuing to be a strategic partner to end customers. We also expect to drive growth by
capitalizing on technology transitions occurring in the industry, including the transition to the Android™ operating system in
mobile computing and transitions in data capture to newer technologies involving 2D imaging and RFID. This includes
increased focus on market segments and geographies that offer share-gain opportunities. In addition, we plan to leverage our
market-leading installed base to accelerate growth in attach-oriented products, including services, supplies, and accessories.
Our global channel partner network is vital to helping us achieve these goals. As such, we will ensure that we provide the
necessary value and support for our partners to be successful.
Drive our Enterprise Asset Intelligence vision
We believe that secular technology trends, particularly in IoT, cloud computing, automation, and mobility are transforming our
customers’ businesses and our industry and provide us with significant new opportunities to create value for our customers and
for the Company. We expect to capitalize on these trends, and in particular the proliferation of smart connected sensors and
devices in our core market segments, by providing end-to-end solutions that integrate these sensors and devices with cloud-
based workflows and analytics applications. These solutions will enable increased visibility into the enterprise, real-time,
actionable information, and improved customer experiences. Our solutions will also increasingly include common features,
functions, and user experiences to drive additional competitive differentiation.
Increase our opportunity for growth through expansion in adjacent market segments
We plan to drive growth through expansion, organically or inorganically, in adjacent market segments that share similar
technology needs with our core markets. We will focus specifically on segments where our products and solutions, workflow
expertise, and customer and industry relationships will enable us to provide significant value to end users.
Enhance financial strength and flexibility
We intend to continue to improve profitability and cash flow generation through operational execution and increased
productivity derived from continuous business process improvement, cost management, and focus on working capital
efficiency.
Competition
We operate in a highly competitive environment. The need for companies to improve productivity and implement their
strategies, as well as the secular trends around IoT, cloud computing, automation, and mobility, are some of the factors that are
creating growth opportunities for established and new competitors.
Key competitive factors include the design, breadth and quality of products and services, price, product performance, durability,
product and service availability, warranty coverage, brand recognition, company relationships with customers and channel
partners, and company reputation. We believe we compete effectively with respect to these factors.
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Mobile Computing: Competitors in mobile computing include companies that have historically served enterprises with
ruggedized devices. For some applications, we compete with companies that provide tablets and smart phones. Competitors
include: Datalogic, Honeywell, and Panasonic.
Data Capture and RFID: Competitors that provide a broad portfolio of barcode scanning products that are suitable for most
global market applications include Datalogic and Honeywell. We also compete against smaller companies that focus on limited
product subsets or specific regions, including Fujian Newland and Impinj.
Barcode and Card Printing: We consider our direct competition in printing to be producers of on-demand thermal transfer and
direct thermal label printing systems, RFID printer/encoders, and mobile printers. We also compete with companies engaged in
the design, manufacture, and marketing of printing systems that use technologies such as ink-jet, direct marking and laser
printing, as well as card printers based on ink-jet, thermal transfer, embossing, film-based systems, encoders, laser engraving,
and large-scale dye sublimation printers. In addition, service bureaus, which provide centralized services, compete for end-user
business and provide an alternative to our card printing solutions. Competitors include: Fargo Electronics (a unit of HID
Global), Honeywell, Sato, and Toshiba TEC.
Location Solutions: We compete with a diverse group of companies marketing location solutions that are primarily based on
active RFID technologies. Competitors include: Cisco, Impinj, and Stanley Healthcare.
Supplies: The supplies industry is highly fragmented with competition comprised of numerous companies of various sizes
around the world.
Customers
End-users of our products are diversified across a wide variety of industries, including retail and e-commerce, transportation
and logistics, manufacturing, and healthcare industries. We have had three customers that each accounted for 10% or more of
our Net sales over the past three years. All three of these customers are distributors and not end-users of our products. No end-
user has accounted for 10% or more of our Net sales during these years. See Note 18, Segment Information & Geographic Data
in the Notes to Consolidated Financial Statements for further information.
Customer A
Customer B
Customer C
Year Ended December 31,
2017
2016
2018
20.3%
15.7%
14.1%
21.3%
14.2%
13.2%
20.1%
13.2%
12.4%
Sales and Marketing
Sales: We sell our products, solutions, and services primarily through distributors (two-tier distribution), value added resellers
(“VARs”), independent software vendors (“ISVs”), direct marketers, and OEMs. We also sell directly to a select number of
customers through our direct sales force. Distributors purchase our products and sell to VARs, ISVs and others, thereby
increasing the distribution of our products globally. VARs, ISVs, OEMs, and systems integrators provide customers with a
variety of hardware, accessories, software applications, and services. VARs and ISVs typically customize solutions for specific
end-user applications using their industry, systems, and applications expertise. Some OEMs resell the Zebra-manufactured
products under their own brands as part of their own product offering. Because these sales channels provide specific software,
configuration, installation, integration, and support services to end-users within various industry segments, these relationships
are highly valued by end-users and allow our products to reach customers in a wide array of industries around the world. We
believe that the breadth of our distributor and channel partner network is a competitive differentiator and enhances our ability to
compete. Finally, we experience some seasonality in sales, depending upon the geographic region and industry served.
Marketing: Our marketing function aligns closely with sales and product management functions to market our products and to
deliver and promote solutions that address the needs of our customers and partners. Our marketing organization includes
regional and channel marketing teams that interface closely with customers, partners, and sellers. Our marketing organization
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also includes teams that support global strategies and communications, including portfolio marketing, digital marketing,
marketing operations and communications, and strategic marketing functions.
Manufacturing and Outsourcing
Final assembly of our hardware products is performed by third-parties, including electronics manufacturing services companies
(“EMS”) and joint design manufacturers (“JDMs”). Our products are produced primarily in facilities located in China, Mexico,
and Brazil. These JDMs or manufacturers produce our products to our design specifications. We maintain control over portions
of the supply chain, including supplier selection and price negotiations for key components. The manufacturers purchase the
components and subassemblies used in the production of our products. Our products are shipped to regional distribution
centers, operated by 3rd party logistics providers (“3PL’s”) or the Company. A portion of products are reconfigured at the
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 procurement regulations and various international
trade agreements, and remain eligible for sale to the U.S. government. Production facilities for our supplies products are located
in the U.S. and Western Europe. We also supplement our in-house production capabilities with those of third-party
manufacturers to offer our supplies, principally in Asia.
Research and Development
The Company devotes significant resources to developing innovative solutions for our target markets and ensuring that our
products and services maintain high levels of reliability and provide value to end-users. Research and development
expenditures for the years ended 2018, 2017, and 2016 were $444 million, $389 million, and $376 million, or 10.5%, 10.5%
and 10.5% of Net sales, respectively. We have more than 1,900 engineers worldwide focused on strengthening and broadening
our extensive portfolio of products and solutions.
Our Technology
Mobile Computing: Our mobile computing products incorporate a wide array of advanced technologies in rugged, ergonomic
enclosures to meet the needs of specific use cases. These purpose-built devices couple hardened industry-standard operating
systems with specialized hardware and software features to satisfy a customer’s mission-critical applications. Purpose-built
rugged housings ensure reliable operations for targeted use cases, surviving years of rough handling and harsh environments.
Specialized features such as advanced data capture technologies, voice and video collaboration tools, and advanced battery
technologies enable our customers to work more efficiently and better serve their customers. A broad portfolio of enterprise
accessories further tailors mobile computers to meet a wide variety of enterprise use cases. Our mobile computers are offered
with software tools and services that support application development, device configuration, and field support to facilitate
smooth and rapid deployment and ensure maximum customer return on investment.
Data Capture and RFID: Our data capture products allow businesses to track business critical information simply, quickly, and
accurately by providing critical visibility into business processes and performance and enabling real-time action in response to
the information. These products include barcode scanners in a variety of form factors, including fixed and handheld scanners
and standalone modules designed for integration into third-party OEM devices. Our scanners incorporate a variety of
technologies including area imagers, linear imagers, lasers, and read linear, and two-dimensional barcodes. They are used in a
broad range of applications, ranging from supermarket checkout to industrial warehouse optimization to patient management in
hospitals. The design of these products reflects the diverse needs of these markets, with different ergonomics, multiple
communication protocols, and varying levels of ruggedness.
Our RFID products include fixed readers, RFID enabled mobile computers, and RFID sleds. These utilize passive Ultra High
Frequency (“UHF”) to provide high speed, non-line of sight data capture from hundreds or thousands of RFID tags in near real-
time. Using the Electronic Product Code (“EPC”) standard, end-users across multiple industries take advantage of RFID
technology to track high-value assets, monitor shipments, and drive increased retail sales though improved inventory accuracy.
We also offer mobile computers that support high frequency (“HF”) near-field communications (“NFC”) and low frequency
(“LF”) radio technologies.
Barcode and Card Printing: All of the Company’s printers and print engines incorporate thermal printing technology. This
technology creates an image by heating certain pixels of an electrical printhead to selectively image a ribbon or heat-sensitive
10
substrate. Thermal printing benefits applications requiring simple and reliable operations, yet it is flexible enough to support a
wide range of specialty label materials and associated inks. Our dye-sublimation thermal card printers produce full-color,
photographic quality images that are well-suited for driver’s licenses, access and identification cards, transaction cards, and on-
demand photographs. Many of our printers also incorporate RFID technology that can encode data into passive RFID
transponders embedded in a label or card.
The Company’s printers integrate company-designed mechanisms, electrical systems, and firmware. Enclosures of metal or
high-impact plastic ensure the durability of our printers. Special mechanisms optimize handling of labels, ribbons, and plastic
cards. Fast, high-current electrical systems provide consistent image quality. Firmware supports serial, parallel, Ethernet, USB,
Bluetooth, or 802.11 wireless communications with appropriate security protocols. Printing instructions can be received as a
proprietary language such as Zebra Programming Language II (“ZPL II®”), as a print driver-provided image, or as user-defined
XML. These features make our printers easy to integrate into virtually all common computer systems.
Location Solutions: Our RTLS solutions use active and passive RFID technologies, beacons, and other tracking technologies to
locate, track, manage, and optimize high-value assets, equipment, and people. We offer a range of scalable RTLS technologies
that generate precise, on-demand information about the physical location and status of high-valued assets. In addition, we offer
a selection of RTLS infrastructure products that receive tag transmissions and provide location and motion calculations,
database and system management functions and asset visibility. The flexible infrastructure supports large tag populations and
coverage areas that range from small to large.
Supplies: Our supplies business includes thermal labels, receipts, ribbons, plastic cards and wristbands suitable for use with our
printers, and wristbands which can be imaged in most commercial laser printers. Our wristbands incorporate multi-layer form
technology to ensure trouble-free printing, wearer comfort, and reliable barcode reading, even when exposed to harsh chemical
environments. We offer many thermal label, card, and receipt materials, and matching ribbons for diverse applications that may
require meeting unique or precise specifications, including chemical or abrasion resistance, extreme temperatures, exceptional
image quality, or long life.
Intellectual Property
We rely on a combination of trade secrets, patents, trademarks, copyrights, and contractual rights to establish and protect our
innovations, and hold a large portfolio of intellectual property rights in the U.S. and other countries. As of December 31, 2018,
the Company owned approximately 1,800 trademark registrations and trademark applications, and over 4,400 patents and
patent applications, worldwide. We continue to actively seek to obtain patents and trademarks, whenever possible and practical,
to secure intellectual property rights in our innovations.
We believe that our intellectual property will continue to provide us with a competitive advantage in our core product areas as
well as provide leverage for future technologies. We also believe that we are not dependent upon any single patent or select
group of patents. Our success depends more upon our extensive know-how, deep understanding of end-user processes and
work-flows, innovative culture, technical leadership and marketing and sales abilities. Although we do not rely only on patents
or other intellectual property rights to protect or establish our market position, we will enforce our intellectual property rights
when and where appropriate.
Employees
As of December 31, 2018, the Company had approximately 7,400 employees. Some portions of our business, primarily in
Europe, China, and India are subject to labor laws that differ significantly from those in the U.S. In Europe, for example, it is
common for a works council to represent employees when discussing matters such as compensation, benefits, restructurings
and layoffs. We consider our relations with our employees to be very good.
Regulatory Matters
Wireless Regulatory Matters
Our business is subject to certain wireless regulatory matters.
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The use of wireless voice, data, and video communications systems requires radio spectrum, which is regulated by government
agencies throughout the world. In the U.S., the Federal Communications Commission (“FCC”) and the National
Telecommunications and Information Administration (“NTIA”) regulate spectrum use by non-federal entities and federal
entities, respectively. Similarly, countries around the world have one or more regulatory bodies that define and implement the
rules for use of the radio spectrum, pursuant to their respective national laws and international coordination under the
International Telecommunications Union. We manufacture and market products in spectrum bands already made available by
regulatory bodies, these include voice and data infrastructure, mobile radios, and portable or hand-held devices. Consequently,
our results of operations could be positively or negatively affected by the rules and regulations adopted from time-to-time by
the FCC, NTIA, or regulatory agencies in other countries. Our products operate both on licensed and unlicensed spectrum. The
availability of additional radio spectrum may provide new business opportunities, and consequently, the loss of available radio
spectrum may result in the loss of business opportunities. Regulatory changes in current spectrum bands may also provide
opportunities or may require modifications to some products so they can continue to be manufactured and marketed.
Other Regulatory Matters
Some of our operations use substances regulated under various federal, state, local, and international laws governing the
environment and worker health and safety, including those governing the discharge of pollutants into the ground, air and water,
the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Certain products are
subject to various federal, state, local, and international laws governing chemical substances in electronic products. During
2018, compliance with U.S. federal, state and local, and foreign laws regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment did not have a material effect on our business or results of operations.
Available Information
Our website address is www.zebra.com. The information on our website is not, and shall not be deemed to be, a part of this
annual report Form 10-K or incorporated into any other filings we make with the Securities and Exchange Commission (the
“SEC”). Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments
to those reports, are made available free of charge on the Investor Relations page of our website as soon as reasonably
practicable after we electronically file them with or furnish them to the SEC.
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Item 1A.
Risk Factors
Investors should carefully consider the risks, uncertainties, and other factors described below, as well as other disclosures in
Management’s Discussion and Analysis of Financial Condition and Results of Operations, because they could have a material
adverse effect on our business, financial condition, operating results, cash flows, and growth prospects. These risks are not the
only risks we face. Our business operations could also be affected by additional factors that are not presently known to us or
that we currently consider to be immaterial.
The Company has substantial operations and sells a significant portion of our products outside of the U.S. and purchases
important components, including final products, from suppliers located outside the U.S. Shipments to non-U.S. customers are
expected to continue to account for a material portion of Net sales. We also expect to continue the use of third-party contract
manufacturing services with non-U.S. production and assembly operations for our products.
Risks associated with operations, sales, and purchases outside the United States include:
• Fluctuating foreign currency rates could restrict sales, increase costs of purchasing, and impact collection of receivables
outside of the U.S.;
• Volatility in foreign credit markets may affect the financial well-being of our customers and suppliers;
• Violations of anti-corruption laws, including the Foreign Corrupt Practices Act and the U.K. Bribery Act could result in
large fines and penalties;
• Adverse changes in, or uncertainty of, local business laws or practices, including the following:
Imposition of burdensome tariffs, quotas, taxes, trade barriers, or capital flow restrictions;
•
• Restrictions on the export or import of technology may reduce or eliminate the ability to sell in or purchase from
certain markets;
• Political and economic instability may reduce demand for our products or put our non-U.S. assets at risk;
• Potentially limited intellectual property protection in certain countries may limit recourse against infringing on our
products or cause us to refrain from selling in certain geographic territories;
• Staffing may be difficult along with higher turnover at international operations;
• A government-controlled exchange rate and limitations on the convertibility of currencies, including the Chinese
yuan;
• Transportation delays and customs related delays that may affect production and distribution of our products;
• Effectively managing and overseeing operations that are distant and remote from corporate headquarters may be
•
difficult; and
Integration and enforcement of laws varies significantly among jurisdictions and may change significantly over
time.
The Company may not be able to continue to develop products or solutions to address user needs effectively in an industry
characterized by ongoing change. To be successful, we must adapt to rapidly changing technological and application needs by
continually improving our products, as well as introducing new products and services, to address user demands.
The Company’s industry is characterized by:
• Evolving industry standards;
• Frequent new product and service introductions;
• Evolving distribution channels;
•
• Changing customer demands; and
• Changing security protocols.
Increasing demand for customized product and software solutions;
Future success will depend on our ability to effectively and economically adapt in this evolving environment. We could incur
substantial costs if we must modify our business to adapt to these changes, and may even be unable to adapt to these changes.
13
The Company participates 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. We face significant competition in
developing and selling our products and solutions. To remain competitive, we believe we must continue to effectively and
economically provide:
• Technologically advanced systems that satisfy user demands;
• Superior customer service;
• High levels of quality and reliability; and
• Dependable and efficient distribution networks.
We cannot assure we will be able to compete successfully against current or future competitors. Increased competition in
mobile computing products, data capture products, 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 our competitive position in the
marketplace.
The Company is vulnerable to the potential difficulties associated with the increase in the complexity of our business. We have
grown rapidly over the last several years through acquisition and worldwide 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. The following factors could present difficulties to us:
• Managing our distribution channel partners;
• Managing our contract manufacturing and supply chain;
• Manufacturing an increased number of products;
• Managing parties to whom we have outsourced portions of our business operations;
•
• Maintaining and improving information technology infrastructure to support growth;
•
•
• Attract, develop and retain individuals with the requisite technical expertise to develop new technologies and introduce
Increased logistical problems common to complex, expansive operations;
Increasing international operations; and
Increased administrative and operational burden;
new products and solutions.
Inability to consummate future acquisitions at appropriate prices could negatively impact our growth rate and stock price. Our
ability to expand 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 competition among prospective buyers and the need to satisfy applicable closing conditions and obtain
antitrust and other regulatory approval on acceptable terms.
The Company 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. We may acquire or
make investments in other businesses, technologies, services, or products. An acquisition may present business issues which are
new to us. 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. These and other factors may result in benefits of an acquisition not being fully realized.
Acquisitions also may involve a number of risks, including:
• Difficulties and uncertainties in retaining the customers or other business relationships from the acquired entities;
• The loss of key employees of acquired entities;
• The ability of acquired entities to fulfill their customers’ obligations;
14
• The discovery of unanticipated issues or liabilities;
• Pre-closing and post-closing acquisition-related earnings charges could adversely impact operating results and cash
flows in any given period, and the impact may be substantially different from period to period;
• The failure of acquired entities to meet or exceed expected operating results or cash flows could result in impairment
of goodwill or intangible assets acquired;
• The ability to implement internal controls and accounting systems necessary to be compliant with requirements
applicable to public companies subject to SEC reporting, which could result in misstated financial reports; and
• Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt and
contingent liabilities.
Infringement by the Company or our suppliers on the proprietary rights of others could put us at a competitive disadvantage,
and any related litigation could be time consuming and costly. Third parties may claim that we or our suppliers violated their
intellectual property rights. To the extent of a violation of a third-party’s patent or other intellectual property right, we may be
prevented from operating our 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 our 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, our 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 our reputation, and our competitive position may be materially
damaged. Our intellectual property is valuable and provides us with certain competitive advantages. We use copyrights, patents,
trademarks, trade secrets, and contracts to protect these proprietary rights. Despite these precautions, third parties may be able
to copy or reproduce aspects of our intellectual property and our products or, without authorization, to misappropriate and use
information, which we regard as trade secrets. Additionally, the intellectual property rights we obtain may not be sufficient to
provide us with a competitive advantage and may be successfully challenged, invalidated, circumvented, or infringed. In any
infringement litigation that the Company may undertake to protect our intellectual property, any award of monetary damages
may be unlikely or very difficult to obtain, and any such award we may receive may not be commercially valuable.
Furthermore, efforts to enforce or protect our proprietary rights may be ineffective and could result in the invalidation or
narrowing of the scope of our intellectual property and incurring substantial litigation costs. Because of the substantial amount
of discovery required in connection with intellectual property litigation, there is a risk that some of the Company’s confidential
information could be compromised by disclosure during this type of litigation. Some aspects of our business and services also
rely on technologies, software, and content developed by or licensed from third parties, and we may not be able to maintain our
relationships with such third parties or enter into similar relationships in the future on reasonable terms or at all.
We currently use third-party and/or open source operating systems and associated application ecosystems in certain of our
products. Such parties ceasing continued development of the operating system or restricting our access to such operating
system could adversely impact our business and financial results. We are dependent on third-parties’ continued development of
operating systems, software application ecosystem infrastructures, and such third-parties’ approval of our implementations of
their operating system and associated applications. If such parties cease to continue development or support of such operating
systems or restrict our access to such operating systems, we would be required to change our strategy for such devices. As a
result, our financial results could be negatively impacted because a resulting shift away from the operating systems we currently
use and the associated applications ecosystem could be costly and difficult. A strategy shift could increase the burden of
development on the Company and potentially create a gap in our portfolio for a period of time, which could competitively
disadvantage us.
Cybersecurity incidents could disrupt business operations. Like many companies, we continually strive to meet industry
information security standards relevant to our business. We periodically perform vulnerability assessments, remediate
vulnerabilities, review log/access, perform system maintenance, manage network perimeter protection, implement and manage
disaster recovery testing, and provide periodic educational sessions to our employees to foster awareness of schemes to access
sensitive information. A cybersecurity incident could include an attempt to gain unauthorized access to digital systems for
15
purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. “Phishing” and
other types of attempts to obtain unauthorized information or access are often sophisticated and difficult to detect or defeat.
A cybersecurity incident, including deliberate attacks and unintentional events, may lead to a material disruption of our core
business systems, the loss or corruption of confidential business information and/or the disclosure of personal data that in each
case could result in an adverse business impact, as well as, possible damage to our brand. This could also lead to a public
disclosure or theft of private intellectual property and a possible loss of customer confidence.
While we have experienced and expect to continue to experience these types of threats and incidents, there have been no
material incidents incurred to-date at the Company. If our 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 affecting the confidentiality,
integrity, and availability of our systems and/or data.
Our 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. It is possible that such a
breach could result in delays in, or loss of market acceptance of, our products and services; diversion of our resources; injury to
our reputation; increased service and warranty expenses; and payment of damages. To date, we have had no material incidents
related to the security on our products.
Laws and regulations relating to the handling of personal data may result in increased costs, legal claims, or fines against the
Company. As part of our operations, the Company collects, uses, stores, and transfers personal data of third parties and
employees in and across jurisdictions. The governing bodies in such jurisdictions have adopted or are considering adopting
laws and regulations regarding the collection, use, transfer, storage and disclosure of personal data obtained from third parties
and employees; for example, General Data Protection Regulation effective May 2018. These laws may result in burdensome or
inconsistent requirements affecting the collection, use, storage, transfer and disclosure of our third-party and employee personal
data. Compliance may require changes in services, business practices, or internal systems that result in increased costs, lower
revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms. Failure to comply with existing or new
rules may result in claims against the Company or significant penalties or orders to stop the alleged noncompliant activity.
We may incur liabilities as a result of product failures due to actual or apparent design or manufacturing defects. We 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 our own designed products but also in components provided by third-party suppliers. We generally have insurance
protection against property damage and personal injury liabilities and also seek 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 the Company’s installed product base, a design or manufacturing defect involving this large installed
product base could result in product recalls or customer service costs that could have material adverse effects on our financial
results.
Defects or errors in the Company’s software products could harm our reputation, result in significant cost to us, and impair our
ability to market such products. Our software may contain undetected errors, defects, or bugs. Although we have 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 our
existing or future software products and related services with the possible results of delays in, or loss of market acceptance of,
our products and services, diversion of our resources, injury to our reputation, increased service and warranty expenses, and
payment of damages.
We depend on the ongoing services of our senior management and the ability to attract and retain key personnel. The future
success of the Company is substantially dependent on the continued services and continuing contributions of senior
management and other key personnel. The ability to attract, retain, and motivate highly skilled employees is important to our
long-term success. Competition for skill sets in certain functions within our industry is intense, and we may be unable to retain
16
key employees or attract, assimilate, or retain other highly qualified employees in the future. Any disruption in the services of
senior management or our ability to attract and retain key personnel may have a material adverse effect on our business and
results of operations.
Terrorist attacks or war could lead to further economic instability and adversely affect the Company’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. Since then, a number of significant acts of terrorism have occurred, and war continues in the
Middle East, all of which may contribute to instability in financial markets. Additional 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 our facilities and operations or those of our
customers or suppliers.
The impact of changes in customs duties and trade policies in the United States and corresponding actions by other countries in
which the Company does business could adversely affect our financial performance. The U.S. government has imposed
customs duties on various imports from China that are intended to address trade imbalances. These actions will result in
increased customs duties and will likely result in the renegotiation of some U.S. trade agreements. In response to such actions,
China has instituted customs duties on certain U.S. goods. Other governments could also institute customs duties on U.S. goods
similar to China’s actions in response to the U.S. government’s customs duties. The Company imports a significant percentage
of our products into the U.S. and China, and an increase in customs duties with respect to these imports could negatively impact
the Company’s financial performance. Based on the current products affected, we do not anticipate such increase in customs
duties to materially impact the Company’s financial performance. Such customs duties also may cause the U.S.’ trading
partners, other than China, to take actions with respect to U.S. imports or U.S. investment activities in their respective
countries. Any potential changes in trade policies in the U.S. and the potential corresponding actions by other countries in
which the Company does business could adversely affect the Company’s financial performance.
Taxing authority challenges may lead to tax payments exceeding current reserves. We are subject to, and may become 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 the Company’s effective tax rate and cash flows.
Future changes in tax law in various jurisdictions around the world and income tax holidays could have a material impact on
our effective tax rate, foreign rate differential, future income tax expense, and cash flows.
Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences
between our forecasted and actual tax rates. Forecasts of our income tax position and effective tax rate are complex, subject to
uncertainty and periodic updates because our income tax position for each year combines the effects of a mix of profits earned
and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation
of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules and tax laws, the results
of examinations by various tax authorities, and the impact of any acquisition, business combination, disposition or other
reorganization, or financing transaction.
As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions.
The taxation of our business is subject to the application of multiple and sometimes conflicting tax laws and regulations, as well
as multinational tax conventions. Many countries have recently adopted or are considering the adoption of revisions to their
respective tax laws based on the on-going reports issued by the Organization for Economic Co-operation and Development
(“OECD”)/G20 Base Erosion and Profit Shifting (“BEPS”) Project, which could materially impact our tax liability due to our
organizational structure and significant operations outside of the U.S. Our effective tax rate is highly dependent upon the
geographic distribution of our worldwide earnings or losses resulting from our structure and operating model, the tax
regulations and tax holidays in each geographic region, and the availability of tax credits and carry-forwards. The application of
tax laws and regulations is subject to legal and factual interpretation, judgment, and uncertainty. Tax laws themselves are
subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court
rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our
tax liability and/or our effective income tax rate.
17
Economic conditions and financial market disruptions may adversely affect our business and results of operations. Adverse
economic conditions or reduced information technology spending may adversely impact our business. General disruption of
financial markets and a related general economic downturn could adversely affect our 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 might
lead to restructuring charges. A tightening of financial credit could adversely affect our customers, suppliers, outsourced
manufacturers, and channel partners (e.g., distributors and resellers) from obtaining adequate credit for the financing of
significant purchases. An economic downturn could also result in a decrease in or cancellation of orders for our products and
services; negatively impacting the ability to collect 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 our business and results of operations. Natural
disasters may occur in the future, and the Company 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 our business and results of operations.
Zebra could be adversely impacted by the United Kingdom’s withdrawal from the European Union. Zebra maintains its
European regional headquarters and a label converting facility in the U.K. and has significant operations and sales throughout
Europe. The U.K. formally notified the E.U. of its intention to withdraw, with such notice triggering a two-year period ending
in March 2019, which could be followed by a transition period. During such two-year period, the U.K. has been negotiating the
terms of the withdrawal. Since the U.K.’s referendum in June 2016 to withdraw from the E.U., markets have been more
volatile, including fluctuations in the British pound, that could adversely impact Zebra’s operating costs in the U.K. Such
market volatility could also cause customers to alter or delay buying decisions that would adversely impact Zebra’s sales in the
U.K. and throughout Europe. Our European business involves cross border transactions between the U.K. and the E.U. The
future trade relationship between the U.K. and the E.U. could adversely impact Zebra’s operations in the region by increasing
importation requirements or disrupting shipments between the E.U. to the U.K. or vice versa. The terms of the U.K.’s
withdrawal from the E.U. and resulting impacts to Zebra’s operations are currently uncertain and could adversely affect the
Company’s financial performance.
We are exposed to risks under large, multi-year system and solutions and services contracts that may negatively impact our
business. We enter into large, multi-year system and solutions and services contracts with our customers. This exposes us to
risks, including among others: (i) technological risks, especially when the contracts involve new technology; (ii) financial risks,
including the estimates inherent in projecting costs associated with large, long-term contracts and the related impact on
operating results; and (iii) cyber security risk, especially in managed services contracts with customers that process personal
data. Recovery of front-loaded costs incurred on long-term managed services contracts with customers is dependent on the
continued viability of such customers. The insolvency of customers could result in a loss of anticipated future revenue
attributable to that program or product, which could have an adverse impact on our profitability.
We enter into fixed-price contracts that could subject us to losses in the event we fail to properly estimate our costs. If our
initial cost estimates are incorrect, we can lose money on these contracts. Because many of these contracts involve new
technologies and applications and require the Company to engage subcontractors and can last multiple years, unforeseen events,
such as technological difficulties, fluctuations in the price of raw materials, problems with our subcontractors or suppliers and
other cost overruns, can result in the contract pricing becoming less favorable or even unprofitable to us and have an adverse
impact on our financial results. In addition, a significant increase in inflation rates could have an adverse impact on the
profitability of longer-term contracts.
We utilize the services of subcontractors to perform under many of our contracts and the inability of our subcontractors to
perform in a timely and compliant manner could negatively impact our performance obligations as the prime contractor. We
engage subcontractors on many of our contracts and as we expand our global solutions and services business, our use of
18
subcontractors has and will continue to increase. Our subcontractors may further subcontract performance and may supply
third-party products and software. We may have disputes with our subcontractors, including disputes regarding the quality and
timeliness of work performed by the subcontractor or our subcontractors and the functionality, warranty and indemnities of
products, software, and services supplied by our subcontractor. We are not always successful in passing along customer
requirements to our subcontractors, and thus in some cases may be required to absorb contractual risks from our customers
without corresponding back-to-back coverage from our subcontractor. Our subcontractors may not be able to acquire or
maintain the quality of the materials, components, subsystems and services they supply, or secure preferred warranty and
indemnity coverage from their suppliers which might result in greater product returns, service problems, warranty claims and
costs and regulatory compliance issues and could harm our business, financial condition, and results of operations.
We have outsourced portions of certain business operations such as repair, distribution, engineering services and information
technology services and may outsource additional business operations, which limits our control over these business operations
and exposes us to additional risk as a result of the actions of our outsource partners. When we outsource certain business
operations, we are not able to directly control these activities. Our outsource partners may not prioritize our business over that
of their other customers and they may not meet our desired level of service, cost reductions, or other metrics. In some cases,
their actions may result in our being found to be in violation of laws or regulations like import or export regulations. As many
of our outsource partners operate outside of the U.S., our outsourcing activity exposes us to information security vulnerabilities
and increases our global risks. In addition, we are exposed to the financial viability of our outsource partners. Once a business
activity is outsourced, we may be contractually prohibited from, or may not practically be able to, bring such activity back
within the Company or move it to another outsource partner. The actions of our outsource partners could result in reputational
damage to us and could negatively impact our financial results. Additionally, transitioning activities between new or existing
outsource partners or across different geographies as well as insourcing activities could result in additional cost, time and
management attention in order to effectively manage the transition which could negatively impact our financial results.
Failure of our suppliers, subcontractors, distributors, resellers, and representatives to use acceptable legal or ethical business
practices could negatively impact our business. It is our policy to require suppliers, subcontractors, distributors, resellers, and
third-party sales representatives (“TPSRs”) to operate in compliance with applicable laws, rules, and regulations regarding
working conditions, employment practices, environmental compliance, anti-corruption, and trademark and copyright licensing.
However, we do not control their labor and other business practices. If one of our suppliers, subcontractors, distributors,
resellers, or TPSRs violates labor or other laws or implements labor or other business practices that are regarded as unethical,
the shipment of finished products to us could be interrupted, orders could be canceled, relationships could be terminated, and
our reputation could be damaged. If one of our suppliers or subcontractors fails to procure necessary license rights to
trademarks, copyrights, or patents, legal action could be taken against us that could impact the salability of the Company’s
products and expose us to financial obligations to a third-party. Any of these events could have a negative impact on our sales
and results of operations.
We rely on third-party dealers, distributors, and resellers to sell many of our products. In addition to our own sales force, we
offer our products through a variety of third-party dealers, distributors, and resellers. These third-parties may also market other
products that compete with our products. Failure of one or more of our dealers, distributors, or resellers to effectively promote
our products could affect our ability to bring products to market and have a negative impact on our results of operations. Any
changes to our channel program may cause some of our third-party dealers, distributors or resellers to exit the program due to
modifications to the program structure, thereby reducing our ability to bring products to market and have a negative impact on
our results of operations.
Some of these third-parties are smaller and more likely to be impacted by a significant decrease in available credit that could
result from a weakness in the financial markets. If credit pressures or other financial difficulties result in insolvency for third-
party dealers, distributors, or retailers and we are unable to successfully transition end-customers to purchase our products from
other third-parties or from us directly, it may cause, and in some cases, has caused, a negative impact on our financial results.
Final assembly of certain of our products is performed by third-party electronics manufacturers. We may be dependent on these
third-party electronics manufacturers as a sole-source of supply for the manufacture of such products. A failure by such
manufacturers to provide manufacturing services to us as we require, or any disruption in such manufacturing services up to
19
and including a catastrophic shut-down, may adversely affect our business results. Because we rely on these third-party
electronics manufacturers to manufacture our products, we may incur increased business continuity risks. We are not able to
exercise direct control over the assembly or related operations of certain of our products. If these third-party manufacturers
experience business difficulties or fail to meet our manufacturing needs, then we 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 such third parties
continuing to manufacture our products, we may have no other means of final assembly of certain of our products until we are
able to secure the manufacturing capability at another facility or develop an alternative manufacturing facility. This transition
could be costly and time consuming.
Although we carry business interruption insurance to cover lost sales and profits in an amount that we consider adequate, in the
event of supply disruption, this insurance does not cover all possible situations. In addition, the business interruption insurance
would not compensate us for the loss of opportunity and potential adverse impact, both short-term and long-term, on relations
with our existing customers going forward.
Our future operating results depend on our ability to purchase a sufficient amount of materials, parts, and components, as well
as services and software to meet the demands of customers. We source some of our components from sole source suppliers.
Any disruption to our suppliers or significant increase in the price of supplies could have a negative impact on our results of
operations. Our ability to meet customers’ demands depends, in part, on our ability to obtain in a timely manner an adequate
delivery of quality materials, parts, and components, as well as services and software from our suppliers. In addition, certain
supplies are available only from a single source or limited sources and we may not be able to diversify sources in a timely
manner. If demand for our products or services increases from our current expectations or if suppliers are unable or unwilling to
meet our demand for other reasons, including as a result of natural disasters or financial issues, we could experience an
interruption in supplies or a significant increase in the price of supplies that could have a negative impact on our business. We
have experienced shortages in the past that have negatively impacted our results of operations and may experience such
shortages in the future. Credit constraints at our suppliers could cause us to accelerate payment of accounts payable by us,
impacting our cash flow.
In addition, our current contracts with certain suppliers may be canceled or not extended by such suppliers and, therefore, not
afford us with sufficient protection against a reduction or interruption in supplies. Moreover, in the event any of these suppliers
breach their contracts with us, our legal remedies associated with such a breach may be insufficient to compensate us for any
damages it may suffer.
The unfavorable outcome of any pending or future litigation, arbitration, or administrative action could have a material
adverse effect on our financial condition or results of operations. From time to time we are a party to litigation, arbitration, or
administrative actions. Our financial results and reputation could be negatively impacted by unfavorable outcomes to any
pending or future litigation or administrative actions, including those related to the Foreign Corrupt Practices Act, the U.K.
Bribery Act, or other anti-corruption laws. There can be no assurances as to the favorable outcome of any litigation or
administrative proceedings. In addition, it can be very costly to defend litigation or administrative proceedings and these costs
could negatively impact our financial results.
It is important that we are able to obtain many different types of insurance, and if we are not able to obtain insurance or
exhaust our coverage, we may be forced to retain the risk. We have many types of insurance coverage and are also self-insured
for some risks and obligations. While the cost and availability of most insurance is stable, there are still certain types and levels
of insurance that remain difficult to obtain, such as professional liability insurance, which is expensive to obtain for the amount
of coverage often requested by certain customers. As we grow our global solutions and services business, we are being asked to
obtain higher amounts of professional liability insurance, which could result in higher costs to do business. Natural disasters
and certain risks arising from securities claims, professional liability, and public liability are potential self-insured events that
could negatively impact our financial results. In addition, while we maintain insurance for certain risks, the amount of our
insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from
an accident, incident, or claim.
20
We are subject to a wide range of product regulatory and safety, consumer, worker safety, and environmental laws. Our
operations and the products we manufacture and/or sell are subject to a wide range of product regulatory and safety, consumer,
worker safety, and environmental laws and regulations. Compliance with such existing or future laws and regulations could
subject us to future costs or liabilities, impact our production capabilities, constrict our ability to sell, expand or acquire
facilities, restrict what products and services we can offer, and generally impact our financial performance. Some of these laws
are environmental and relate to the use, disposal, remediation, emission and discharge of, and exposure to hazardous
substances. These laws often impose liability and can require parties to fund remedial studies or actions regardless of fault. We
continue to incur disposal costs and have ongoing remediation obligations. Environmental laws have tended to become more
stringent over time and any new obligations under these laws could have a negative impact on our operations or financial
performance.
Laws focused on the energy efficiency of electronic products and accessories; recycling of both electronic products and
packaging; reducing or eliminating certain hazardous substances in electronic products; and the transportation of batteries
continue to expand significantly. Laws pertaining to accessibility features of electronic products, standardization of connectors
and power supplies, the transportation of lithium-ion batteries, and other aspects are also proliferating. There are also
demanding and rapidly changing laws around the globe related to issues such as product safety, radio interference, radio
frequency radiation exposure, medical related functionality, and consumer and social mandates pertaining to use of wireless or
electronic equipment. These laws, and changes to these laws, could have a substantial impact on whether we can offer certain
products, solutions, and services, and on what capabilities and characteristics our products or services can or must include.
These laws impact our products and negatively affect our ability to manufacture and sell products competitively. We expect
these trends to continue. In addition, we anticipate that we will see increased demand to meet voluntary criteria related to
reduction or elimination of certain constituents from products, increasing energy efficiency, and providing additional
accessibility.
We could be adversely impacted by changes in accounting standards and subjective assumptions, estimates and judgments by
management related to complex accounting matters. Generally accepted accounting principles and related accounting
pronouncements, implementation guidelines, and interpretations with regard to a wide range of matters that are relevant to our
businesses, including, but not limited to, revenue recognition, asset impairment, business acquisition purchase price allocations,
impairment of goodwill and other intangible assets, inventories, tax matters, and litigation and other contingent liabilities are
highly complex and involve many subjective assumptions, estimates, and judgments. Changes in these rules or their
interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported or
expected financial performance or financial condition. New accounting guidance may also require systems and other changes
that could increase our operating costs and/or change our financial statements.
Our indebtedness could adversely affect our business. As of December 31, 2018, we had $1.6 billion of outstanding debt, gross
of unamortized discounts and debt issuance costs. Our indebtedness could have important consequences, including the
following:
• We may experience difficulty in satisfying our obligations with respect to our existing indebtedness or future
indebtedness;
• Our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired;
• We plan to use a substantial portion of cash flow from operations to pay interest and principal on our indebtedness,
which may reduce the funds available for other purposes, such as acquisitions and capital expenditures;
• We may be at a competitive disadvantage with reduced flexibility in planning for, or responding to, changing
conditions in the industry, including increased competition; and
• We may be more vulnerable to economic downturns and adverse developments in the business.
We expect to fund our expenses and to pay the principal and interest on our indebtedness from cash flow from operations. Our
ability to meet our expenses and to pay principal and interest on our indebtedness when due depends on our future performance,
21
which will be affected by financial, business, economic, and other factors. We will not be able to control many of these factors,
such as economic conditions in the markets where we operate and pressure from competitors.
If our business does not generate sufficient cash flows from operations or if future borrowings are not available to us in an
amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a
portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments, or seek to raise
additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to effect
any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our
indebtedness will depend on the condition of the capital and debt markets and our financial condition at such time. Any
refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants,
which could further restrict business operations. The terms of anticipated or future debt instruments may limit or prevent us
from taking any of these actions. In addition, any failure to make scheduled payments of interest and/or principal on
outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to access
additional capital on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt
service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an
adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability
to satisfy the obligations in respect of our indebtedness.
Our use of derivative financial instruments to reduce interest rate risk may result in added volatility in our operating results.
We do not hold or issue derivative financial instruments for trading purposes. However, we do utilize derivative financial
instruments to reduce interest rate risk associated with our indebtedness. To manage variable interest rate risk, we entered into
forward interest rate swap agreements, which will effectively convert a portion of our indebtedness into a fixed rate loan. Under
generally accepted accounting principles, changes in the fair values of the swap contracts are reflected in our Consolidated
Statements of Operations as a component of “Other, net” if not hedged. The associated impact on our quarterly operating results
is directly related to changes in prevailing interest rates. If interest rates increase, we would have a non-cash gain on the swaps,
and vice versa in the event of a decrease in interest rates. Consequently, these swaps introduce additional volatility to our
operating results.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters are located in Lincolnshire, Illinois; a northern suburb of Chicago. We also operate manufacturing,
production and warehousing, administrative, research, and sales facilities in other U.S. and international locations.
As of December 31, 2018, the Company owned three laboratory and warehouse facilities located in Holtsville, NY, Preston,
UK, and Mississauga, Ontario, Canada. The Company leases seven facilities for the purposes of manufacturing, production, and
warehousing; five of which are located in the U.S. and two are located in other countries.
As of December 31, 2018, the Company had a total of 106 leased facilities with locations spread globally; 30 of which are
located in the U.S. and 76 are located in 45 other countries.
We generally consider the productive capacity of the plants to be adequate and sufficient for our requirements. The extent of
utilization of each manufacturing facility varies throughout the year.
Item 3.
Legal Proceedings
See Note 12, Commitments and Contingencies in the Notes to Consolidated Financial Statements.
22
Item 4.
Mine Safety Disclosures
Not applicable.
23
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Stock Information: Price Range and Common Stock
Our Class A common stock is traded on the NASDAQ Stock Market, LLC under the symbol “ZBRA”. The following table
shows the high and low trade prices for each fiscal quarter in 2018 and 2017, as reported by the NASDAQ Stock Market, LLC.
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
High
147.99 $
161.72
179.47
184.75
Low
2017
102.75 First Quarter
130.79 Second Quarter
136.16 Third Quarter
140.95 Fourth Quarter
$
High
Low
93.61 $
109.30
109.89
117.44
81.02
86.82
94.78
101.49
At February 7, 2019, the last reported price for the Class A common stock was $176.79 per share, and there were 125 registered
stockholders of record for Zebra’s Class A common stock.
Dividend Policy
Since our initial public offering in 1991, we have not declared any cash dividends or distributions on our capital stock. We
currently do not anticipate paying any cash dividends in the foreseeable future.
Treasury Shares
In November 2011, our Board authorized the purchase of up to 3,000,000 shares under the purchase plan program with a
maximum of 665,475 shares remaining available for purchase. The November 2011 authorization does not have an expiration
date. We did not purchase shares of Zebra Class A common stock during 2018 as part of the purchase plan program.
24
Stock Performance Graph
This graph compares the cumulative annual change since December 31, 2013, of the total stockholder return of Zebra
Technologies Corporation Class A common stock with the cumulative return on the following published indices: (i) the RDG
Technology Composite; and (ii) the NASDAQ Composite Market Index, during the same period. The comparison assumes that
$100 was invested in each of the Company’s Class A common stock, the stocks comprising the RDG Technology Composite
and the stocks comprising the NASDAQ Composite Market Index on December 31, 2013. The comparison assumes that all
dividends were reinvested at the end of the month in which they were paid.
25
Item 6.
Selected Financial Data
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In millions, except shares and per share amounts)
Consolidated Statements of
Operations(1)
Total Net sales
Gross profit
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Weighted average shares
outstanding:
Basic
Diluted
Consolidated Balance Sheets(1)
Cash and cash equivalents,
investments and marketable
securities
Total Assets
Long-term liabilities
Total Stockholders’ Equity
Year Ended December 31,
2018
2017
2016
2015
2014
$
$
$
4,218
1,981
421
7.86
$
$
$
3,722
1,710
17
0.33
$
$
$
3,574
1,642
(137)
$
$
3,650 $
1,644
(158) $
(2.65)
$
(3.10) $
$
7.76 $
0.32 $
(2.65) $
(3.10) $
1,671
778
32
0.64
0.63
53,591,655
54,299,812
53,021,761
53,688,832
51,579,112
51,579,112
50,996,297
50,996,297
50,789,173
51,379,698
2018
2017
December 31,
2016
2015
2014
$
$
44
4,339
1,703
1,335
$
62
4,275
2,441
834
$
156
4,632
2,891
792
$
192
5,040
3,252
893
418
5,539
3,346
1,040
(1)
Includes the Xplore business from its date of acquisition, August 14, 2018 and the Enterprise business from its date of
acquisition, October 27, 2014.
26
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company is a global leader respected for innovative EAI solutions in the automatic information and data capture solutions
industry. We design, manufacture, and sell a broad range of products that capture and move data, including: mobile computers;
barcode scanners and imagers; RFID readers; specialty printers for barcode labeling and personal identification; RTLS; related
accessories and supplies, such as self-adhesive labels and other consumables; and software utilities and applications. We also
provide a full range of services, including maintenance, technical support, and repair, managed and professional services,
including cloud-based subscriptions. End-users of our products and services include those in the retail and e-commerce,
transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, government
and education enterprises around the world. Benefits of our solutions include improved efficiency and workflow management,
increased productivity and asset utilization, real-time, actionable enterprise information, and better customer experiences. We
provide our products and services globally through a direct sales force and an extensive network of partners. We provide
products and services in over 180 countries, with 109 facilities and approximately 7,400 employees worldwide.
Segments
The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility
& Mobility (“EVM”).
Asset Intelligence & Tracking
The AIT segment is an industry leader in barcode printing and asset tracking technologies. Its major product lines include
barcode and card printers, supplies, services and location solutions. Industries served include retail and e-commerce,
transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America;
Europe, Middle East, and Africa (“EMEA”); Asia-Pacific; and Latin America.
Enterprise Visibility & Mobility
The EVM segment is an industry leader in automatic information and data capture solutions. Its major product lines include
mobile computing, data capture, RFID, and services. Industries served include retail and e-commerce, transportation and
logistics, manufacturing, healthcare, and other end markets within the following regions: North America; EMEA; Asia-Pacific;
and Latin America.
Geographic Information
For the year ended December 31, 2018, the Company recorded $4.2 billion of Net sales in its consolidated statements of
operations, of which approximately 48.4% were attributable to North America; approximately 33.4% were attributable to
EMEA; and other foreign locations accounted for the remaining 18.2%. Relative Net sales attributable to each region is
comparable with the prior year period.
Acquisition and Integration
On August 14, 2018, the Company completed its tender offer to acquire all outstanding common stock of Xplore for $6.00 per
share. In connection with this acquisition, the Company paid $87 million in cash, which included $72 million for the net assets
acquired, a $9 million payment of Xplore debt, as well as $6 million of other Xplore transaction-related obligations. The
operating results of Xplore are included within the Company’s EVM segment beginning August 14, 2018, contributing
approximately 1% to our consolidated Net sales growth in 2018. The Xplore acquisition was accounted for under the
acquisition method of accounting for business combinations and the preliminary opening balance sheet was included in the
Company’s Consolidated Balance Sheet and operating results beginning August 14, 2018.
On October 27, 2014, the Company acquired Enterprise from MSI and began integration activities focused on creating “One
Zebra”. Our integration priorities centered on maintaining business continuity while identifying and implementing cost
synergies, operating efficiencies, and integration of functional organizations and processes. Another key focus of the integration
was to exit MSI-provided TSAs related primarily to IT systems and support services. These TSAs were an interim measure to
continue the operations of the Enterprise business without disruption while integration activities were completed. The Company
27
substantially completed its integration activities in fiscal year 2017, including the implementation of a common enterprise
resource planning system and has exited the last TSAs with MSI.
Restructuring Programs
In the first quarter 2017, the Company’s executive leadership approved an initiative to continue the Company’s efforts to
increase operational efficiency (the “Productivity Plan”). The Productivity Plan built upon the exit and restructuring initiatives
specific to the October 2014 Enterprise acquisition (the “Acquisition Plan”). Actions under the Productivity Plan included
organizational design changes, process improvements and automation. The Company substantially completed all initiatives
under the Acquisition Plan as of December 31, 2017, and substantially completed all initiatives under the Productivity Plan as
of December 31, 2018. Exit and restructuring costs are not included in the operating results of our segments as they do not
impact the specific segment measures as reviewed by our Chief Operating Decision Maker and therefore are reported as a
component of Corporate eliminations. See Note 18, Segment Information & Geographic Data in the Notes to Consolidated
Financial Statements.
Total exit and restructuring charges of $23 million life-to-date specific to the Productivity Plan have been recorded through
December 31, 2018 and include severance and related benefits, lease exit costs and other expenses. Charges related to the
Productivity Plan for the year ended December 31, 2018 and 2017 were $11 million and $12 million, respectively.
Total exit and restructuring charges of $69 million life-to-date specific to the Acquisition Plan have been recorded
through December 31, 2018 and include severance and related benefits, lease exit costs and other expenses. Charges related to
the Acquisition Plan for the periods ended December 31, 2017 and 2016, were $4 million and $19 million, respectively.
See Note 8, Costs Associated with Exit and Restructuring Activities in the Notes to Consolidated Financial Statements for
further information.
Impact of U.S. Tax Reform
Enacted on December 22, 2017, the Tax Cut and Jobs Act (“TCJA” or “the Act”) reduced the U.S. federal corporate tax rate
from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were
previously tax deferred. Based on current operations, the Company is subject to the Global Intangible Low-Taxed Income and
the Deduction for Foreign-Derived Intangible Income provisions (collectively referred to as “GILTI”) of the Act, for which we
recorded income tax expense of $10 million in 2018. We are not currently subject to the new limitations which defer U.S.
interest deductions in excess of 30% of adjusted taxable income or the Base Erosion Anti-Avoidance Tax (“BEAT”). However,
the application of the interest limitations and BEAT regime may apply in the future, depending on changes in the Company’s
business model or the level of taxable income in any given year. Additionally, the Company is no longer able to deduct
performance-based compensation for its covered employees which exceeds the limitation under amended Internal Revenue
Code Section 162(m). These impacts are included in the calculation of the Company’s effective tax rate.
During 2017, the Company provisionally recognized an income tax expense of $72 million associated with the Act, comprised
of one-time transition tax of $37 million and $35 million remeasurement of its net U.S. deferred tax assets based on the federal
statutory rate of 21%.
During 2018, the Company finalized its analysis of the Act, including the one-time transition tax and measurement of net
deferred tax assets, and recorded a $3 million income tax benefit for the year ended December 31, 2018 as a result of
differences between its final analysis and provisional analysis from the prior year. The final analysis included both federal and
state tax effects based on legislative pronouncements through December 31, 2018. The Company also utilized a total of $28
million of available net operating losses, research and development credits, alternative minimum tax credits, and foreign tax
credits, in order to reduce its future cash payments for the one-time transition tax, resulting in a net liability for the one-time
transition tax of $6 million, of which $1 million has been classified as a short term liability and $5 million as a long term
liability. The final one-time transition tax installment payment will be made in 2024.
See Note 14, Income Taxes in the Notes to Consolidated Financial Statements for further information.
28
Results of Operations: Year Ended 2018 versus 2017 and Year Ended 2017 versus 2016
Consolidated Results of Operations
(amounts in millions, except percentages)
Net sales
Gross profit
Operating expenses
Operating income
Gross margin
$
$
Year Ended December 31,
2018
2017
2016
Percent
Change
2018 vs 2017
Percent
Change
2017 vs 2016
$
$
4,218
1,981
1,371
610
47.0%
$
$
3,722
1,710
1,388
322
45.9%
3,574
1,642
1,562
80
45.9 %
13.3 %
15.8 %
(1.2)%
89.4 %
4.1 %
4.1 %
(11.1)%
302.5 %
Net sales to customers by geographic region were as follows (amounts in millions, except percentages):
North America
Europe, Middle East, and Africa
Asia-Pacific
Latin America
Total Net sales
Year Ended December 31,
2018
2017
2016
Percent
Change
2018 vs 2017
Percent
Change
2017 vs 2016
$
$
2,041 $
1,409
520
248
4,218 $
1,798 $
1,221
468
235
3,722 $
1,739
1,138
483
214
3,574
13.5%
15.4%
11.1%
5.5%
13.3%
3.4 %
7.3 %
(3.1)%
9.8 %
4.1 %
Operating expenses are summarized below (amounts in millions, except percentages):
Year Ended December 31,
As Percentage of Net sales
2018
2017
2016
2018
2017
2016
Selling and marketing
Research and development
General and administrative
Amortization of intangible assets
Acquisition and integration costs
Impairment of goodwill and other
intangibles
Exit and restructuring costs
Total Operating expenses
$
$
483 $
444
328
97
8
448 $
389
301
184
50
444
376
307
229
125
—
11
1,371 $
—
16
1,388 $
62
19
1,562
11.5%
10.5%
7.8%
NM
NM
NM
NM
12.0%
10.5%
8.1%
NM
NM
NM
NM
12.4 %
10.5 %
8.6 %
NM
NM
NM
NM
32.5%
37.3%
43.7 %
Consolidated Organic Net sales growth:
Reported GAAP Consolidated Net sales growth
Adjustments:
Impact of foreign currency translation (1)
Impact of Xplore acquisition (2)
Impact of Wireless LAN divestiture (3)
Corporate, eliminations (4)
Consolidated Organic Net sales growth
Year Ended December 31,
2018
2017
13.3 %
4.1 %
(1.6)%
(0.6)%
— %
— %
11.1 %
(0.6)%
— %
3.2 %
(0.2)%
6.5 %
(1) Operating results reported in U.S. dollars are affected by foreign currency exchange rate fluctuations.
Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the
29
currency exchange rates used to convert the results for businesses where the functional currency is not the U.S.
dollar. This impact is calculated by translating, for certain currencies, the current period results at the currency exchange
rates used in the comparable prior year period, rather than the exchange rates in effect during the current period. In
addition, we exclude the impact of the company’s foreign currency hedging program in both the current and prior year
periods.
(2) For purposes of computing Organic Net sales, amounts directly attributable to the Xplore acquisition (included in our
consolidated results beginning August 14, 2018) will be excluded for 12 months following the acquisition date.
(3) The Company sold the WLAN business in October 2016. The Company excludes the impact of the Net sales of this
business in 2016 when computing Organic Net sales growth.
(4) Amounts included in Corporate, eliminations consist of purchase accounting adjustments not reported in segments related
to the Enterprise acquisition.
2018 compared to 2017
Net sales increased by $496 million or 13.3% compared with the prior year, reflecting growth across all regions, most notably
North America, EMEA and Asia-Pacific. The increase in Net sales was primarily due to higher sales of mobile computing,
barcode printing and data capture products. Net sales growth was also positively impacted by currency changes, primarily in the
EMEA region, as well as the inclusion of Xplore. Consolidated Organic Net sales growth was 11.1%.
Gross margin increased to 47.0% in the current year compared to 45.9% in the prior year. Gross margin improvement was
driven by higher margins in both the EVM and AIT segments primarily due to operational efficiencies, favorable business mix
as well as favorable foreign currency changes.
Operating expenses for the years ended December 31, 2018 and 2017 were $1.4 billion, or 32.5% and 37.3% of Net sales,
respectively. As a percentage of Net sales, operating costs continue trending favorably primarily due to lower intangible asset
amortization expense and acquisition and integration charges. The lower amortization expense results from certain acquired
intangible assets becoming fully amortized in 2017. Additionally, the Company had lower acquisition and integration charges in
the current year as the Enterprise business integration activities were substantially completed during 2017. Current operating
costs reflect higher compensation costs, which include the impact of higher incentive-based compensation associated with
financial performance, a $13 million pretax charge related to a legal settlement included within general and administrative
expense, investments to accelerate organic growth, as well as the inclusion of Xplore.
Operating income was $610 million for the current year, compared to $322 million for the prior year. The increase was
primarily due to higher Net sales and Gross profit as well as lower Operating expenses.
Total Other expenses, net was $86 million for the current year, compared to $234 million for the prior year. The decrease was
primarily due to $81 million reduction of debt extinguishment and modification costs versus the prior year. The current year
also benefited from lower outstanding debt and interest rates, a $10 million gain on sale of certain investments, and a $6 million
increase in interest rate swap gains.
The Company recognized income tax expense of $103 million and $71 million for the years ended December 31, 2018 and
2017, respectively. The Company’s effective tax rates were 19.7% and 80.7% as of December 31, 2018 and 2017, respectively.
The decrease in the effective tax rate in the current year versus the prior year is primarily due to favorable year-over-year
impacts of U.S. Tax Reform, changes in valuation allowances, U.S. impacts of the Enterprise acquisition as well as uncertain
tax benefits, partially offset by the benefits of net foreign deferred tax asset remeasurements and intercompany asset transfers
recorded in the prior year as well as reduced year-over-year favorability of foreign income taxes.
2017 compared to 2016
Net sales increased by $148 million or 4.1% compared with the prior year period. The increase in Net sales was due to higher
hardware sales in North America, EMEA, and Latin America, offset by lower hardware sales in Asia-Pacific. The increase in
hardware sales was largely attributable to increased sales of mobile computing, data capture, and barcode printing products,
partially offset by the impact of the divestiture of the WLAN business in October 2016. Services sales were lower primarily due
30
to the impact of the WLAN divestiture. Organic net sales growth was 6.5%, reflecting growth in all four geographic regions,
most notably in EMEA, North America, and Latin America.
Gross margin was 45.9% in both the current and prior year periods. This reflects an increase in gross margin in the EVM
segment primarily due to changes in business mix and operational efficiencies, offset by lower AIT segment gross margin
driven primarily by higher overhead and service costs, as well as increased customer sales incentives.
Operating expenses for the year ended December 31, 2017 and 2016, were $1.4 billion, or 37.3% of Net sales, and $1.6 billion,
or 43.7% of Net sales, respectively. The reduction in operating expenses was primarily due to impairment charges related to the
disposal of the Company’s WLAN business in the prior year, lower acquisition and integration costs, and lower amortization of
intangible assets. During 2017, the Company substantially completed its integration activities, including the implementation of
a common enterprise resource planning system, associated with the Enterprise acquisition. The Company also exited the
transition service agreements with MSI. The decrease in amortization of intangible assets was due to certain assets reaching full
amortization in 2017. Exit and restructuring costs were also lower than the prior year due to the prior year including costs
associated with the divestiture of the WLAN business. Research and development costs were higher primarily due to increased
incentive compensation expense associated with improved financial performance, partially offset by the impact of the
divestiture of the WLAN business. General and administrative expenses were lower compared to the prior year due primarily to
reduced facility and IT expenses, professional fees, and employee benefit costs, as well as the impact of the divestiture of the
WLAN business being offset partially by increased incentive compensation expense associated with improved financial
performance.
Operating income increased $242 million compared to the prior year. The increase was primarily due to the decline in
Operating expenses as well as the increase in Net sales and Gross profit.
Total Other expenses, net was $234 million for the current year, compared to $209 million for the prior year. The increase was
primarily driven by $65 million of payments for early extinguishment and $16 million of accelerated amortization of debt
issuance costs related to the redemption of $1.1 billion senior notes in the current year, partially offset by the impact of early
repayments of debt and lower interest rates as well as lower long-term investment impairment charges in the current year.
The Company recognized income tax expense of $71 million and $8 million for the years ended December 31, 2017 and 2016,
respectively. The Company’s effective tax rates were 80.7% and (6.2)% for the years ended December 31, 2017 and December
31, 2016, respectively. The increase in income tax expense in 2017 was primarily due to improvement in pre-tax operating
results as well as the one-time unfavorable impacts of U.S. Tax Reform, and unfavorable changes in valuation allowances as
well as uncertain tax benefits, which were partially offset by the benefits of net foreign deferred tax asset remeasurements and
intercompany asset transfers in 2017 as well as favorability of foreign income taxes.
Results of Operations by Segment
The following commentary should be read in conjunction with the financial results of each operating business segment as
detailed in Note 18, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements. Segment
results exclude purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs,
impairment of goodwill and intangibles, and exit and restructuring costs. Segment results reflect a current year revision to the
Company’s operating cost allocation methodologies which more accurately reflects where costs are being incurred. The effect
of this revision on prior periods resulted in $14 million and $41 million of operating expenses being reclassified from AIT to
EVM for the years ended December 31, 2017 and 2016, respectively.
31
Asset Intelligence & Tracking Segment (“AIT”)
(amounts in millions, except percentages)
Year Ended December 31,
2018
2017
2016
Percent
Change
2018 vs 2017
Percent
Change
2017 vs 2016
$
1,423
710
385
325
49.9 %
$
Net sales
Gross profit
Operating expenses
Operating income
Gross margin
AIT Organic Net sales growth:
$
$
AIT Reported GAAP Net sales growth
Adjustments:
Impact of foreign currency translations (1)
AIT Organic Net sales growth
$
$
1,311
640
366
274
48.8%
1,247
620
339
281
49.7%
8.5 %
10.9 %
5.2 %
18.6 %
5.1 %
3.2 %
8.0 %
(2.5)%
December 31,
2018
2017
8.5 %
5.1 %
(1.5)%
7.0 %
(0.5)%
4.6 %
(1) Operating results reported in U.S. dollars are affected by foreign currency exchange rate fluctuations. Foreign currency
translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates
used to convert the results for businesses where the functional currency is not the U.S. dollar. This impact is calculated by
translating, for certain currencies, the current period results at the currency exchange rates used in the comparable prior
year period, rather than the exchange rates in effect during the current period. In addition, we exclude the impact of the
company’s foreign currency hedging program in both the current and prior year periods.
2018 compared to 2017
Net sales for AIT increased $112 million or 8.5% compared to the prior year. The increase in Net sales was primarily due to
higher sales of barcode printing products being partially offset by declines in card printer sales. Barcode printer growth was
broad based across all major product lines and led by North America, Asia-Pacific, and EMEA regions. Net sales growth was
also positively impacted by currency changes, primarily in the EMEA region. AIT Organic Net sales growth for the year ended
December 31, 2018 was 7.0%.
Gross margin increased to 49.9% in the current year compared to 48.8% for the prior year. The increase was primarily driven by
favorable product mix, operational efficiencies and the favorable impact of currency changes.
Operating income for the current period increased 18.6% primarily due to higher Net sales and Gross profit partially offset by
higher Operating expenses.
2017 compared to 2016
AIT Net sales for the year ended December 31, 2017 increased $64 million or 5.1% compared to the prior year. The increase in
Net sales was largely driven by higher sales of barcode and card printers, primarily in the EMEA and Asia-Pacific regions.
Sales of supplies and services were also higher than the prior year. The year-on-year growth also reflects a price concession to
distributors of barcode printer products imported into China in the third quarter of 2016. During 2017, no additional price
concession provisions were required and a reduction of the 2016 provision was recorded due to a change in import
classification for barcode printers. AIT Organic Net sales growth for the year ended December 31, 2017 was 4.6%.
Gross margin was 48.8% compared to 49.7% for comparable prior year. The decrease in gross margin reflects higher overhead
costs, including freight and costs associated with our regional distribution center transitions, higher services costs and increased
32
customer sales incentives, offset partially by lower provisions for price concessions to distributors of barcode printer products
imported into China.
Operating income decreased 2.5% as higher Net sales and Gross profit were more than offset by higher Operating expenses.
Enterprise Visibility & Mobility Segment (“EVM”)
(amounts in millions, except percentages)
Year Ended December 31,
2018
2017
2016
Percent
Change
2018 vs 2017
Percent
Change
2017 vs 2016
$
$
2,795
1,274
870
404
45.6 %
Net sales
Gross profit
Operating expenses
Operating income
Gross margin
EVM Organic Net sales growth:
$
$
EVM Reported GAAP Net sales growth
Adjustments:
Impact of foreign currency translation (1)
Impact of Xplore acquisition (2)
Impact of Wireless LAN Divestiture (3)
EVM Organic Net sales growth
$
$
2,414
1,073
772
301
44.4%
2,337
1,032
787
245
44.2%
15.8 %
18.7 %
12.7 %
34.2 %
3.3 %
4.0 %
(1.9)%
22.9 %
December 31,
2018
2017
15.8 %
3.3 %
(1.6)%
(0.8)%
— %
13.4 %
(0.7)%
— %
4.9 %
7.5 %
(1) Operating results reported in U.S. dollars are affected by foreign currency exchange rate fluctuations.
Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the
currency exchange rates used to convert the results for businesses where the functional currency is not the U.S.
dollar. This impact is calculated by translating, for certain currencies, the current period results at the currency exchange
rates used in the comparable prior year period, rather than the exchange rates in effect during the current period. In
addition, we exclude the impact of the company’s foreign currency hedging program in both the current and prior year
periods.
(2) For purposes of computing Organic Net sales, amounts directly attributable to the Xplore acquisition (included in our
consolidated results beginning August 14, 2018) will be excluded for 12 months following the acquisition date.
(3) The Company sold the WLAN business in October 2016. The Company excludes the impact of the Net sales of this
business in 2016 when computing Organic Net sales growth.
2018 compared to 2017
Net sales for EVM increased $381 million or 15.8% compared to the prior year. The increase in Net sales was primarily
attributable to strong global sales of mobile computing and data capture products, most notably in North America, EMEA and
Asia-Pacific regions. Net sales growth was also positively impacted by currency changes, primarily in the EMEA region, as
well as the inclusion of Xplore. EVM Organic Net sales growth was 13.4%.
Gross margin increased to 45.6% in the current year as compared to 44.4% in the prior year. The increase was primarily due to
favorable product mix, operational efficiencies, and the positive impact of currency changes.
Operating income for the current year increased 34.2% due to higher Net sales and Gross profit that were partially offset by
higher Operating expenses.
33
2017 compared to 2016
EVM Net sales for the year ended December 31, 2017 increased $77 million or 3.3% compared to prior year. The increase in
Net sales was primarily driven by higher sales of mobile computing and data capture products, primarily in the North America
and EMEA regions, partially offset by impact of the divestiture of the WLAN business in October 2016. EVM Organic Net
sales growth for the year ended December 31, 2017 was 7.5%.
Gross margin for the year ended December 31, 2017 was 44.4% compared to 44.2% in the prior year. The increase in gross
margin primarily reflects changes in product mix and improvements in hardware product costs.
Operating income increased 22.9% primarily as a result of higher Net sales and Gross profit as well as lower Operating
expenses.
Critical Accounting Policies and Estimates
Management prepared the consolidated financial statements of the Company under accounting principles generally accepted in
the United States of America. The application of these principles requires the use of estimates, judgments, and assumptions
which affect the amounts reported in our consolidated financial statements. We believe that our estimates, judgments, and
assumptions are reasonable based upon available information. Our more significant estimates and assumptions include those
related to the measurement and recognition of income tax assets and liabilities, development of reporting unit fair values as part
of our annual goodwill impairment testing, and the allocation of transaction price to performance obligations in certain revenue
transactions. See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements for additional
discussion of these as well as other accounting policies.
Recently Issued Accounting Pronouncements
See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
The primary factors that influence our liquidity include, but are not limited to, the amount and timing of our revenues, cash
collections from our customers, cash payments to our suppliers, capital expenditures, repatriation of foreign cash and
investments, and acquisitions of third-parties. Management believes that our existing capital resources and funds generated
from operations are sufficient to meet anticipated capital requirements and service our indebtedness. The following table
summarizes our cash flow activities for the years indicated (in millions):
Cash flow (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of exchange rates on cash balances
Net decrease in cash and cash equivalents
Year Ended December 31,
2018
2017
2016
$
$
785 $
(137)
(661)
(5)
(18) $
478 $
(51)
(517)
(4)
(94) $
380
(39)
(384)
7
(36)
The change in our cash and cash equivalents balance is reflective of the following:
2018 vs. 2017
Cash flows from operations increased by $307 million during 2018 to $785 million. The increase was primarily due to higher
net income, favorable changes in accounts payable due primarily to timing of payments and extension of contractual payment
terms, lower cash payments for interest, and commencement of our Receivables Factoring program. These were partially offset
by unfavorable timing of accounts receivable collections.
The increase in net cash used in investing activities was driven by the acquisition of Xplore and higher capital expenditures.
34
Net cash used in financing activities during the year ended December 31, 2018 consisted primarily of net debt repayments of
$657 million compared to $454 million during the year ended December 31, 2017. The net debt repayment activities in 2017
also included $65 million of debt extinguishment costs associated with the full redemption of $1.1 billion in debt obligations.
2017 vs. 2016
Cash flows from operations increased $98 million during 2017 to $478 million. This improvement was driven by an increase in
net earnings of $154 million, partially offset by a decline in working capital primarily related to higher inventory levels and
lower accounts payable. Net inventory increased primarily as a result of growth in the business and changes in product mix, an
increased backlog level compared to the prior year, and our recent transition to a new distribution model for our European
operations. In addition, the prior year working capital benefited from the successful renegotiation of longer payment terms with
vendors.
Net cash used in the purchase of property, plant and equipment declined $27 million as compared to the prior year, as capital
expenditures related to the Enterprise acquisition integration were substantially completed in 2016. The prior year investing
activities also included net cash proceeds of $39 million related to the sale of the WLAN business.
Net cash used in financing activities increased by $133 million during 2017 to $517 million. The increase was primarily due to
higher net debt repayments in 2017 as well as $65 million of debt extinguishment costs associated with the full redemption of
$1.1 billion in debt obligations.
Company Debt
The following table shows the carrying value of the Company’s debt (in millions):
Term Loan A
Term Loan B
Revolving Credit Facility
Receivables Financing Facility
Total debt
Less: Debt issuance costs
Less: Unamortized discounts
Less: Current portion of long-term debt
Total long-term debt
December 31,
2018
2017
$
$
608 $
445
408
139
1,600
(5)
(4)
(157)
1,434 $
679
1,160
275
135
2,249
(7)
(15)
(51)
2,176
Credit Facilities
The Company’s debt includes borrowings under Term Loan A, Term Loan B and a multi-currency Revolving Credit Facility, all
maturing in 2021. Borrowings under each instrument bear interest at a variable rate for which the Company has entered into
interest rate swap contracts to manage interest rate exposure. All borrowings under the credit facilities as of December 31, 2018
were denominated in U.S. Dollars, except for €92 million under the Revolving Credit Facility that was borrowed in Euros. The
average interest rates as of December 31, 2018 for Term Loan A, Term Loan B, and the Revolving Credit Facility were 3.84%,
4.09% and 3.26%, respectively. The Company is required to prepay certain amounts in the event of certain circumstances or
transactions. The Company may make prepayments against the Term Loans, in whole or in part, without premium or penalty.
Receivables Financing Facility
In December 2017, the Company entered into a Receivables Financing Facility with a financial institution that has a borrowing
limit of up to $180 million which matures on November 29, 2019. As collateral, the Company pledges a perfected first-priority
security interest in its domestically originated accounts receivables. Borrowings bear interest at a variable rate and are
accounted for as secured borrowings. As of December 31, 2018, the Receivables Financing Facility had an average interest rate
of 3.36% and the Company’s Consolidated Balance Sheets included $459 million of receivables that were pledged, of which
$139 million had been borrowed against and reflected as a component of the Current portion of long-term debt on the
35
Company’s Consolidated Balance Sheets. All borrowings under the Receivable Financing Facility were denominated in U.S.
Dollars.
Both the Revolving Credit Facility and Receivables Financing Facility include terms and conditions that limit the incurrence of
additional borrowings and require that certain financial ratios be maintained at designated levels. As of December 31, 2018, the
Company was in compliance with all debt covenants.
See Note 11, Long-Term Debt in the Notes to Consolidated Financial Statements for further details.
Receivables Factoring
In addition to the Company’s borrowing arrangements described above, the Company entered into a Receivables Factoring
arrangement in December 2018 in order to provide additional liquidity and improve working capital. Under the Receivables
Factoring arrangement, the Company sells certain EMEA-originated receivables to a bank in exchange for cash without
maintaining a beneficial interest in the receivables sold. At any time, the bank’s purchase of eligible receivables is subject to a
maximum of $90 million of uncollected receivables. Transactions under the Receivables Factoring arrangement are accounted
for as sales under ASC 860, Transfers and Servicing of Financial Assets with related cash flows reflected in operating cash
flows. As of December 31, 2018, $33 million of uncollected receivables were sold and removed from the Company’s
Consolidated Balance Sheet.
Cash and Cash Equivalents
Included in the Company’s Cash and cash equivalents are amounts held by foreign subsidiaries. The Company had $39 million
and $54 million of foreign cash and cash equivalents included in the Company’s total cash positions of $44 million and $62
million as of December 31, 2018 and 2017, respectively.
Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to
continue throughout 2019. We believe that our existing cash and investments, borrowings available under our Revolving Credit
Facility and Receivables Financing Facility and funds available from our Receivables Factoring arrangement, combined with
cash flows expected from operations will be sufficient to meet expected operating and investing activities as well as debt
repayment obligation requirements for the next 12 months.
Contractual Obligations
Zebra’s contractual obligations as of December 31, 2018 were as follows (in millions):
Payments due by period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
Operating lease obligations(1)
Deferred compensation liability(2)
Debt principal payments
Interest payments(3)
Purchase obligations(4)
Total
$
$
153 $
17
1,600
160
392
2,322 $
34 $
1
157
64
392
648 $
52 $
1
1,443
96
—
1,592 $
30 $
1
—
—
—
31 $
37
14
—
—
—
51
(1) Includes leases of facilities, distribution centers, and sales and administrative offices that are classified as operating leases.
The contractual obligations above include future minimum payments, including payments for those periods where renewal
options are reasonably certain to be exercised.
(2) These payments relate to obligations under our deferred compensation plan. The deferred compensation plan allows certain
members of management and other highly-compensated employees to defer receipt of a portion of their compensation. The
amount in “More than 5 Years” represents the remaining total balance under the deferred compensation plan to be paid to
participants who have not terminated employment, since we cannot estimate the timings of those terminations and
withdrawals.
36
(3) Payments related to variable interest or interest rate swap agreements are based on applicable rates as of December 31,
2018 plus the specified margin were applicable in the associated agreements for each period presented.
(4) Purchase obligations are for purchases made in the normal course of business to meet operational requirements, primarily
raw materials and finished goods. Purchase obligations included in the table above are based on quarterly forecasted
component and manufacturing requirements and typically provide for fulfillment within agreed upon lead-times and/or
commercially standard lead-times for products.
Uncertain tax benefits of $50 million have been excluded from the above table; of which $20 million is expected to be settled in
the next twelve months and is reflected as a current liability as of December 31, 2018. The remainder is reflected within Other
long-term liabilities as we cannot make a reasonably reliable estimate of the period of cash settlement, if any, with the
respective taxing authority. See Note 14, Income Taxes in the Notes to Consolidated Financial Statements for further
information.
37
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the sensitivity of income to changes in interest rates, commodity prices, and foreign currency changes. Zebra is
exposed to the following types of market risk: interest rates and foreign currency.
Interest Rate Risk
We are exposed to interest rate volatility with regard to existing debt issuances. Primary exposures include LIBOR rates. From
time to time, we use interest rate derivative contracts including interest rate swaps to hedge our exposure to the impact of
interest rate changes on existing debt and future debt issuances to reduce the volatility of our financing costs and, based on
current and projected market conditions, achieve a desired proportion of fixed versus floating-rate debt. Generally, under these
swaps, we agree with a counterparty to exchange floating-rate for fixed-rate interest amounts with an agreed upon notional
principal amount.
As of December 31, 2018, we had $1.6 billion of debt outstanding under our debt facilities, which bears interest determined by
reference to a variable rate index. A one percentage point increase or decrease in interest rates would increase or decrease
annual interest expense by approximately $8 million. This amount includes the impact of an associated forward interest rate
swap outstanding as of December 31, 2018, which was entered into to mitigate the interest rate risk associated with the variable
interest payments on our debt facilities. Refer to Note 10, Derivative Instruments in the Notes to Consolidated Financial
Statements for further discussion of hedging activities.
Foreign Exchange Risk
We provide products and services in over 180 countries throughout the world and, therefore, at times are exposed to risk based
on movements in foreign exchange rates. On occasion, we invoice customers in their local currency and have a resulting foreign
currency denominated revenue transaction and accounts receivable. We also purchase certain raw materials and other items in
foreign currencies. We manage these risks using derivative financial instruments. See Note 10, Derivative Instruments in the
Notes to Consolidated Financial Statements for further discussions of hedging activities.
We are exposed to fluctuations in foreign currency exchange rates, primarily with respect to the Euro, British Pound Sterling,
Czech koruna, Australian dollar, Mexican peso, and Chinese yuan. A one percentage point increase or decrease in exchange
rates relative to the U.S. dollar would increase or decrease our pre-tax income by approximately $1 million. This amount is
inclusive of the impact of associated derivative contracts. We enter into foreign currency forward contracts to hedge against the
effect of exchange rate fluctuations on the Consolidated Balance Sheets of certain entities with exposures denominated in
foreign currencies. These transactions are typically one month in maturity and are not designated as hedges.
38
Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017,
and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
Page
40
41
42
43
44
45
46
39
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Zebra Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Zebra Technologies Corporation (the “Company”) as of
December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial
statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 14, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2005.
Chicago, Illinois
February 14, 2019
40
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
December 31,
2018
2017
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful accounts of $3 million as
of December 31, 2018 and 2017, respectively
Inventories, net
Income tax receivable
Prepaid expenses and other current assets
$
Total Current assets
Property, plant and equipment, net
Goodwill
Other intangibles, net
Long-term deferred income taxes
Other long-term assets
Total Assets
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes payable
Total Current liabilities
Long-term debt
Long-term deferred income taxes
Long-term deferred revenue
Other long-term liabilities
Total Liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued
Class A common stock, $.01 par value; authorized 150,000,0000 shares;
issued 72,151,857 shares
Additional paid-in capital
Treasury stock at cost, 18,280,673 and 18,915,762 shares at December 31,
2018 and December 31, 2017, respectively
Retained earnings
Accumulated other comprehensive income (loss)
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying Notes to Consolidated Financial Statements.
41
$
$
$
44 $
520
520
24
54
1,162
249
2,495
232
114
87
4,339 $
157 $
552
322
210
60
1,301
1,434
8
172
89
3,004
—
1
294
(613)
1,688
(35)
1,335
4,339 $
62
479
458
40
24
1,063
264
2,465
299
119
65
4,275
51
424
296
186
43
1,000
2,176
—
148
117
3,441
—
1
257
(620)
1,248
(52)
834
4,275
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
Year Ended December 31,
2017
2018
2016
$
3,685 $
533
4,218
3,223 $
499
3,722
3,056
518
3,574
1,593
339
1,932
1,642
444
376
307
229
125
62
19
1,562
80
(5)
(193)
(11)
(209)
(129)
8
(137 )
(2.65 )
(2.65 )
1,871
366
2,237
1,981
483
444
328
97
8
—
11
1,371
610
(5)
(91)
10
(86)
524
103
421 $
7.86 $
7.76 $
1,677
335
2,012
1,710
448
389
301
184
50
—
16
1,388
322
(1)
(227)
(6)
(234)
88
71
17 $
0.33 $
0.32 $
Net sales
Tangible products
Services and software
Total Net sales
Cost of sales:
Tangible products
Services and software
Total Cost of sales
Gross profit
Operating expenses:
Selling and marketing
Research and development
General and administrative
Amortization of intangible assets
Acquisition and integration costs
Impairment of goodwill and other intangibles
Exit and restructuring costs
Total Operating expenses
Operating income
Other (expenses) income:
Foreign exchange loss
Interest expense, net
Other, net
Total Other expenses, net
Income (loss) before income tax
Income tax expense
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
$
See accompanying Notes to Consolidated Financial Statements.
42
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Year Ended December 31,
2017
2016
2018
$
421 $
17 $
(137)
21
(15)
9
(13)
438 $
6
2
10 $
7
—
(4)
(134)
Net income (loss)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on anticipated sales hedging
transactions
Unrealized gain on forward interest rate swaps hedging
transactions
Foreign currency translation adjustment
Comprehensive income (loss)
$
See accompanying Notes to Consolidated Financial Statements.
43
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share data)
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Total
1 $
194 $
(631) $
1,377 $
(48) $
893
—
—
—
—
—
—
—
1 $
—
—
—
—
—
—
—
—
1 $
—
—
—
—
—
—
—
—
1 $
(14)
—
3
27
—
25
(8)
—
—
—
—
—
—
—
(137 )
—
—
210 $
—
—
—
(614) $
—
—
—
1,240 $
(9 )
12
—
35
—
—
—
(6)
—
—
—
—
—
—
17
—
—
—
257 $
—
—
—
(620) $
—
—
—
1,248 $
19
(8)
—
45
—
—
18
(11)
—
—
—
—
—
—
421
—
—
—
294 $
—
—
(613) $
—
—
1,688 $
—
—
—
—
—
7
(4)
(45) $
—
—
—
—
—
(15)
6
2
(52) $
—
—
—
—
—
21
9
11
(8 )
3
27
(137 )
7
(4 )
792
9
12
(6 )
35
17
(15 )
6
2
834
19
10
(11 )
45
421
21
9
(13)
(35) $
(13 )
1,335
Class A
Common
Stock
Shares
52,161,851 $
Class A
Common
Stock
Amount
Balance at December 31, 2015
Issuance of treasury shares upon exercise of stock
options, purchases under stock purchase plan and
grants of restricted stock awards, net of cancellations
Shares withheld related to net share settlement
Additional tax benefit resulting from exercise of
options
Share-based compensation
Net loss
Unrealized gain anticipated sales hedging
transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2016
Cumulative effect of change in accounting principle
Issuance of treasury shares upon exercise of stock
options, purchases under stock purchase plan and
grants of restricted stock awards, net of cancellations
Shares withheld related to net share settlement
Share-based compensation
Net income
Unrealized loss on anticipated sales hedging
transactions (net of income taxes)
Unrealized gain on forward interest rate swaps
hedging transactions (net of income taxes)
Foreign currency translation adjustment
Balance at December 31, 2017
Cumulative effect of change in accounting principle
Issuance of treasury shares upon exercise of stock
options, purchases under stock purchase plan and
grants of restricted stock awards, net of cancellations
Shares withheld related to net share settlement
Share-based compensation
Net income
Unrealized gain on anticipated sales hedging
transactions (net of income taxes)
Unrealized gain on forward interest rate swaps
hedging transactions (net of income taxes)
Foreign currency translation adjustment
817,943
(95,206)
—
—
—
—
—
52,884,588 $
—
410,239
(58,732)
—
—
—
—
—
53,236,095 $
—
704,137
(69,048)
—
—
—
—
—
Balance at December 31, 2018
53,871,184 $
See accompanying Notes to Consolidated Financial Statements.
44
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Year Ended December 31,
2017
2016
2018
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
$
421 $
17 $
(137)
Depreciation and amortization
Impairment of goodwill, intangibles and other assets
Investment (Gain)/Loss
Amortization of debt issuance costs and discounts
Share-based compensation
Debt extinguishment costs
Deferred income taxes
Unrealized gain on forward interest rate swaps
Other, net
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories, net
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Other operating activities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired
Purchases of property, plant and equipment
Proceeds from the sale of a business
Proceeds from the sale of long-term investments
Purchases of long-term investments
Net cash used in investing activities
Cash flows from financing activities:
Payments of debt issuance costs and discounts
Proceeds from issuance of long-term debt
Payments of long term-debt
Payments of debt extinguishment costs
Proceeds from exercise of stock options and stock purchase plan purchases
Taxes paid related to net share settlement of equity awards
Net cash used in financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Income taxes paid
Interest paid
See accompanying Notes to Consolidated Financial Statements.
$
$
$
45
175
—
(10)
15
45
1
2
(8)
4
(31)
(43)
(12)
122
35
51
24
(6)
785
(72)
(64)
—
2
(3)
(137)
(2)
909
(1,566)
(1)
10
(11)
(661)
(5)
(18)
62
44 $
263
—
1
38
35
65
(9)
(2)
4
161
(110)
16
(49)
13
17
26
(8)
478
—
(50)
—
—
(1)
(51)
(5)
1,371
(1,825)
(65)
12
(5)
(517)
(4)
(94)
156
62 $
76 $
90 $
65 $
195 $
304
62
7
23
27
—
(44)
—
3
34
34
7
122
(26)
7
(41)
(2)
380
—
(77)
39
—
(1)
(39)
(5)
102
(484)
—
11
(8)
(384)
7
(36)
192
156
81
180
ZEBRA TECHNOLOGIES CORPORATIONAND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description of Business and Basis of Presentation
Zebra Technologies Corporation and its wholly-owned subsidiaries (“Zebra” or the “Company”) is a global leader providing
innovative Enterprise Asset Intelligence (“EAI”) solutions in the automatic identification and data capture solutions industry.
We design, manufacture, and sell a broad range of products that capture and move data. We also provide a full range of
services, including maintenance, technical support, repair, and managed services, including cloud-based subscriptions. End-
users of our products and services include those in retail and e-commerce, transportation and logistics, manufacturing,
healthcare, hospitality, warehouse and distribution, energy and utilities, and education industries around the world. We provide
our products and services globally through a direct sales force and an extensive network of channel partners.
The Company reclassified $41 million of costs from Accrued liabilities to Accounts payable on the Consolidated Balance
Sheets for the year ended December 31, 2017 to conform to the current year presentation. This reclassification was made to the
Consolidated Balance Sheets to more accurately present these current liabilities. A similar reclassification was made to the
Consolidated Statement of Cash Flows resulting in a change to Accounts payable and Accrued liabilities within Net cash
provided by operating activities for the years ended December 31, 2017 and 2016.
Note 2 Significant Accounting Policies
Principles of Consolidation
These accompanying consolidated financial statements were prepared in accordance with accounting principles generally
accepted in the United States and include the accounts of Zebra and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Calendar
The Company’s fiscal year is a 52-week period ending on December 31. Interim fiscal quarters end on a Saturday and generally
include 13 weeks of operating activity. During the 2018 fiscal year, the Company’s quarter end dates were March 31, June 30,
September 29 and December 31.
Use of Estimates
These consolidated financial statements were prepared using estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. Examples of accounting estimates include: cash
flow projections and other valuation assumptions included in business acquisition purchase price allocations as well as annual
goodwill impairment testing; the allocation of transaction price to performance obligations in revenue transactions; inventory
and product warranty reserves; useful lives of our tangible and intangible assets; and the recognition and measurement of
income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions
that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash consists primarily of deposits with banks. In addition, the Company considers highly liquid short-term investments with
original maturities of less than three months to be cash equivalents. These highly liquid short-term investments are readily
convertible to known amounts of cash and are so near their maturity that they present insignificant risk of a change in value
because of changes in interest rates.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist primarily of amounts due to us from our customers in the course of normal business activities.
Collateral on trade accounts receivable is generally not required. The Company maintains an allowance for doubtful accounts
for estimated uncollectible accounts receivable. The allowance is based on historical experience and our assessment of
46
delinquent accounts. Accounts are written off against the allowance account when they are determined to be no longer
collectible.
Inventories
Inventories are stated at the lower of a moving-average cost (which approximates cost on a first-in, first-out basis) and net
realizable value. Manufactured inventory cost includes materials, labor, and manufacturing overhead. Purchased inventory cost
also includes internal purchasing overhead costs.
Provisions are made to reduce excess and obsolete inventories to their estimated net realizable values. Inventory provisions are
based on forecasted demand, experience with specific customers, the age and nature of the inventory, and the ability to
redistribute inventory to other programs or to rework other consumable inventory.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the various classes of property, plant and equipment, which are 30 years for buildings and range from 3
to 10 years for all other asset categories. Leasehold improvements are amortized using the straight-line method over the shorter
of the lease term or 10 years.
Income Taxes
The Company accounts for income taxes under the liability method in accordance with ASC 740, Income Taxes. Accordingly,
deferred income taxes are provided for the future tax consequences attributable to differences between the carrying amounts of
assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities are measured using tax
rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance
is established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The
Company recognizes the benefit of tax positions when it is more likely than not to be sustained on its technical merits. The
Company recognizes interest and penalties related to income tax matters as part of income tax expense. The Company has
elected consolidated tax filings in certain of its jurisdictions which may allow the group to offset one member’s income with
losses of other members in the current period and on a carryover basis. The income tax effects of non-inventory intra-entity
asset transfers are recognized in the period in which the transfer occurs. The Company classifies its balance sheet accounts by
applying jurisdictional netting principles for locations where consolidated tax filing elections are in place.
The Tax Cut and Jobs Act (“TCJA” or “the Act”) enacted on December 22, 2017 contains the Global Intangible Low-Taxed
Income and Deduction for Foreign-Derived Intangible Income provisions (collectively referred to as “GILTI”), which relate to
the taxation of certain foreign income and are effective for tax years beginning on or after January 1, 2018. The Company
recognizes its GILTI inclusions as a charge to tax expense in the year included in its U.S. tax return.
The effects of changes in tax rates and laws on deferred tax balances are recorded in the period of enactment as a component of
income tax expense within continuing operations, even if they relate to items recorded within accumulated other comprehensive
income (loss) (“AOCI”). The Company has elected to not reclassify the tax effects of these changes associated with the Act
from AOCI to retained earnings. Such tax effects will be released into earnings when the underlying portfolio of assets or
liabilities giving rise to the AOCI position are fully derecognized.
Goodwill
Goodwill is not amortized, rather it is tested annually for impairment, or more frequently if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Our annual
impairment testing consists of comparing the estimated fair value of each reporting unit to it carrying value. If the carrying
value of a reporting unit exceeds its estimated fair value, goodwill would be considered to be impaired and reduced to its
implied fair value. We estimate the fair value of reporting units with valuation techniques including both the income and market
approaches. The income approach requires management to estimate a number of factors for each reporting unit, including
projected future operating results, economic projections, anticipated future cash flows and discount rates. The market approach
estimates fair value using comparable marketplace fair value data from within a comparable industry group.
47
Fair value determinations require judgment and are sensitive to changes in underlying assumptions, estimates as well as market
factors. Estimating the fair value of reporting units requires that we make a number of assumptions and estimates regarding our
long-term growth and cash flow expectations as well as overall industry and economic conditions. These estimates and
assumptions include, but are not limited to, projections of revenue and income growth rates, capital investments, competitive
and customer trends, appropriate peer group selection, market-based discount rates and other market factors.
We performed our annual goodwill impairment testing in the fourth quarter of 2018 using a quantitative approach which did not
result in any impairments. See Note 6, Goodwill and Other Intangibles, net for additional information. We believe our fair
value estimates are reasonable. If actual financial results differ materially from current estimates or there are significant
negative changes in market factors beyond our control, there could be an impairment of goodwill in the future.
Other Intangible Assets
Other intangible assets consist primarily of current technology, customer relationships, trade names, unpatented technology, and
patents and patent rights. These assets are recorded at cost and amortized on a straight-line basis over the asset’s useful life
which range from 3 years to 15 years.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company accounts for long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment
which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to the sum of the undiscounted cash flows
expected to result from the use and the eventual disposition of the asset. If such assets are impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Investments in Equity Securities
The Company’s investments in equity securities are accounted for at cost, adjusted for impairment losses or changes resulting
from observable price changes in orderly transactions for the identical or similar investment of the same issuer. These
investments are primarily in venture capital backed technology companies, where the Company's ownership interest is less than
20% of each investee and the Company does not have the ability to exercise significant influence. The Company held
investments in equity securities in the amount of $25 million as of December 31, 2018 and 2017, respectively. These
investments are included in Other long-term assets on the Consolidated Balance Sheets. During the fiscal year ended
December 31, 2018, the Company recognized a pre-tax gain upon the sale of investments in equity securities totaling $10
million. The Company recognized impairment losses of $0 million, $1 million, and $7 million during the fiscal years ended
December 31, 2018, 2017, and 2016, respectively. These gains and losses were included within Other, net in the Consolidated
Statements of Operations.
Revenue Recognition
Revenue includes sales of hardware, supplies and services (including repair services and product maintenance service contracts,
which typically occur over time, and professional services such as installation, integration and provisioning, which typically
occur in the early stages of a project). The average life of repair and maintenance service contracts is approximately three years.
Professional service arrangements range in duration from a day to several weeks or months. We recognize revenues when we
transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect
to receive in exchange for those goods or services.
The Company elects to exclude from the transaction price sales and other taxes assessed by a governmental authority and
collected by the Company from a customer. The Company also considers shipping and handling activities as part of the
fulfillment costs, not as a separate performance obligation. See Note 3, Revenues for additional information.
Research and Development Costs
Research and development (“R&D”) costs are expensed as incurred, and include:
• Salaries, benefits, and other R&D personnel related costs;
48
• Consulting and other outside services used in the R&D process;
• Engineering supplies;
• Engineering related information systems costs; and
• Allocation of building and related costs.
Advertising
Advertising is expensed as incurred. Advertising costs totaled $18 million each for the years ended 2018, 2017 and 2016,
respectively.
Warranty
In general, the Company provides warranty coverage of one year on mobile computers, printers and batteries. Advanced data
capture products are warrantied from one to five years, depending on the product. Thermal printheads are warrantied for six
months and battery-based products, such as location tags, are covered by a 90-day warranty. A provision for warranty expense
is adjusted quarterly based on historical and expected warranty experience.
Contingencies
The Company establishes a liability for loss contingencies when the loss is both probable and estimable. In addition, for some
matters for which a loss is probable or reasonably possible, an estimate of the amount of loss or range of loss is not possible,
and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-
monetary remedies.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Our financial assets and liabilities that require recognition and fair value
measurement under the accounting guidance generally include our employee deferred compensation plan investments, foreign
currency derivatives, and interest rate swaps. In accordance with ASC 815, Derivatives and Hedging, we recognize derivative
instruments and hedging activities as either assets or liabilities on the Consolidated Balance Sheets and measure them at fair
value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and
whether it is designated and qualifies for hedge accounting. See Note 10, Derivative Instruments for additional information on
the Company’s derivatives and hedging activities.
The Company utilizes foreign currency forwards to hedge certain foreign currency exposures and interest rate swaps to hedge a
portion of the variability in future cash flows on debt. We use broker quotations or market transactions, in either the listed or
over-the-counter markets to value our foreign currency exchange contracts and relevant observable market inputs at quoted
intervals, such as forward yield curves and the Company’s own credit risk to value our interest rate swaps.
The Company’s securities held for its deferred compensation plans are measured at fair value using quoted prices in active
markets for identical assets. If active markets for identical assets are not available to determine fair value, then we use quoted
prices for similar assets or inputs that are observable either directly or indirectly.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-
term nature of these financial instruments. See Note 9, Fair Value Measurements for financial assets and liabilities carried at
fair value.
Share-Based Compensation
The Company has share-based compensation plans and an employee stock purchase plan under which shares of Class A
Common Stock are available for future grants and sales. The Company recognizes compensation costs over the vesting period
of up to 4 years, net of estimated forfeitures. Compensation costs associated with awards with graded vesting terms are
recognized on a straight-line basis. See Note 13, Share-Based Compensation for additional information.
Foreign Currency Translation
The balance sheet accounts of the Company’s subsidiaries that have not designated the U.S. dollar as its functional currency,
are translated into U.S. dollars using the year-end exchange rate, and statement of earnings items are translated using the
49
average exchange rate for the year. The resulting translation gains or losses are recorded in Stockholders’ equity as a cumulative
translation adjustment, which is a component of AOCI within the Consolidated Balance Sheets.
Acquisitions
We account for acquired businesses using the acquisition method of accounting. This method requires that the purchase price be
allocated to the identifiable assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase
price over the identifiable assets acquired and liabilities assumed is recorded as goodwill.
The estimates used to determine the fair value of long-lived assets, such as intangible assets, can be complex and require
judgment. We use information available to us to make fair value determinations and engage independent valuation specialists,
when necessary, to assist in the fair value determination of significant acquired long-lived assets. While we use our best
estimates and assumptions as a part of the purchase price allocation process, our estimates are inherently uncertain and subject
to refinement during the measurement period. Critical estimates in valuing certain intangible assets include, but are not limited
to, future expected cash flows from revenues and operating activities, customer attrition rates, and discount rates.
Management’s estimates of fair value are based upon assumptions believed to be reasonable, but due to the inherent uncertainty
during the measurement period, we may record adjustments to the fair value of assets acquired and liabilities assumed, with the
corresponding adjustment to goodwill.
Recently Adopted Accounting Pronouncements
On January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”)
applying the modified retrospective method to those contracts which were not completed as of January 1, 2018. Results for
reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under ASC 605, Revenue Recognition (“ASC 605”).
Under ASC 606, revenue is recognized upon the transfer of control of goods or services under a five-step model, whereas under
ASC 605 revenue was recognized under a risk and reward-based model. The adoption of ASC 606 did not have a material effect
on the Company’s consolidated financial statements or results of operations.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet related to the adoption of ASC
606 were as follows (in millions):
Assets:
Inventories, net (1)
Prepaid expenses and other current assets (2)
Long-term deferred income taxes (3)
Other long-term assets (4)
Liabilities:
Deferred revenue (5)
Long-term deferred revenue (6)
Stockholders’ Equity:
Retained earnings
As Reported
December 31,
2017
Adjustment
As Adjusted
January 1,
2018
$
458 $
24
119
65
186
148
(3) $
7
(5)
12
(2)
(6)
455
31
114
77
184
142
1,248
19
1,267
(1) Reflects an adjustment of $(3) million related to changes in revenue recognition patterns.
(2) Reflects an adjustment of $7 million related to the recognition of contract assets.
(3) Reflects the income tax effect of $(5) million related to the adjustments made for the adoption of ASC 606.
(4) Reflects an adjustment of $12 million related to the capitalization of costs to obtain contracts (primarily comprised of
sales commissions associated with longer term support service contracts).
50
(5) Reflects an adjustment of $(3) million related to reallocation of revenue between performance obligations and $1
million related to changes in the timing of revenue recognition.
(6) Reflects an adjustment of $(6) million related to reallocation of revenue between performance obligations.
Under the modified retrospective method of adoption, we are required to disclose the impact to the Consolidated Financial
Statements had we continued to follow our accounting policies under the previous revenue recognition guidance. Had the
Company applied the previous revenue recognition guidance, revenue would have been $4 million lower for the year ended
December 31, 2018. See Note 3, Revenues for further information.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 amends various aspects of the recognition,
measurement, presentation, and disclosure for financial instruments. The Company adopted this ASU as of January 1, 2018, in
conjunction therewith, the Company elected to measure equity investments without readily determinable fair values at cost,
adjusted only for impairment losses or for observable price changes in orderly transactions for the identical or similar
investment of the same issuer. Prior to ASU 2016-01, such equity investments of the Company were measured at cost, adjusted
only for impairment losses. The adoption of this ASU did not have a material impact to the Company's consolidated financial
statements or related disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) -Measurement of Credit Losses
on Financial Instruments. The new standard requires the measurement and recognition of expected credit losses for financial
assets held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which
will result in more timely recognition of credit losses. There are two transition methods available under the new standard
dependent upon the type of financial instrument, either cumulative effect or prospective. The standard will be effective for the
Company in the first quarter of 2020. Earlier adoption is permitted only for annual periods after December 15, 2018.
Management has assessed the impact of the new standard and determined, based on current operations, that there will not be a
material impact to the Company’s consolidated financial statements and disclosures upon adoption in the first quarter of 2020.
In February 2016, the FASB issued ASU 2016-02, Leases (Subtopic 842). Also, in July 2018, the FASB issued ASU 2018-11,
Leases (Subtopic 842): Targeted Improvements. Together, these ASUs increase the transparency and comparability of
organizations by recognizing Right-of-use (“ROU”) assets and Lease liabilities on the Consolidated Balance Sheets and
disclosing key quantitative and qualitative information about leasing arrangements. The principal difference from previous
guidance is that the ROU assets and Lease liabilities arising from operating leases were not previously recognized in the
Consolidated Balance Sheets. The recognition, measurement and cash flows arising from a lease by a lessee have not
significantly changed. The ASUs will be effective for the Company in the first quarter of 2019. In transition, lessees and lessors
are required to recognize and measure leases at either the beginning of the earliest period presented or the beginning of the
period adopted, using a modified retrospective approach. Management expects to elect to not adjust the comparative reporting
periods, and apply the ASUs beginning in the period of adoption. In transition, there are also a number of optional practical
expedients that entities may elect to apply. Management expects to elect certain practical expedients that it will apply upon
transition, which principally include the election to not reassess existing or expired contracts to determine if such contracts
contain a lease or if the lease classification would differ, as well as the election to not separate lease and non-lease components
for arrangements where the Company is a lessee. Management is finalizing its assessment of the impact of these elections and
adoption of this standard on its consolidated financial statements. Management has identified and collected data on its
significant leases and selected a system to support future accounting and disclosure requirements and expects to recognize ROU
assets related to operating leases of approximately $100 million and Lease liabilities of approximately $120 million on its
Consolidated Balance Sheet upon adoption in the first quarter of 2019. The lease liabilities to be recognized will be measured
based upon the present value of minimum future payments and the ROU assets to be recognized will be equal to lease
liabilities, adjusted for prepaid and accrued rent balances which are recorded in the Consolidated Balance Sheets as of
December 31, 2018.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This
51
ASU clarifies existing guidance related to implementation costs incurred in cloud computing arrangements, including the
recognition, subsequent measurement, and financial statement presentation of such costs. The standard will be effective for the
Company in the first quarter of 2020, with earlier adoption permitted. Management is still assessing the impact of adoption on
its consolidated financial statements.
Note 3 Revenues
As prescribed in ASC 606, the Company recognizes revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
Performance Obligations
We enter into contract arrangements that may include various combinations of tangible products and services, which generally
are capable of being distinct and accounted for as separate performance obligations. For these types of contract arrangements,
we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the
combined or single contract has more than one performance obligation. This evaluation requires judgment and the decision to
combine a group of contracts or separate the combined or single contract into multiple performance obligations could change
the amount of revenue recorded in the reporting period. We use the accounting guidance on “capable of being distinct” and
“distinct within the context of the contract” to assist with the evaluation.
For contract arrangements that include multiple performance obligations, we allocate the total transaction price to each
performance obligation in an amount based on the estimated relative standalone selling prices for the products and/or services
underlying each performance obligation. When the standalone selling prices are not directly observable, we estimate the
standalone selling prices primarily based on the expected cost-plus margin approach. For arrangements comprised strictly of the
sale of product and performance of maintenance type services where the standalone selling price of the maintenance service is
not discernible, we estimate the standalone selling price of the maintenance contract using the residual approach. When the
residual approach cannot be applied, regional pricing, marketing strategies and business practices are evaluated and analyzed to
derive the estimated standalone selling price using a cost-plus margin methodology.
The Company recognizes revenue when transfer of control has occurred for the goods or services sold. Control is deemed to
have been transferred when the customer has the ability to direct the use of and has obtained substantially all of the remaining
benefits from the goods and services sold. The Company uses judgment in the evaluation of the following criteria: 1) the
customer simultaneously receives and consumes the benefits provided by the transfer of goods or service; 2) the performance
creates or enhances an asset that is under control of the customer; 3) the performance does not create an asset with an
alternative use to the Company; and 4) the Company has an enforceable right to payment, in order to determine whether control
transfers at a point in time or over time. For each performance obligation satisfied over time, the Company measures its
progress toward completion to determine the timing of revenue recognition. Judgment is also used in the evaluation of the
following transfer of control criteria: 1) the Company has a present right to payment for the asset; 2) the legal title to the asset
has transferred to the customer; 3) the customer has physical possession of the asset; 4) the customer has the significant risks
and rewards of ownership of the asset; and 5) the customer has accepted the asset, in order to determine when revenue should
be recognized in a point in time revenue recognition pattern. Assuming all other criteria for revenue recognition have been met,
for products and services sold on a standalone basis, revenue is generally recognized upon shipment and by using an output
method or time-based method respectively. In cases where a bundle of products and services are delivered to the customer,
judgment is required to select the method of progress which best reflects the transfer of control.
The Company’s remaining obligations that are greater than one year in duration relate primarily to repair and support services.
The aggregated transaction price allocated to remaining performance obligations related to these types of service arrangements
was $489 million as of December 31, 2018. We expect to recognize these remaining performance obligations over a period of
approximately two years.
For some of our transactions, products are sold with a right of return, and we may also provide other rebates, price protection,
or incentives, which are accounted for as variable consideration. The Company estimates the amount of variable consideration
by using the expected value or the most likely amount method and reduces the revenue by those estimated amounts, only to the
52
extent it is probable that a significant reversal in the cumulative revenue recognized will not occur. These estimates are
reviewed and updated, as necessary, at the end of each reporting period.
Revenue recognized in the reporting period from performance obligations satisfied in previous periods was not material for the
year ended December 31, 2018.
Disaggregation of Revenue
The following table presents our revenues disaggregated by product category for each of our segments, AIT and EVM, for the
year ended December 31, 2018 (in millions):
Segment
AIT
EVM
Total
Year Ended December 31, 2018
Product Category
Services and
Software
Tangible
Products
Total
$
$
1,298 $
2,387
3,685 $
125 $
408
533 $
1,423
2,795
4,218
In addition, refer to Note 18, Segment Information & Geographic Data for Net sales to customers by geographic region.
We recognize revenue arising from performance obligations outlined in contracts with our customers that are satisfied at a point
in time and over time. Substantially all of our revenue for tangible products is recognized at a point in time, whereby revenue
for services and software is predominantly recognized over time.
Contract Balances
Progress on satisfying performance obligations under contracts with customers and the related billings and cash collections are
recorded on the Consolidated Balance Sheets in Accounts receivable, net and Prepaid expenses and other current assets. The
opening and closing contract assets balances were $7 million and $5 million, as of January 1, 2018 and December 31, 2018,
respectively, and were recorded within Prepaid expenses and other current assets on the Consolidated Balance Sheets. These
contract assets result from timing differences between the billing schedule and the products and services delivery schedules, as
well as, the impact from the allocation of the transaction price among performance obligations for contracts that include
multiple performance obligations. Our policy is to test these contract asset balances for impairment in accordance with ASC
310, Receivables. No impairment losses have been recorded for the year ended December 31, 2018.
Deferred revenue on the Consolidated Balance Sheets, consist of payments and billings in advance of our performance. The
combined short-term and long-term deferred revenue balances were $382 million and $334 million as of December 31, 2018
and December 31, 2017, respectively. During the year ended December 31, 2018, the Company recognized $181 million in
revenue which was previously included in the beginning balance of deferred revenue.
Our payment terms vary by the type and location of our customer and the products or services offered. The time between
invoicing and when payment is due is not significant. In instances where the timing of revenue recognition differs from the
timing of invoicing, we have determined that our contracts do not include a significant financing component.
Costs to obtain a contract
Our incremental direct costs of obtaining a contract, which consist of sales commissions and incremental fringe benefits, are
deferred and amortized over the weighted-average contract term, consistent with the guidance in ASC 340 Other Assets and
Deferred Costs. The incremental costs to obtain a contract, which were previously expensed as incurred under ASC 605, and
the determination of the amortization period are derived at a portfolio level and the amortization is recognized on a straight-line
basis. The adoption of ASC 606 required the capitalization of these costs which resulted in an adjustment to increase retained
earnings. The Company recorded a $12 million increase to Other long-term assets on the Consolidated Balance Sheet as of
January 1, 2018. The Company recognized amortization expense related to commissions during the year ended December 31,
53
2018 of $10 million. The ending balance of the deferred commissions was $15 million as of December 31, 2018. The Company
elected a practical expedient permitted by ASC 606, whereby the incremental costs of obtaining a contract are expensed as
incurred if the amortization period of the assets would otherwise be one year or less.
Note 4 Inventories
The components of Inventories, net are as follows (in millions):
Raw material
Work in process
Finished goods
Total
Note 5 Business Acquisition and Divestiture
December 31,
2018
December 31,
2017
$
$
125 $
3
392
520 $
116
1
341
458
Acquisition
On August 14, 2018, the Company acquired all outstanding equity interests of Xplore Technologies Corporation (“Xplore”).
The Xplore business designs, integrates, markets and sells rugged tablets that are primarily used by industrial, government, and
field service organizations. The acquisition of Xplore is intended to expand the Company’s portfolio of mobile computing
devices to serve a wider range of customers.
The Xplore acquisition was accounted for under the acquisition method of accounting for business combinations. In connection
with this acquisition, the Company paid $87 million in cash during the third quarter of 2018, which included, $72 million for
the net assets acquired, a $9 million payment of Xplore debt as well as $6 million of other Xplore transaction-related
obligations. Additionally, we incurred $8 million of cash acquisition-related costs during 2018 (primarily third-party transaction
and advisory fees), which are reflected as Acquisition and integration costs on the Consolidated Statements of Operations.
The Company utilized estimated fair values as of August 14, 2018 to allocate the total consideration paid to the net tangible and
intangible assets acquired and liabilities assumed. The fair value of these net assets acquired was based on a number of
estimates and assumptions as well as customary valuation procedures and techniques, including relief from royalty and excess
earnings methodologies. During the fourth quarter of 2018, the Company recorded measurement period adjustments relating to
facts and circumstances existing as of the acquisition date. The primary measurement period adjustments were $1 million
increase in other liabilities assumed, $1 million decrease in inventory and $2 million increase in goodwill. While we believe
these estimates provide a reasonable basis to record the net assets acquired, the purchase price allocation is considered
preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date of
August 14, 2018. The primary fair value estimates considered preliminary are identifiable intangible assets and income tax-
related items.
The preliminary opening balance sheet of Xplore was included in the Company’s Consolidated Balance Sheet and operating
results beginning August 14, 2018. The Company has not included unaudited proforma results, as if Xplore had been acquired
as of January 1, 2018, as it would not yield materially different results.
The preliminary purchase price allocation, reflecting interim measurement period adjustments, to assets acquired and liabilities
assumed was as follows (in millions):
54
Accounts receivable
Inventory
Identifiable intangible assets
Other assets acquired
Debt
Accounts payable
Deferred revenues
Other liabilities assumed
Net Assets Acquired
Goodwill on acquisition
Total consideration
$
$
$
10
22
32
4
(9)
(8)
(7)
(7)
37
35
72
The $35 million of goodwill will be non-deductible for tax purposes. The goodwill principally relates to the planned expansion
of the Xplore product offerings into current and new markets. This goodwill has been allocated to the EVM segment.
The preliminary purchase price allocation to identifiable intangible assets acquired was:
Customer relationships
Current technology
Trade names
Total identifiable intangible assets
Fair Value
(in millions)
Life
(in years)
$
$
16
15
1
32
9
7
3
Divestiture
On September 13, 2016, the Company entered into an Asset Purchase Agreement with Extreme Networks, Inc. to dispose of the
Company’s wireless LAN (“WLAN”) business. On October 28, 2016, the Company completed the disposition of WLAN and
recorded net proceeds of $39 million. In 2017, the Company and Extreme Networks, Inc. finalized the net working capital
amounts for the Divestiture Group. The finalized amount did not differ materially from the original estimate.
The Company incurred a non-cash pre-tax charge related to the disposal group during the third quarter of 2016. This charge,
which totaled $62 million, consisted of impairments of goodwill for $32 million and other intangibles for $30 million and is
shown separately on the Consolidated Statements of Operations for the year ended December 31, 2016.
WLAN operating results are reported in the EVM segment through the closing date of the WLAN divestiture of October 28,
2016. Within the fiscal year ended December 31, 2016 Consolidated Statement of Operations, the Company generated revenue
and gross profit from these assets of $106 million and $47 million, respectively.
Note 6 Goodwill and Other Intangibles, net
Goodwill
Changes in the net carrying value amount of goodwill were as follows (in millions):
Goodwill as of December 31, 2016
Foreign exchange impact
Goodwill as of December 31, 2017
Xplore acquisition(1)
Foreign exchange impact
Goodwill as of December 31, 2018
55
Total
2,458
7
2,465
35
(5)
2,495
$
$
(1) See Note 5, Business Acquisition and Divestiture for detail on the Xplore acquisition.
As of December 31, 2018, goodwill totaled $2.3 billion for the EVM reportable segment and $154 million for the AIT
reportable segment.
The Company’s goodwill balance consists of five reporting units with an aggregate carrying value of $2.5 billion. The majority
of the goodwill relates to the 2014 Enterprise acquisition. The Company completed its annual goodwill impairment testing
during the fourth quarter of 2018 utilizing a quantitative approach. The estimated fair value of each reporting unit exceeded its
carrying value by at least 40%. There is risk of future impairment to the extent that individual reporting unit performance does
not meet projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth
rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not
met, or if other valuation factors outside of our control change unfavorably, the estimated fair value of our reporting units could
be adversely affected, leading to a potential impairment in the future.
No events occurred during the years ended December 31, 2018 and 2017 that indicated it was more likely than not that our
goodwill was impaired. During the year ended December 31, 2016, goodwill impairment of $32 million was recorded related to
the WLAN business divestiture and reflected within the EVM segment.
Other Intangibles, net
The balances in Other Intangibles, net consisted of the following (in millions):
As of December 31, 2018
As of December 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
Amortized intangible assets
Current technology
Trade Names
Unpatented technology
Patent and patent rights
Customer relationships
Total
$
$
40 $
41
241
233
493
1,048 $
(26) $
(41)
(221)
(223)
(305)
(816) $
14
—
20
10
188
232
$
$
24 $
41
242
235
481
1,023 $
(23) $
(41)
(205)
(215)
(240)
(724) $
1
—
37
20
241
299
Amortization expense was $97 million, $184 million, and $229 million for fiscal years ended 2018, 2017 and 2016,
respectively. Aside from amortization expense, the change in other intangible assets in 2018 relates to the addition of Xplore
acquisition as well as foreign currency translation.
Estimated future intangible asset amortization expense is as follows (in millions):
Year Ended December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Note 7 Property, Plant and Equipment
Property, plant and equipment, net is comprised of the following (in millions):
56
Amount
87
42
41
35
6
21
232
$
$
Buildings
Land
Machinery and equipment
Furniture and office equipment
Software and computer equipment
Leasehold improvements
Projects in progress
Less accumulated depreciation
Property, plant and equipment, net
December 31,
2018
2017
57
7
204
18
161
75
24
546
(297)
249
$
$
54
8
233
19
235
69
23
641
(377)
264
$
$
Depreciation expense was $78 million, $79 million and $75 million for the years ended December 31, 2018, 2017 and 2016,
respectively. The reduction in gross cost and accumulated depreciation balances is due to a significant level of substantially
depreciated asset retirements in the current year.
Note 8 Costs Associated with Exit and Restructuring Activities
In the first quarter of 2017, the Company’s executive leadership approved an initiative to continue the Company’s efforts to
increase operational efficiency (the “Productivity Plan”). The Company expects the Productivity Plan to build upon the exit and
restructuring initiatives specific to the October 2014 acquisition of the Enterprise business from Motorola Solutions, Inc. (the
“Acquisition Plan”). The Company substantially completed all initiatives under the Acquisition Plan as of December 31,
2017. Actions under the Productivity Plan include organizational design changes, process improvements and automation. Exit
and restructuring costs are not included in the operating results of our segments as they do not impact the specific segment
measures as reviewed by our Chief Operating Decision Maker and therefore are reported as a component of Corporate,
eliminations. See Note 18, Segment Information & Geographic Data.
Total exit and restructuring charges of $23 million life-to-date specific to the Productivity Plan have been recorded through
December 31, 2018. Exit and restructuring charges related to the Productivity Plan were $11 million and $12 million for the
years ended December 31, 2018 and 2017, respectively. The Company has substantially completed the activities associated with
this plan.
Total exit and restructuring charges of $69 million life-to-date specific to the Acquisition Plan have been recorded through
December 31, 2018. Exit and restructuring charges were $0 million, $4 million and $19 million for the years ended
December 31, 2018, 2017 and 2016, respectively. There are no remaining charges associated with this plan.
Total life-to-date costs associated with the Productivity Plan and Acquisition Plan of $92 million consist of $80 million related
to severance, stay bonuses, and other employee-related expenses and $12 million related to obligations for future lease
payments.
A rollforward of the exit and restructuring accruals is as follows (in millions):
Balance at beginning of year
Charged to earnings
Cash paid
WLAN Divestiture
Balance at the end of year
Year Ended December 31,
2018
2017
2016
$
$
8 $
11
(14 )
—
5 $
10 $
16
(18)
—
8 $
15
19
(22)
(2)
10
57
The $5 million accrual as of December 31, 2018 is reflected within the Consolidated Balance Sheet as $4 million within
Accrued liabilities and $1 million within Other long-term liabilities. The long-term portion of the accrual relates to non-
cancellable lease payments associated with exited facilities whose latest term expires May 2021.
Note 9 Fair Value Measurements
Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy in accordance with ASC
Topic 820, Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure fair value into the following three broad levels:
Level 1: Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. The fair
value hierarchy gives the highest priority to Level 1 inputs (e.g. U.S. Treasuries & money market funds).
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs to the extent possible. In addition, the Company considers counterparty credit risk in the
assessment of fair value.
The Company’s financial assets and liabilities carried at fair value as of December 31, 2018, are classified below (in millions):
Level 1
Level 2
Level 3
Total
Assets:
Foreign exchange contracts(1)
Forward interest rate swap contracts(2)
Money market investments related to the deferred
compensation plan
Total Assets at fair value
Liabilities:
Liabilities related to the deferred compensation plan
Total Liabilities at fair value
$
$
$
1 $
—
17
18 $
17
17 $
15 $
5
—
20 $
—
— $
— $
—
—
— $
—
— $
16
5
17
38
17
17
The Company’s financial assets and liabilities carried at fair value as of December 31, 2017, are classified below (in millions):
Level 1
Level 2
Level 3
Total
Assets:
Money market investments related to the deferred
compensation plan
Total Assets at fair value
Liabilities:
Forward interest rate swap contracts(2)
Foreign exchange contracts(1)
Liabilities related to the deferred compensation plan
Total Liabilities at fair value
$
$
$
$
15
$
15 $
— $
2
15
17 $
—
$
— $
18 $
9
—
27 $
—
$
— $
— $
—
—
— $
15
15
18
11
15
44
(1) The fair value of the foreign exchange contracts is calculated as follows:
a. Fair value of a put option contract associated with forecasted sales hedges is calculated using bid and ask rates for
similar contracts.
b. Fair value of regular forward contracts associated with forecasted sales hedges is calculated using the year-end
exchange rate adjusted for current forward points.
58
c. Fair value of hedges against net assets is calculated at the year-end exchange rate adjusted for current forward points
unless the hedge has been traded but not settled at year end (Level 2). If this is the case, the fair value is calculated at
the rate at which the hedge is being settled (Level 1).
(2) The fair value of forward interest rate swaps is based upon a valuation model that uses relevant observable market inputs at
the quoted intervals, such as forward yield curves, and is adjusted for the Company’s credit risk and the interest rate swap
terms. See gross balance reporting in Note 10, Derivative Instruments.
Note 10 Derivative Instruments
In the normal course of business, the Company is exposed to global market risks, including the effects of changes in foreign
currency exchange rates and interest rates. The Company uses derivative instruments to manage its exposure to such risks and
may elect to designate certain derivatives as hedging instruments under ASC 815, Derivatives and Hedging. The Company
formally documents all relationships between designated hedging instruments and hedged items as well as its risk management
objectives and strategies for undertaking hedge transactions. The Company does not hold or issue derivatives for trading or
speculative purposes.
In accordance with ASC 815, the Company recognizes derivative instruments as either assets or liabilities on the Consolidated
Balance Sheets and measures them at fair value. The following table presents the fair value of its derivative instruments (in
millions):
Balance Sheets Classification
Fair Values as of December 31,
Asset / (Liability)
2018
2017
Derivative instruments designated as hedges:
Foreign exchange contracts
Foreign exchange contracts
Forward interest rate swaps
Forward interest rate swaps
Total derivative instruments designated as hedges
Derivative instruments not designated as hedges:
Foreign exchange contracts
Forward interest rate swaps
Forward interest rate swaps
Foreign exchange contracts
Forward interest rate swaps
Forward interest rate swaps
Prepaid expenses and other current
assets
Accrued liabilities
Accrued liabilities
Other long-term liabilities
Prepaid expenses and other current
assets
Prepaid expenses and other current
assets
Other long-term assets
Accrued liabilities
Accrued liabilities
Other long-term liabilities
Total derivative instruments not designated as hedges
Total net derivative asset (liability)
$
$
$
$
$
15
—
—
—
15 $
1
$
2
3
—
—
—
6
21 $
—
(9)
(2)
(8)
(19)
—
—
—
(2)
(1)
(7)
(10)
(29)
59
The following table presents the net gains (losses) from changes in fair values of derivatives that are not designated as hedges
(in millions):
Gain (Loss) Recognized in Income
Year Ended December 31,
Statements of Operations
Classification
2018
2017
2016
Derivative instruments not designated as
hedges:
Foreign exchange contracts
Forward interest rate swaps
Foreign exchange loss
Interest expense, net
Total gain (loss) recognized in income
$
$
1 $
8
9 $
(24 ) $
2
(22 ) $
5
—
5
Activities related to derivative instruments are included within Net cash provided by operating activities within the Statements
of Cash Flows.
Credit and Market Risk Management
Financial instruments, including derivatives, expose the Company to counterparty credit risk of nonperformance and to market
risk related to currency exchange rate and interest rate fluctuations. The Company manages its exposure to counterparty credit
risk by establishing minimum credit standards, diversifying its counterparties, and monitoring its concentrations of credit. The
Company’s counterparties are commercial banks with expertise in derivative financial instruments. The Company evaluates the
impact of market risk on the fair value and cash flows of its derivative and other financial instruments by considering
reasonably possible changes in interest rates and currency exchange rates. The Company continually monitors the
creditworthiness of the customers to which it grants credit terms in the normal course of business. The terms and conditions of
the Company’s credit policies are designed to mitigate or eliminate concentrations of credit risk with any single customer.
The Company’s master netting and other similar arrangements with the respective counterparties allow for net settlement under
certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. We elect to
present the assets and liabilities of our derivative financial instruments on a net basis on the Consolidated Balance Sheets. If the
derivative financial instruments had been presented gross on the Consolidated Balance Sheets, the asset and liability positions
each would have been increased by $1 million and $11 million as of December 31, 2018 and 2017, respectively.
Foreign Currency Exchange Risk Management
The Company conducts business on a multinational basis in a wide variety of foreign currencies. Exposure to market risk for
changes in foreign currency exchange rates arises from euro denominated external revenues, cross-border financing activities
between subsidiaries, and foreign currency denominated monetary assets and liabilities. The Company generally seeks to
preserve the economic value of non-functional currency denominated cash flows by reducing transaction exposures with natural
offsets, and secondarily through foreign exchange forward and option contracts, as deemed appropriate.
The Company manages the exchange rate risk of anticipated euro denominated sales by using forward contracts which typically
mature within twelve months of execution. The Company designates these derivative contracts as cash flow hedges. Unrealized
gains and losses on these contracts are deferred in AOCI on the Consolidated Balance Sheets until the contract is settled and the
hedged sale is realized. The realized gain or loss is then recorded as an adjustment to Net sales on the Consolidated Statement
of Operations. Realized gains or (losses) reclassified to Net sales were $13 million, $(8) million, and $(7) million for the years
ending December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, the notional amounts of the
Company’s foreign exchange cash flow hedges were €496 million and €389 million, respectively. The Company has reviewed
its cash flow hedges for effectiveness and determined they are highly effective.
The Company uses forward contracts, which are not designated as hedging instruments, to manage its exposures related to net
assets denominated in foreign currencies. These forward contracts typically mature within one month after execution. Monetary
gains and losses on these forward contracts are recorded in income each quarter and are generally offset by the transaction gains
60
and losses related to their net asset positions. The notional values and the net fair value of these outstanding contracts are as
follows (in millions):
Notional balance of outstanding contracts:
British Pound/U.S. Dollar
Euro/U.S. Dollar
British Pound/Euro
Canadian Dollar/U.S. Dollar
Czech Koruna/U.S. Dollar
Brazilian Real/U.S. Dollar
Australian Dollar/U.S. Dollar
Swedish Krona/U.S. Dollar
Japanese Yen/U.S. Dollar
Singapore Dollar/U.S. Dollar
Mexican Peso/U.S. Dollar
Chinese Yuan/U.S. Dollar
South African Rand/U.S. Dollar
Net fair value of asset (liability) outstanding contracts
December 31,
2018
2017
£
€
£
C$
Kč
R$
A$
kr
¥
S$
Mex$
¥
$
$
1 £
45 €
6 £
6 C$
— Kč
— R$
47 A$
— kr
396 ¥
7 S$
225 Mex$
71 ¥
42 $
1 $
13
108
5
12
361
34
55
13
151
4
—
—
—
(2)
Beginning in the third quarter of 2018, the Company significantly reduced the use of non-designated forward contracts to
manage Euro exposure with the commencement of Euro denominated borrowings on the Revolving Credit Facility. See Note
11, Long-Term Debt.
Interest Rate Risk Management
The Company’s debt consists of borrowings under two term loans (“Term Loan A” and “Term Loan B”, also referred to
collectively as the “Term Loans”), the Revolving Credit Facility and the Receivables Financing Facility which bear interest at
variable rates plus an applicable margin. See Note 11, Long-Term Debt. As a result, the Company is exposed to market risk
associated with the variable interest rate payments on the Term Loans, Revolving Credit Facility and Receivables Financing
Facility.
The Company manages its exposure to changes in interest rates by utilizing interest rate swaps to hedge this exposure and to
achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. The Company
does not enter into derivative instruments for trading or speculative purposes.
In December 2017, the Company entered into a forward long-term interest rate swap agreement with a notional amount of $800
million to lock into a fixed LIBOR interest rate base for debt facilities subject to monthly interest payments, including Term
Loan A, the Revolving Credit Facility and Receivables Financing Facility. Under the terms of the agreement, $800 million in
variable-rate debt will be swapped for a fixed interest rate with net settlement terms due effective starting in December 2018
and ending in December 2022. The changes in fair value of these swaps are not designated as hedges and are recognized
immediately as Interest expense, net on the Consolidated Statement of Operations.
The Company previously had a floating-to-fixed interest rate swap, which was designated as a cash flow hedge. This swap was
terminated and hedge accounting treatment was discontinued in 2014. The terminated swap has approximately $2 million of
pretax losses remaining in AOCI as of December 31, 2018, which will be reclassified into Interest expense, net on the
Consolidated Statements of Operations through June 2021. There was $2 million expensed by the Company in the year ended
December 31, 2018.
During the fourth quarter of 2018, the Company terminated three interest rate swaps. The first swap was entered into with a
syndicated group of commercial banks for the purpose of fixing the interest rate on the Company’s floating-rate debt. The
61
second swap largely offset the first swap, causing interest payments to again be exposed to rate fluctuations. Neither of these
instruments were designated as accounting hedges, with changes in fair value recognized in Interest expense, net on the
Consolidated Statements of Operations. The third interest rate swap converted the floating-rate debt to fixed-rate debt and was
designated as a cash flow hedge. As part of the termination, the Company settled all three swaps resulting in $7 million cash
payment to counterparties that was classified within Net cash provided by operating activities. Hedge accounting treatment was
discontinued on the third swap, which has less than $1 million of pretax losses remaining in AOCI as of December 31, 2018.
This $1 million will be reclassified into Interest expense, net on the Consolidated Statements of Operations through June 2021.
Note 11 Long-Term Debt
The following table shows the carrying value of the Company’s debt (in millions):
Term Loan A
Term Loan B
Revolving Credit Facility
Receivables Financing Facility
Total debt
Less: Debt issuance costs
Less: Unamortized discounts
Less: Current portion of long-term debt
Total long-term debt
December 31,
2018
2017
608 $
445
408
139
1,600
(5)
(4)
(157)
1,434 $
679
1,160
275
135
2,249
(7)
(15)
(51)
2,176
$
$
At December 31, 2018, the future maturities of long-term debt, excluding debt discounts and issuance costs, are as follows (in
millions):
2019
2020
2021
2022
2023
Thereafter
Total future maturities of long-term debt
$
$
157
55
1,388
—
—
—
1,600
All borrowings as of December 31, 2018 were denominated in U.S. Dollars, except for €92 million under the Revolving Credit
Facility that was borrowed in Euros.
The estimated fair value of our long-term debt approximated $1.6 billion and $2.2 billion as of December 31, 2018 and 2017,
respectively. These fair value amounts, developed based on inputs classified as Level 2 within the fair value hierarchy, represent
the estimated value at which the Company’s lenders could trade its debt within the financial markets and does not represent the
settlement value of these long-term debt liabilities to the Company. The fair value of the long-term debt will continue to vary
each period based a number of factors including fluctuations in market interest rates, as well as changes to the Company’s
credit ratings.
Credit Facilities
On July 26, 2017, the Company entered into an Amended and Restated Credit Agreement which provided for the issuance of
Term Loan A and increased funding available under the Revolving Credit Facility to $500 million. In conjunction therewith, the
Company capitalized $5 million of debt issuance costs and partially paid down and repriced Term Loan B. The Company
applied the provisions of ASC Subtopic 470- 50, Modifications and Extinguishments (“ASC 470-50”) on a creditor by creditor
basis concluding that the terms of Term Loan B were not substantially different and that modification accounting was
appropriate to apply. As part of Term Loan B activity, the Company recorded approximately $6 million of pre-tax charges for
62
third-party fees for arranger, legal and other services and accelerated discount and amortization of debt issuance costs within
Other, net on the Company’s Consolidated Statements of Operations.
During 2017, the Company fully redeemed $1.1 billion of outstanding principal of other debt obligations which had a scheduled
maturity in 2022. In accounting for the early termination, the Company applied the provisions of ASC 470-50 and concluded
extinguishment accounting was appropriate to apply. The Company recognized a $65 million make whole premium and $16
million acceleration of debt issuance costs within Interest expense, net on the Company’s Consolidated Statements of
Operations.
On May 31, 2018, the Company entered into Amendment No.1. to the Amended and Restated Credit Agreement (“Amendment
No. 1”). Amendment No. 1 replaced the existing Term Loan A with a new Term Loan A of $670 million and increased the
existing Revolving Credit Facility from $500 million to $800 million. As part of the Amendment No. 1, the Company entered
into a partial early debt termination of $300 million and repricing of Term Loan B, lowering the index rate spread for LIBOR
loans from LIBOR + 200 bp to LIBOR + 175 bp.
In accounting for the impact of Amendment No. 1, the Company applied the provisions of ASC 470-50, which resulted in
approximately $6 million of non-cash accelerated debt issuance cost amortization and approximately $1 million of pre-tax
charges related to third party fees associated with the amendments that are included within Interest expense, net on the
Company’s Consolidated Statements of Operations. Additionally, the issuance of new Term Loan A and the increase to the
Revolving Credit Facility resulted in $2 million of third party fees for arranger, legal, and other services, which were capitalized
and will be amortized over the term of the credit facilities.
As of December 31, 2018, the Term Loan A interest rate was 3.84%, and the Term Loan B interest rate was 4.09%. Borrowings
under the Term Loan A and Term Loan B bear interest at a variable rate plus an applicable margin. Interest payments are
payable monthly or quarterly on Term Loan A and quarterly on Term Loan B.
Amendment No. 1 also requires the Company to prepay certain amounts in the event of certain circumstances or transactions.
The Company may make prepayments against the Term Loans, in whole or in part, without premium or penalty. Under
Amendment No. 1, Term Loan A will mature on July 27, 2021 and Term Loan B will mature on October 27, 2021. The
remaining principal on Term Loan A is due in quarterly installments starting in the third quarter of 2019, with the majority due
upon maturity. All remaining principal on Term Loan B is due upon maturity.
The Revolving Credit Facility is available for working capital and other general corporate purposes including letters of credit.
As of December 31, 2018, the Company had letters of credit totaling $5 million, which reduced funds available for other
borrowings under the Revolving Credit Facility to $795 million. Borrowings bear interest at a variable rate plus an applicable
margin. As of December 31, 2018, the Revolving Credit Facility had an average interest rate of 3.26%. The facility allows for
interest payments payable monthly or quarterly. The Revolving Credit Facility will mature and the related commitments will
terminate on July 27, 2021. All remaining principal on the Revolving Credit Facility is due upon maturity.
Receivables Financing Facility
In December 2017, the Company entered into a Receivables Financing Facility with a financial institution that has a borrowing
limit of up to $180 million. As collateral, the Company pledges a perfected first-priority security interest in its domestically
originated accounts receivable. The Company has accounted for transactions under this Receivable Financing Facility as
secured borrowings.
At December 31, 2018, the Company’s Consolidated Balance Sheets included $459 million of receivables that were pledged
under the Receivables Financing Facility, of which $139 million had been borrowed against. Borrowings under the Receivables
Financing Facility bear interest at a variable rate plus an applicable margin. As of December 31, 2018, the Receivables Financing
Facility had an average interest rate of 3.36% and requires monthly interest payments. The Receivables Financing Facility will
mature on November 29, 2019, accordingly, amounts borrowed as of December 31, 2018 are included in Current portion of long-
term debt on the Company’s Consolidated Balance Sheets.
63
Both the Revolving Credit Facility and Receivables Financing Facility include terms and conditions that limit the incurrence of
additional borrowings and require that certain financial ratios be maintained at designated levels.
The Company has entered into interest rate swaps to manage the interest rate risk associated with its debt. See Note
10, Derivative Instruments for further information. On December 31, 2018, the Company was in compliance with all debt
covenants.
64
Note 12 Commitments and Contingencies
Lease Commitments
The Company leases certain manufacturing facilities, distribution centers, and sales and administrative offices under non-
cancellable operating leases. Rent expense under these leases was $33 million, $34 million and $39 million for the years ended
December 31, 2018, 2017 and 2016, respectively. Remaining lease terms range from 1 to 16 years, with certain leases
containing extension and termination options. Options for extensions are included in the lease term and future minimum
obligations below when those options are reasonably certain to be exercised.
The Company’s minimum future lease obligations under all non-cancellable operating leases as of December 31, 2018 are as
follows (in millions):
Future
Minimum
Payments
2019
2020
2021
2022
2023
Thereafter
Total minimum lease obligations
$
$
Warranties
The following table is a summary of the Company’s accrued warranty obligation (in millions):
Warranty Reserve
Balance at the beginning of the year
Acquisition
Warranty expense
Warranty payments
Balance at the end of the year
Year Ended December 31,
2018
2017
2016
$
$
18 $
1
34
(31)
22 $
21 $
—
28
(31)
18 $
34
29
23
17
13
37
153
22
—
31
(32)
21
Contingencies
The Company is subject to a variety of investigations, claims, suits, and other legal proceedings that arise from time to time in
the ordinary course of business, including but not limited to, intellectual property, employment, tort, and breach of contract
matters. The Company currently believes that the outcomes of such proceedings, individually and in the aggregate, will not
have a material adverse impact on its business, cash flows, financial position, or results of operations. Any legal proceedings are
subject to inherent uncertainties, and the Company’s view of these matters and its potential effects may change in the future.
In connection with the acquisition of the Enterprise business from Motorola Solutions, Inc., the Company acquired Symbol
Technologies, Inc., a subsidiary of Motorola Solutions (“Symbol”). A putative federal class action lawsuit, Waring v. Symbol
Technologies, Inc., et al., was filed on August 16, 2005 against Symbol Technologies, Inc. and two of its former officers in the
United States District Court for the Eastern District of New York by Robert Waring. After the filing of the Waring action,
several additional purported class actions were filed against Symbol and the same former officers making substantially similar
allegations (collectively, “the New Class Actions”). The Waring action and the New Class Actions were consolidated for all
purposes and on April 26, 2006, the Court appointed the Iron Workers Local # 580 Pension Fund as lead plaintiff and approved
its retention of lead counsel on behalf of the putative class. At a mediation held on March 15, 2018, the parties reached an
agreement in principle to settle the matter, and Zebra reached agreements with certain of its insurers to fund the settlement and
therefore, no amounts have been recorded. On October 30, 2018, the Court entered the Final Judgment Approving Class Action
65
Settlement and Order of Dismissal with Prejudice. The time to appeal expired on November 29, 2018, with no appeals filed.
The case is concluded.
During 2018, the Company settled in its entirety a commercial lawsuit resulting in a $13 million pre-tax charge reflected within
General and administrative expenses within the Consolidated Statements of Operations.
Unclaimed Property Voluntary Disclosure Agreement (“VDA”) and Audits: During fiscal 2018, the Company completed
several state audits related to its reporting of unclaimed property liabilities and submitted a VDA with the State of Delaware.
There were no significant impacts to the results of operations from these activities.
Note 13 Share-Based Compensation
On May 17, 2018, shareholders approved the Zebra Technologies 2018 Long-Term Incentive Plan (“2018 Plan”), which
authorizes for additional awards to be granted in the future. The 2018 Plan superseded and replaced the Zebra Technologies
Corporation Long-Term Incentive Plan (“2015 Plan”) on the approval date, except that the 2015 Plan shall remain in effect with
respect to outstanding awards under the 2015 Plan until such awards have been exercised, forfeited, canceled, expired or
otherwise terminated in accordance with their terms. Together, the 2018 Plan and 2015 Plan provide for incentive compensation
to the Company’s non-employee directors, officers and employees. The awards available under the plans include Stock
Appreciation Rights (“SARs”), Restricted Stock Awards (“RSAs”), Performance Share Awards (“PSAs”), Cash-settled Stock
Appreciation Rights (“CSRs”), Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”). Non-qualified stock
options are not authorized for grant under the 2018 Plan or 2015 Plan.
A summary of the equity awards authorized and available for future grants under the 2018 Plan is as follows:
Available for future grants at December 31, 2017
Newly authorized options
Granted
Cancellation and forfeitures
Plan termination
Available for future grants at December 31, 2018
A summary of the equity awards authorized and available for future grants under the 2015 Plan is as follows:
Available for future grants at December 31, 2017
Newly authorized options
Granted
Cancellation and forfeitures
Plan termination
Available for future grants at December 31, 2018
—
3,800,000
(10,200)
—
—
3,789,800
1,437,435
—
(360,999)
—
(1,076,436)
—
The compensation expense and related income tax benefit from the Company’s share-based compensation plans were included
in the Consolidated Statements of Operations as follows (in millions):
Compensation costs and related income tax benefit
Cost of sales
Selling and marketing
Research and development
General and administration
Total compensation expense
Income tax benefit
Year Ended December 31,
2017
2016
2018
$
$
$
4 $
13
15
21
53 $
10 $
3 $
8
11
16
38 $
11 $
2
6
9
11
28
9
66
As of December 31, 2018, total unearned compensation costs related to the Company’s share-based compensation plans was
$57 million, which will be amortized to expense over the weighted average remaining service period of 1.5 years.
The Company uses outstanding treasury shares as its source for issuing shares under the share-based compensation programs.
Stock Appreciation Rights (“SARs”)
Upon exercise of SARs, the Company issues whole shares of Class A Common Stock to participants based on the difference
between the fair market value of the stock at the time of exercise and the exercise price. Fractional shares are settled in cash
upon exercise. SARs typically vest over a period of 4 years.
A summary of the Company’s SARs outstanding is as follows:
2018
2017
2016
SARs
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Shares
Shares
402,029
(250,326)
(66,550)
(7,948)
65.73 1,740,786 $
149.75
55.93
80.41
108.20
75.71 1,817,991 $
874,942 $
60.85
627,971
(160,946)
(115,215)
(8,635)
56.15 1,397,611 $
98.87
48.66
75.38
108.20
65.73 1,740,786 $
828,754 $
50.86
56.78
52.13
35.37
65.74
88.65
56.15
45.14
Shares
1,817,991 $
88,042
(598,249)
(46,161)
(438)
1,261,185 $
595,086 $
The fair value of share-based compensation is estimated on the date of grant using a binomial model. Volatility is based on an
average of the implied volatility in the open market and the annualized volatility of the Company’s stock price over its entire
stock history.
The following table shows the weighted-average assumptions used for grants of SARs, as well as the fair value of the grants
based on those assumptions:
Expected dividend yield
Forfeiture rate
Volatility
Risk free interest rate
Range of interest rates
Expected weighted-average life (in years)
Weighted-average grant date fair value of SARs granted
(per underlying share)
2018
0%
8.40%
35.93%
2.96%
1.68%-3.00%
4.11
2017
0%
9.37%
35.49%
1.77%
2016
0%
9.01%
43.14%
1.29%
0.71%-2.41%
0.25%-1.75%
4.13
5.33
$47.63
$29.86
$20.18
The following table summarizes information about SARs outstanding as of December 31, 2018:
Outstanding
Aggregate intrinsic value (in millions)
Weighted-average remaining contractual term (in years)
$
Exercisable
59
4.8
105 $
5.6
The intrinsic value for SARs exercised in fiscal 2018, 2017 and 2016 was $59 million, $14 million and $6 million, respectively.
The total fair value of SARs vested in fiscal 2018, 2017 and 2016 was $12 million, $8 million and $3 million, respectively.
Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”)
67
The Company’s restricted stock grants consist of time-vested restricted stock awards (“RSAs”) and performance vested
restricted stock awards (“PSAs”). The RSAs and PSAs hold voting rights and therefore are considered participating securities.
The outstanding RSAs and PSAs are included as part of the Company’s Class A Common Stock outstanding. The RSAs and
PSAs vest at each vesting date subject to restrictions such as continuous employment except in certain cases as set forth in each
stock agreement. The Company’s RSAs and PSAs are expensed over the vesting period of the related award, which is typically
3 years. Some awards, including those granted annually to non-employee directors as an equity retainer fee, were vested upon
grant. PSA targets are set based on certain Company-wide financial metrics. Compensation cost is calculated as the market date
fair value of the Company’s Class A Common Stock on grant date multiplied by the number of shares granted.
The Company also issues stock awards to non-employee directors. Each director receives an equity grant of shares every year
during the month of May. The number of shares granted to each director is determined by dividing the value of the annual grant
by the price of a share of common stock. In fiscal 2018, there were 7,980 shares granted to non-employee directors compared to
12,488 shares and 25,088 shares in fiscal 2017 and 2016, respectively. New directors in any fiscal year earned a prorated
amount. The shares vest immediately upon the grant date.
A summary of information relative to the Company’s RSAs is as follows:
2018
2017
2016
Restricted Stock Awards
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
628,642 $
206,922
(154,878)
(22,962)
657,724 $
77.70
150.60
107.22
88.77
93.45
622,814 $
199,629
(165,846)
(27,955)
628,642 $
70.19
98.90
75.90
72.81
77.70
566,447 $
389,193
(275,229)
(57,597)
622,814 $
Weighted-
Average
Grant Date
Fair Value
77.68
51.93
59.39
70.50
70.19
The fair value of each PSA granted includes assumptions around the Company’s performance goals. A summary of information
relative to the Company’s PSAs is as follows:
2018
2017
2016
Performance Share Awards
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
Outstanding at beginning of year
Granted
Released
Forfeited
Outstanding at end of year
265,747 $
59,849
(57,074)
(8,795)
259,727 $
77.04
146.83
107.31
81.07
86.41
379,226 $
79,423
(2,029)
(190,873)
265,747 $
70.14
98.97
62.70
73.09
77.04
332,630 $
172,024
(111,325)
(14,103)
379,226 $
Weighted-
Average
Grant Date
Fair Value
73.40
51.01
46.58
75.73
70.14
Other Award Types
The Company also has cash-settled compensation awards including cash-settled Stock Appreciation Rights (“CSRs”),
Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”) (the “Awards”) that are expensed over the vesting
period of the related award, which is not more than 4 years. Compensation cost is calculated at the fair value on grant date
multiplied by the number of share-equivalents granted, and the fair value is remeasured at the end of each reporting period
based on the Company’s stock price. Cash settlement is based on the fair value of share equivalents at the time of vesting,
which was $2 million, $2 million and $1 million in 2018, 2017 and 2016, respectively. Share-equivalents issued under these
programs totaled 20,393, 45,781 and 95,210 in fiscal 2018, 2017 and 2016, respectively.
Non-qualified Stock Options
68
A summary of the Company’s non-qualified options outstanding under the 2006 Plan is as follows:
Non-qualified Options
Shares
2018
2017
2016
Weighted-
Average
Exercise Price
Weighted-
Average
Exercise Price
Shares
Weighted-
Average
Exercise Price
Shares
Outstanding at beginning
of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of
year
Exercisable at end of
year
15,705
$
—
(15,705)
—
—
—
$
—
$
26.34
—
26.34
—
—
—
—
154,551
$
—
(132,905)
—
(5,941)
35.96
—
36.86
—
41.25
204,434
$
—
(47,393)
—
(2,490)
15,705
$
26.34
154,551
$
15,705
$
26.34
154,551
$
36.66
—
38.60
—
43.35
35.96
35.96
As of December 31, 2018, there were no non-qualified stock options remaining outstanding.
The intrinsic value for non-qualified options exercised in fiscal 2018, 2017 and 2016 was $2 million, $8 million and $2 million,
respectively. There were no non-qualified options vested in fiscal 2018, 2017 and 2016.
Cash received from the exercise of non-qualified options was less than $1 million during fiscal 2018 compared to $5 million
and $2 million during fiscal years 2017 and 2016, respectively. The related income tax benefit realized in fiscal 2018, 2017 and
2016 was $2 million, $2 million and $1 million, respectively.
Employee Stock Purchase Plan
The Zebra Technologies Corporation 2011 Employee Stock Purchase Plan (“2011 Plan”), which became effective in fiscal
2011, permits eligible employees to purchase common stock at 95% of the fair market value at the date of purchase. Employees
may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased
under this plan is 1.5 million shares. At December 31, 2018, 840,262 shares were available for future purchase.
Note 14 Income Taxes
The geographical sources of income (loss) before income taxes were as follows (in millions):
United States
Outside United States
Total
2018
Year Ended December 31,
2017
2016
$
$
(25) $
549
524 $
(152) $
240
88 $
(120)
(9)
(129)
69
Income tax expense (benefit) consisted of the following (in millions):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total
2018
Year Ended December 31,
2017
2016
$
$
20 $
3
77
100
(11)
5
9
3
103 $
10 $
8
62
80
20
(10)
(19)
(9)
71 $
14
6
31
51
(31)
(6)
(6)
(43)
8
The Company’s effective tax rates were 19.7%, 80.7% and (6.2)% for the years ended December 31, 2018, 2017 and 2016
respectively.
The Company’s effective tax rate was lower than the federal statutory rate of 21% for the year ended December 31, 2018
primarily due to lower tax rates in foreign jurisdictions and the generation of tax credits. These benefits were partially offset by
increases related to foreign earnings subject to U.S. taxation, the U.S. impact of the Enterprise acquisition and certain discrete
items. The discrete items included the favorable impacts of reductions in valuation allowances and share-based compensation
benefits, which were offset by audit settlements with the U.S. Internal Revenue Service for the fiscal years 2013, 2014, and
2015 and an increase in uncertain tax positions resulting from interpretive guidance issued during the year.
For the year ended December 31, 2017, the Company’s effective tax rate was higher than the federal statutory rate of 35%,
primarily due to an increase in valuation allowance on foreign deferred tax assets, the one-time transition tax and
remeasurement of net U.S. deferred tax assets under U.S. Tax Reform, the U.S. impact of the Enterprise acquisition, and an
increase in uncertain tax benefits. These expenses were partially offset by remeasurement of foreign net deferred tax assets, the
benefit of lower tax rates in foreign jurisdictions, the recognition of deferred tax assets on intercompany asset transfers, the
generation of tax credits and share-based compensation benefits.
For the year ended December 31, 2016, the Company’s effective tax rate, applied to an overall pre-tax loss, was lower than the
federal statutory rate of 35%, primarily due to the benefits of lower tax rates in foreign jurisdictions, the U.S. impact of the
Enterprise acquisition as well as foreign earnings subject to U.S. taxation, partially offset by the generation of income tax
credits.
A reconciliation of the U.S. federal statutory income tax rate to our actual income tax rate is provided below:
70
Provision computed at statutory rate
U.S. Tax Reform - one-time transition tax
Remeasurement of deferred taxes
Change in valuation allowance
U.S. impact of Enterprise acquisition
Change in contingent income tax reserves
Foreign earnings subject to U.S. taxation
Foreign rate differential
Intra-entity transactions
State income tax, net of federal tax benefit
Tax credits
Equity compensation deductions
Return to provision and other true ups
Other
Provision for income taxes
2018
Year Ended December 31,
2017
2016
21.0%
(0.6)
0.7
(4.5)
1.1
3.2
2.0
(2.0)
0.0
0.8
(1.9)
(2.0)
1.1
0.8
19.7%
35.0%
41.8
(56.0)
96.4
12.9
14.0
2.0
(29.1)
(18.8)
(5.3)
(5.7)
(5.6)
(3.2)
2.3
80.7%
35.0 %
0.0
0.0
(1.0)
(14.1)
(1.6)
(6.6)
(16.0)
0.0
(1.0)
9.5
(0.4)
(3.7)
(6.3)
(6.2)%
The Company earns a significant amount of its operating income outside of the U.S., primarily in the United Kingdom,
Singapore, and Luxembourg, with statutory rates of 19%, 17%, and 27%, respectively. During 2017, the Company affirmed an
incentivized tax rate of 10% with the Singapore Economic Development Board with the Company’s commitment to make
increased investments in Singapore. During 2018, the Company applied for and was granted a second extension of its
incentivized tax rate by the Singapore Economic Development Board. The incentive reduces the income tax rate to 10.5% from
the statutory rate of 17% and is effective for calendar years 2019 to 2023. The Company has committed to making additional
investments in Singapore over the period 2019 to 2022; should the Company not make these investments in accordance with the
agreement, any incentive benefit would have to be repaid to the Singapore tax authorities.
Tax effects of temporary differences that resulted in deferred tax assets and liabilities are as follows (in millions):
December 31,
2018
2017
Deferred tax assets:
Capitalized research expenditures
Deferred revenue
Tax credits
Net operating loss carryforwards
Other accruals
Inventory items
Capitalized software costs
Sales return/rebate reserve
Share-based compensation expense
Accrued bonus
Unrealized gains and losses on securities and investments
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Unrealized gains and losses on securities and investments
Undistributed earnings
Total deferred tax liabilities
Net deferred tax assets
$
$
$
71
28 $
21
28
394
20
20
8
41
15
3
—
(56)
522
411
2
3
416 $
106 $
32
21
31
338
20
20
14
33
12
1
8
(134)
396
275
—
2
277
119
At December 31, 2018, the Company has approximately $394 million (tax effected) of net operating losses (“NOLs”) and
approximately $28 million of credit carryforwards. Approximately $39 million of NOLs will expire beginning in 2019 through
2032, and $14 million of credits will expire beginning in 2023 through 2032; $355 million of NOLs and $14 million of credit
carryforwards have no expiration dates.
Impact of U.S. Tax Reform
Overview
Enacted on December 22, 2017, the Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to
pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes
on certain foreign sourced earnings. Based on current operations, the Company is subject to the GILTI provisions of the Act.
We are not currently subject to the new limitations which defer U.S. interest deductions in excess of 30% of adjusted taxable
income or the Base Erosion Anti-Avoidance Tax (“BEAT”). However, the application of the interest limitations and BEAT
regime may apply in the future, depending on changes in the Company’s business model or the level of taxable income in any
given year. Additionally, the Company is no longer able to deduct performance-based compensation for its covered employees
which exceeds the limitation under amended Internal Revenue Code Section 162(m). These impacts are included in the
calculation of our effective tax rate.
Foreign Tax Effects
As part of the Act, the Company recognized a one-time transition tax based on its total post-1986 earnings and profits that were
previously deferred from U.S. income taxes. The Company earns a significant amount of its operating income outside of the
U.S. As of December 31, 2018, the Company is indefinitely reinvested with respect to its U.S. directly-owned subsidiary
earnings. Under the Act, the Company has recorded a current provision related to deemed foreign inclusions through December
31, 2017 as a result of the transition tax. For periods after 2017, the Company is subject to U.S. income tax on substantially all
foreign earnings under the GILTI provisions of the Act, while any remaining foreign earnings are eligible for the new dividends
received deduction. As a result, future repatriation of earnings will no longer be subject to U.S. income tax, but may be subject
to state and local income taxes, as well as currency translation gains or losses. Additionally, gains and losses on any future
taxable dispositions of U.S.-owned foreign affiliates continue to be subject to U.S. income tax.
The Company has not recognized deferred tax liabilities in the U.S. with respect to its outside basis differences in its directly-
owned foreign affiliates. It is not practicable to determine the amount of unrecognized deferred tax liabilities on these
indefinitely reinvested earnings.
Certain foreign affiliate parent companies are not indefinitely reinvested, and thus, the Company has recorded a deferred tax
liability for foreign withholdings taxes on those earnings.
Performance-Based Executive Compensation
The Act amends the rules related to the exclusion of performance-based compensation under Internal Revenue Code 162(m).
The Company will no longer be able to claim a deduction for compensation accrued after January 1, 2018 for a covered
employee which exceeds $1 million, unless the compensation is earned in respect of a binding contract in existence on
November 2, 2017 (“Grandfathered Contracts”). The Company has remeasured the Section 162(m)-grandfathered deferred tax
assets at 21% for its covered employees for equity award agreements issued and executed prior to November 2, 2017.
Additionally, the Company has determined that its short-term bonus plan will not qualify for the grandfathered contract
provisions, and thus any associated deferred tax assets have been derecognized.
Provisional and Final Effects
During 2017, the Company provisionally recognized an income tax expense of $72 million associated with the Act, including a
one-time transition tax of $37 million and $35 million remeasurement of its net U.S. deferred tax assets based on a 21% rate.
During 2018, the Company finalized its analysis of the Act, including the one-time transition tax and measurement of net
deferred tax assets, and recorded a $3 million income tax benefit for the year ended December 31, 2018 as a result of
differences between its final analysis and provisional analysis from the prior year. The final analysis included both federal and
72
state tax effects based on legislative pronouncements through December 31, 2018. The Company also utilized a total of $28
million of available net operating losses, research and development credits, alternative minimum tax credits, and foreign tax
credits, in order to reduce its future cash payments for the one-time transition tax, resulting in a net liability for the one-time
transition tax of $6 million, of which $1 million has been classified as a short term liability and $5 million as a long term
liability. The final one-time transition tax installment payment will be made in 2024.
During 2018, the Company estimated and recognized an income tax expense of $10 million related to GILTI, based on current
law and regulations; as guidance continues to be published, the estimate could result in filing positions significantly different
than our current estimates.
Unrecognized tax benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
Year ended December 31,
2018
2017
Balance at beginning of year
Additions for tax positions related to the current year
Additions for tax positions related to prior years
Reductions for tax positions related to prior years
Settlements for tax positions
Balance at end of year
$
$
51 $
1
22
(11)
(13)
50 $
42
0
11
(1)
(1)
51
At December 31, 2018 and December 31, 2017, there are $48 million and $47 million of unrecognized tax benefits that if
recognized would affect the annual effective tax rate. The Company continues to believe its positions are supportable, however,
the Company anticipates that $20 million of uncertain tax benefits may be paid within the next twelve months and, as such, is
reflected as a current liability within the Company’s Consolidated Balance Sheets. The Company is engaged in an inquiry from
the UK Her Majesty’s Revenue and Customs (“HMRC”) for the years 2012 to 2016. The tax years 2004 through 2016 remain
open to examination by multiple foreign and U.S. state taxing jurisdictions. Due to uncertainties in any tax audit outcome, the
Company’s estimates of the ultimate settlement of uncertain tax positions may change and the actual tax benefits may differ
significantly from the estimates.
The Company recognized $8 million, $2 million and $1 million of interest and/or penalties related to income tax matters as part
of income tax expense for the years ended December 31, 2018, 2017 and 2016, respectively. The Company had $14 million and
$6 million of interest and penalties reflected in the Consolidated Balance Sheets as of December 31, 2018 and 2017,
respectively.
Note 15 Earnings (Loss) Per Share
Basic net earnings per share is calculated by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of
shares assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock method and in periods of
income, reflects the additional shares that would be outstanding if dilutive stock options were exercised for common shares
during the period.
Earnings (loss) per share (in millions, except share data):
73
Basic:
Net income (loss)
Weighted-average shares outstanding(1)
Basic earnings (loss) per share
Diluted:
Net income (loss)
Weighted-average shares outstanding(1)
Dilutive shares(2)
Diluted weighted-average shares outstanding
Diluted earnings (loss) per share
Year Ended December 31,
2017
2016
2018
421 $
17 $
53,591,655
53,021,761
7.86 $
0.33 $
(137)
51,579,112
(2.65)
421 $
17 $
53,591,655
708,157
54,299,812
53,021,761
667,071
53,688,832
7.76 $
0.32 $
(137)
51,579,112
—
51,579,112
(2.65)
$
$
$
$
(1) In periods of net loss, restricted stock awards that are classified as participating securities are excluded from the weighted-
average shares outstanding computation.
(2) In periods of net loss, options are anti-dilutive and therefore excluded from the earnings (loss) per share calculation.
Anti-dilutive options to purchase common shares are excluded from diluted earnings per share calculations. Anti-dilutive
options consist primarily of stock appreciation rights (“SARs”) with an exercise price greater than the average market closing
price of the Class A common stock. There were 72,856, 259,142, and 1,391,567 anti-dilutive shares for the years ended
December 31, 2018, 2017, and 2016, respectively.
Note 16 Accumulated Other Comprehensive Income (Loss)
Stockholders’ equity includes certain items classified as AOCI, including:
• Unrealized gain (loss) on anticipated sales hedging transactions relates to derivative instruments used to hedge the
exposure related to currency exchange rates for forecasted Euro sales. These hedges are designated as cash flow
hedges, and the Company defers income statement recognition of gains and losses until the hedged transaction occurs.
See Note 10, Derivative Instruments for more details.
• Unrealized (loss) gain on forward interest rate swaps hedging transactions refers to the hedging of the interest rate
risk exposure associated with the variable rate commitment entered into for the Enterprise Acquisition. See Note
10, Derivative Instruments for more details.
• Foreign currency translation adjustments relate to the Company’s non-U.S. subsidiary companies that have
designated a functional currency other than the U.S. dollar. The Company is required to translate the subsidiary
functional currency financial statements to dollars using a combination of historical, period-end, and average foreign
exchange rates. This combination of rates creates the foreign currency translation adjustment component of AOCI.
74
The components of AOCI for each of the three years ended December 31 are as follows (in millions):
Unrealized
(loss) gain on
forward
interest rate
swaps
Foreign
Currency
translation
adjustments
Total
Unrealized
gain (loss) on
sales hedging
$
(1) $
Balance at December 31, 2015
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from AOCI(1)
Tax expense
Other comprehensive income (loss)
Balance at December 31, 2016
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from AOCI(1)
Tax benefit (expense)
Other comprehensive (loss) income
Balance at December 31, 2017
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from AOCI(1)
Tax expense
Other comprehensive income (loss)
Balance at December 31, 2018
$
1
7
(1)
7
6
(26)
8
3
(15)
(9)
38
(13)
(4)
21
12 $
(15) $
(32 ) $
(1)
2
(1)
—
(15)
1
8
(3)
6
(9)
8
4
(3)
9
— $
(4)
—
—
(4)
(36)
2
—
—
2
(34)
(13)
—
—
(13)
(47 ) $
(48)
(4)
9
(2)
3
(45)
(23)
16
—
(7)
(52)
33
(9)
(7)
17
(35)
(1) See Note 10, Derivative Instruments regarding timing of reclassifications to operating results.
Note 17 Accounts Receivable Factoring
In 2018, the Company entered into a Receivables Factoring arrangement, pursuant to which, certain receivables originated from
the Europe, Middle East, and Africa region are sold to a bank in exchange for cash without the Company maintaining a
beneficial interest in the receivables sold. At any time, the bank’s purchase of eligible receivables is subject to a maximum of
$90 million of uncollected receivables. The Company services the receivables on behalf of the bank, but otherwise maintains no
continuing involvement with respect to the receivables. Transactions under the Receivables Factoring arrangement are
accounted for as sales under ASC 860, Transfers and Servicing of Financial Assets with related cash flows reflected in
operating cash flows. As of December 31, 2018, $33 million of uncollected receivables have been sold and removed from the
Company’s Consolidated Balance Sheet.
Note 18 Segment Information & Geographic Data
The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility
& Mobility (“EVM”). The reportable segments have been identified based on the financial data utilized by the Company’s
Chief Executive Officer (the chief operating decision maker or “CODM”) to assess segment performance and allocate resources
among the Company’s segments. The CODM reviews adjusted operating income to assess segment profitability. Adjusted
operating income excludes purchase accounting adjustments, amortization of intangible assets, acquisition and integration
costs, and exit and restructuring costs. Segment assets are not reviewed by the Company’s CODM and therefore are not
disclosed below.
75
Financial information by segment is presented as follows (in millions):
Net sales:
AIT
EVM
Total segment Net sales
Corporate, eliminations(1)
Total Net sales
Operating income:
AIT(2)(3)
EVM(2)(3)
Total segment operating income
Corporate, eliminations(4)
Total Operating income
Year Ended December 31,
2017
2018
2016
$
$
$
$
1,423 $
2,795
4,218
—
4,218 $
325 $
404
729
(119)
610 $
1,311 $
2,414
3,725
(3)
3,722
$
274 $
301
575
(253)
322
$
1,247
2,337
3,584
(10)
3,574
281
245
526
(446)
80
(1) Amounts included in Corporate, eliminations consist of purchase accounting adjustments related to the Enterprise
Acquisition.
(2) During 2018, the Company revised its methodology for allocating certain operating expenses across its two reportable
segments to more accurately reflect where these operating costs are being incurred. The reallocations relate primarily to
facilities, information technology, marketing and human resources expenses. All periods are presented on a comparable
basis and reflect these changes which reclassified operating expenses from AIT to EVM of $14 million and $41 million for
the years ended December 31, 2017 and 2016, respectively. There was no impact to the Consolidated Financial Statements
as a result of these reallocations.
(3) AIT and EVM segment operating income includes depreciation expense and share-based compensation expense. The
amounts of depreciation expense and share-based compensation attributable to AIT and EVM are proportionate to each
segment’s Net sales.
(4) Amounts included in Corporate, eliminations consist of purchase accounting adjustments, amortization of intangible assets,
acquisition and integration costs, and exit and restructuring costs.
Information regarding the Company’s operations by geographic area is contained in the following table. These amounts are
reported in the geographic area of the destination of the final sale. We manage our business based on regions rather than by
individual countries.
Geographic data for Net sales is as follows (in millions):
North America
Europe, Middle East, and Africa
Asia-Pacific
Latin America
Total Net sales
Year Ended December 31,
2017
2018
2016
$
$
2,041 $
1,409
520
248
4,218 $
1,798
1,221
468
235
3,722
$
$
1,739
1,138
483
214
3,574
76
Geographic data for long-lived assets, defined as property, plant and equipment is as follows (in millions):
North America
Europe, Middle East, and Africa
Asia-Pacific
Latin America
Total long-lived assets
Year Ended December 31,
2017
2018
2016
$
$
225 $
14
7
3
249 $
238 $
14
9
3
264 $
267
13
9
3
292
Net sales by country that are greater than 10% of total Net sales are as follows (in millions):
United States
United Kingdom
Singapore
Other
Total Net sales
Year Ended December 31,
2017
2016
2018
$
$
2,247 $
1,403
508
60
4,218 $
1,984 $
1,196
454
88
3,722 $
1,950
1,065
362
197
3,574
Net sales by country are determined by the country from where the products are invoiced when they leave the Company’s
warehouses. Generally, our United States sales company serves North America and Latin America; United Kingdom sales
company serves Europe, Middle East, and Africa; and our Singapore sales company serves Asia-Pacific.
Our Net sales to significant customers as a percentage of the total Company’s Net sales by segment were as follows:
Year Ended December 31,
2018
EVM
AIT
Total
AIT
2017
EVM
Total
AIT
2016
EVM
Total
Customer A
Customer B
Customer C
6.2%
5.6%
6.2%
14.1%
10.1%
7.9%
20.3%
15.7%
14.1%
6.3%
5.3%
6.2%
15.0%
8.9%
7.0%
21.3%
14.2%
13.2%
5.9%
5.0%
5.3%
14.2%
8.2%
7.1%
20.1%
13.2%
12.4%
All three of the above customers are distributors and not end-users. No other customer accounted for 10% or more of total Net
sales during the years presented.
There are three customers at December 31, 2018 and December 31, 2017 that each accounted for more than 10% of outstanding
accounts receivable. In 2018, the three largest customers accounted for 23.0%, 16.9%, and 14.6%, respectively of accounts
receivable while in 2017, the three largest customers accounted for 19.5%, 14.0% and 11.7%, respectively.
Note 19 Supplementary Financial Information
Prepaid expenses and other current assets consist of the following (in millions):
Foreign Exchange Contracts
Other
Prepaid expenses and other current assets
December 31,
2018
2017
$
$
16 $
38
54 $
—
24
24
77
The components of Accrued liabilities are as follows (in millions):
Accrued incentive compensation
Customer reserves
Accrued payroll
Interest payable
Accrued other expenses
Accrued liabilities
Summary of Quarterly Results of Operations (unaudited, in millions):
December 31,
2018
2017
127 $
45
55
5
90
322 $
101
41
50
15
89
296
$
$
2018
Total Net sales
Gross profit
Net income
Net earnings per common share:
Basic earnings per share:
Diluted earnings per share:
Total Net sales
Gross profit
Net (loss) income
Net earnings per common share:
Basic (loss) earnings per share:
Diluted (loss) earnings per share:
Note 20 Subsequent Event
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
977 $
465
109
1,012 $
472
70
1,092 $
505
127
Total Year
4,218
1,981
421
1,137 $
539
115
2.04 $
2.01
1.31 $
1.29
2.37 $
2.34
2.14 $
2.11
7.86
7.76
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
865 $
401
8
896 $
411
17
935 $
429
(12)
Total Year
3,722
1,710
17
1,026 $
469
4
0.16 $
0.16
0.33 $
0.32
(0.23) $
(0.23)
0.07 $
0.07
0.33
0.32
On January 25, 2019, Zebra entered into a definitive agreement under which Zebra will wholly acquire Temptime Corporation,
a developer and manufacturer of temperature-monitoring labels and devices. Zebra expects to fund the transaction with a
combination of cash on hand along with fully committed financing available under its Revolving Credit Facility. The
transaction is subject to customary closing conditions and is expected to close in the first quarter of 2019. The acquired business
will become part of the AIT segment.
78
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
Item 9.
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the
period covered by this Form 10-K. The evaluation was conducted under the supervision of our Disclosure Committee, and with
the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were
effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Form 10-K was recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information
required to be disclosed by us in our reports that we file or furnish under the Exchange Act is accumulated and communicated
to our management, including our principal executive and principal financial officers, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act to provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018.
In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework as released in 2013. Based on this assessment and those
criteria, our management believes that, as of December 31, 2018, our internal control over financial reporting is effective.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on Zebra’s internal
control over financial reporting. Ernst & Young LLP’s report is included on page 73 of this report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2018, which were
identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the
Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Inherent Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of
fraud, if any, within Zebra have been prevented or detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
79
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Zebra Technologies Corporation
Opinion on Internal Control over Financial Reporting
We have audited Zebra Technologies Corporation’s internal control over financial reporting as of December 31, 2018, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Zebra Technologies Corporation (the
“Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Zebra Technologies Corporation as of December 31, 2018 and 2017, the
related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of
the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the
Index at Item 15 and our report dated February 14, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
80
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Ernst & Young LLP
Chicago, Illinois
February 14, 2019
81
Item 9B.
Other Information
Not applicable.
82
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics for Senior Financial Officers that applies to Zebra’s Chief Executive Officer, Chief Financial
Officer and the Chief Accounting Officer. The Code of Ethics is posted on the Investor Relations – Governance page of Zebra’s
Internet web site, www.zebra.com, and is available for download. Any waiver from the Code of Ethics and any amendment to
the Code of Ethics will be disclosed on such page of Zebra’s web site
All other information in response to this item is incorporated by reference from the Proxy Statement sections entitled
“Corporate Governance,” “Election of Directors,” “Board and Committees of the Board,” “Executive Officers,” and
“Section 16(a) Beneficial Ownership Reporting Compliance.”
Item 11.
Executive Compensation
The information in response to this item is incorporated by reference from the Proxy Statement sections entitled “Compensation
Discussion and Analysis-Executive Summary,” “Compensation Discussion and Analysis,” “Executive Compensation,”
“Director Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee
Report.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information in response to this item is incorporated by reference from the Proxy Statement sections entitled “Ownership of
our Common Stock” and “Equity Compensation Plan Information.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information in response to this item is incorporated by reference from the Proxy Statement section entitled “Corporate
Governance.”
Item 14.
Principal Accounting Fees and Services
The information in response to this item is incorporated by reference from the Proxy Statement section entitled “Fees of
Independent Auditors.”
83
PART IV
Item 15.
Exhibits, Financial Statements and Schedule
Index to Consolidated Financial Statements and Schedules
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018,
2017, and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and
2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not applicable to the Company.
PAGE
40
41
42
43
44
45
46
88
Index to Exhibits
3.1(i)
3.1(ii)
4.1
10.1
10.2
10.3
(3) Restated Certificate of Incorporation of the Company.
(12) Amended and Restated By-laws of Zebra Technologies Corporation, as amended as of January 7, 2013.
(20) Specimen stock certificate representing Class A Common Stock.
(19) Employment Agreement between the Company and Hugh Gagnier dated June 1, 2018. +
(17) Employment Agreement between Olivier Leonetti and the Company dated October 31, 2016. +
(4) Form of Amendment No. 1 to Employment Agreement by and between the Company and certain executive
officers dated December 30, 2008.+
10.4
(17) Form of indemnification agreement between Zebra Technologies Corporation and each director and executive
officer.
10.5
(10) Form of Director Stock Option Agreement (1-Year Vesting) under the 2006 Incentive Compensation Plan for
awards granted to directors on or after May 22, 2008 and prior to December 2, 2008. +
10.6
(11) Amendment to outstanding Stock Option Agreements under the 2006 Incentive Compensation Plan, dated
December 2, 2008. +
10.7
10.8
10.9
10.10
10.11
10.12
(7) 2006 Incentive Compensation Plan. +
(11) Amendment to the 2006 Incentive Compensation Plan dated December 2, 2008. +
(14) 2011 Long-Term Incentive Plan (Amended and Restated as of May 15, 2014). +
(20) 2015 Long-Term Incentive Plan. +
(9) 2005 Executive Deferred Compensation Plan, as amended. +
(6) Form of Amendment to Employment Agreement between Zebra Technologies Corporation and executive
officers. +
10.13
(8) Amended and Restated Employment Agreement between Zebra Technologies Corporation and Anders
Gustafsson dated as of May 6, 2010. +
10.14
10.15
10.16
10.17
10.18
(8) Letter Agreement between Zebra Technologies Corporation and Anders Gustafsson dated as of May 6, 2010. +
(8) Form of 2010-2011 time-vested stock appreciation rights agreement for employees other than CEO. +
(5) Form of 2012 time-vested stock appreciation rights agreement for employees other than CEO. +
(15) Form of 2013-16 time-vested stock appreciation rights agreement for employees other than CEO. +
(18) Form of 2017 time-vested stock appreciation rights agreement for employees other than CEO. +
84
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
(19) Form of 2018 stock appreciation rights agreement for employees other than the CEO. +
(8) Form of 2010 time-vested stock appreciation rights agreement for CEO. +
(5) Form of 2011-12 time-vested stock appreciation rights agreement for CEO. +
(15) Form of 2013-16 time-vested stock appreciation rights agreement for CEO. +
(18) Form of 2017 time-vested stock appreciation rights agreement for CEO. +
(19) Form of 2018 stock appreciation rights agreement for CEO. +
(8) Form of 2009 time-vested stock appreciation rights agreement for non-employee directors. +
(8) Form of 2010 time-vested stock appreciation rights agreement for non-employee directors. +
(1) Form of 2011 time-vested stock appreciation rights agreement for non-employee directors. +
(5) Form of 2012 time-vested stock appreciation rights agreement for non-employee directors. +
(2) Form of 2016-2017 time-vested restricted stock agreement for employees other than CEO. +
(19) Form of 2018 time-vested restricted stock agreement for employees other than the CEO. +
(13) Form of 2016-2017 performance-vested equity agreement for employees other than CEO. +
(19) Form of 2018 performance-vested restricted stock agreement for employees other than CEO. +
(15) Form of 2016-17 time-vested restricted stock agreement for CEO. +
(19) Form of 2018 time-vested restricted stock agreement for CEO. +
(13) Form of 2016-2017 performance-vested equity agreement for CEO. +
(19) Form of 2018 performance-vested restricted stock agreement for CEO. +
(16) Amended and Restated Credit Agreement, dated July 26, 2017 (originally dated as of October 27, 2014), by and
among Zebra, the lenders and issuing banks party thereto, JPMorgan Chase Bank, N.A., and Morgan Stanley
Senior Funding, Inc.
10.38
(19) Amendment No. 1, dated May 31, 2018, to the Amended and Restated Credit Agreement of July 26, 2017
(originally dated as of October 27, 2014), by and among Zebra, the lenders and issuing banks party thereto,
JPMorgan Chase Bank, N.A., and Morgan Stanley Senior Funding, Inc.
10.39
(20) Office Lease dated November 14, 2013 between Griffin Capital Corporation (as assignee from Northwestern
Mutual Life Insurance Company) and Zebra Technologies Corporation
10.40
(20) First Amendment to Lease dated June 6, 2014 between Griffin Capital Corporation (as assignee from
Northwestern Mutual Life Insurance Company) and Zebra Technologies Corporation
10.41
(20) Receivables Purchase Agreement dated as of December 1, 2017 among Zebra Technologies International, LLC,
as the Originator, and Zebra Technologies RSC, LLC, as Buyer
10.42
(20) Receivables Financing Agreement, dated as of December 1, 2017, by and among Zebra Technologies RSC,
10.43
21.1
23.1
31.1
31.2
32.1
32.2
101
LLC, the lenders from time to time party thereto, PNC Bank, National Association, Zebra Technologies, LLC,
and PNC Capital Markets, LLC
Master Accounts Receivable Purchase Agreement dated December 19, 2018 among Zebra Technologies Europe
Limited, Zebra Technologies Corporation, and MUFG Bank, Ltd.*
Subsidiaries of the Company. *
Consent of Ernst & Young LLP, independent registered public accounting firm. *
Certification pursuant to Rule 13a-14(a)/15d-14(a). *
Certification pursuant to Rule 13a-14(a)/15d-14(a). *
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. *
Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. *
The following financial information from Zebra Technologies Corporation Annual Report on Form 10-K, for the
year ended December 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) the
Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements
of Comprehensive Income (Loss); (iv) the Consolidated Statements of Stockholders’ Equity; (v) the
Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
85
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
+
*
Incorporated by reference from Current Report on Form 8-K dated May 19, 2011.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 29, 2014.
Incorporated by reference from Current Report on Form 8-K dated August 1, 2012.
Incorporated by reference from Current Report on Form 8-K dated January 5, 2009.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended October 2, 2010.
Incorporated by reference from Current Report on Form 8-K filed on May 15, 2006.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended April 3, 2010.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 29, 2008.
Incorporated by reference from Current Report on Form 8-K filed on May 29, 2008.
Incorporated by reference from Current Report on Form 8-K filed on December 8, 2008.
Incorporated by reference from Current Report on Form 8-K dated January 7, 2013.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended July 4, 2015.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 28, 2014.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 30, 2013.
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended July 1, 2017
Incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2016
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended April 1, 2017
Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 30, 2018
Incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2017
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K.
Included with this Annual Report on this Form 10-K.
Item 16. Form 10-K Summary
None.
86
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, there unto duly authorized, on the 14th day of February 2019.
SIGNATURES
ZEBRA TECHNOLOGIES CORPORATION
By: /s/ Anders Gustafsson
Anders Gustafsson
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, the report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature
/s/ Anders Gustafsson
Anders Gustafsson
/s/ Olivier Leonetti
Olivier Leonetti
/s/ Colleen O’Sullivan
Colleen O’Sullivan
/s/ Michael A. Smith
Michael A. Smith
/s/ Andrew K. Ludwick
Andrew K. Ludwick
/s/ Ross W. Manire
Ross W. Manire
/s/ Richard L. Keyser
Richard L. Keyser
/s/ Janice M. Roberts
Janice M. Roberts
/s/ Chirantan J. Desai
Chirantan J. Desai
/s/ Frank B. Modruson
Frank B. Modruson
Date
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
Director and Chairman of the Board of
Directors
Director
Director
Director
Director
Director
Director
87
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(In millions)
Description
Valuation account for accounts receivable:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Valuation account for deferred tax assets:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions
Balance at
End of
Period
$
$
3 $
3
6
134 $
47
48
1 $
1
—
— $
91
18
1 $
1
3
78 $
4
19
3
3
3
56
134
47
See accompanying report of independent registered public accounting firm.
88
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To Our Investors,
Zebra is advancing our Enterprise Asset Intelligence vision of enabling every front-line asset
and worker to be visible, connected, and optimally utilized. We have made strong progress as
we help businesses across many industries digitize their operations and gain a performance
edge. Zebra is benefiting from key technology megatrends including mobility, automation,
cloud computing, and the proliferation of smart devices, each of which are critical components
to this transformation.
Our Solutions at Work
Our products and solutions sense data from assets, products, and processes. This information,
including status and location, is analyzed in real time to determine the best possible
operational action to improve productivity and give greater insight into business operations.
Our ultra-rugged and reliable products include a software layer which makes them easy to integrate and intuitive to manage.
Additionally, our new software applications and tools improve automated data collection and analysis, maximize device
security, and enhance ease of use. Another integral part of our solutions ecosystem is Zebra Savanna™, which is our intelligent
edge platform that powers our cloud-based data-driven solutions such as Zebra MotionWorks™, Zebra SmartPack™, and
Workforce Connect with real-time data. We are collaborating with an increasing number of our independent software partners
to leverage this platform to deploy new solutions that address our customers’ challenges.
Exceptional 2018 Results
Excellent execution on our strategy drove industry leadership and value for all stakeholders in 2018. Highlights include:
• A record number of launches across our product and solution categories
• 13 percent sales growth, or 11 percent on an organic basis,* with broad-based growth across our major product and service
categories and the vertical markets that we serve
• 210 basis point adjusted EBITDA margin expansion* through strong profitable sales growth and operating expense leverage
• 56 percent growth in non-GAAP diluted earnings per share and record free cash flow of $721 million*
Committed to an Innovative Future
To drive attractive and sustainable profitable growth, Zebra is focused on further penetrating vibrant markets, including
both existing categories and new markets. We expect to gain traction in these markets through both organic and inorganic
investments, including highly selective acquisitions. We recently completed two acquisitions; Xplore Technologies, which
closed in 2018, enhances our product lineup by completing our enterprise tablet portfolio, and Temptime Corporation, which
closed in early 2019, enhances our supplies business and gives us a competitive advantage in healthcare through a time-
temperature monitoring product portfolio. Our financial flexibility remains a key priority as we invest in our business.
While Zebra has evolved considerably over the years, a strong commitment to innovation and operational excellence has
enabled our company to stand the test of time. We are encouraged by our strong momentum entering the new year and we are
well positioned for continued success. In 2019, we celebrate the company’s 50th anniversary by honoring the 7,400 employees
who make up our Zebra Nation today and all who have contributed to Zebra’s growth over the past five decades.
I would also like to express my sincere gratitude and appreciation for the ongoing support of our partners and customers over
the years.
Sincerely,
Anders Gustafsson
*For a reconciliation of these non-GAAP measures to
similar GAAP measures, please see Zebra's 4Q 2018
earnings press release located at investors.zebra.com.
Executive Officers
Anders Gustafsson
Chief Executive Officer
Olivier C. Leonetti
Chief Financial Officer
William J. Burns
Chief Products and Solutions
Officer
Michael Cho
Senior Vice President,
Corporate Development
Joachim Heel
Senior Vice President,
Global Sales
Cristen L. Kogl
Senior Vice President,
General Counsel and
Corporate Secretary
Jeffrey F. Schmitz
Senior Vice President,
Chief Marketing Officer
Michael H. Terzich
Senior Vice President,
Chief Administrative Officer
Stephen E. Williams
Global Supply Chain Officer
Colleen M. O’Sullivan
Vice President,
Chief Accounting Officer
Form 10-K
The Zebra Technologies Corporation Form 10-K Report filed
with the Securities and Exchange Commission is incorporated
in this annual report. The Code of Ethics for Senior Financial
Officers is posted on Zebra’s website. Please contact the
Investor Relations Department at the Corporate Headquarters
for additional copies of the Form 10-K, or visit our website to
view an online version of the Form 10-K, or the Code of Ethics
for Senior Financial Officers.
Equal Employment Opportunities/Affirmative Action
It is the policy of Zebra Technologies Corporation to provide
equal opportunities and affirmative action in all areas of
its employment practices without regard to race, religion,
national origin, sex, age, ancestry, citizenship, disability,
veteran status, marital status, sexual orientation
or any other reason prohibited by law.
Board of Directors
Michael A. Smith,
Chairman 1,2,3
Chairman and Chief
Executive Officer
FireVision, LLC
Anders Gustafsson
Chief Executive Officer
Zebra Technologies
Corporation
Chirantan J. Desai 2
Chief Product Officer
ServiceNow
Richard L. Keyser 2,3
Chairman
(Retired)
W. W. Grainger, Inc.
Stockholder
Information
Global Corporate
Headquarters
Zebra Technologies
Corporation
3 Overlook Point
Lincolnshire, Illinois 60069
U. S. A.
Phone: +1 847 634-6700
Fax +1 847 913-8766
Annual Meeting
Zebra’s Annual Meeting
of Stockholders will be
held on May 16, 2019, at
10:30 a.m. (Central Time) in
Lincolnshire, Illinois.
Independent Auditors
Ernst & Young LLP
Chicago, Illinois
Investor Relations
Investors are invited
to learn more about
Zebra Technologies
Corporation by accessing
the company’s website at
investors.zebra.com.
Andrew K. Ludwick 1
Chief Executive Officer
(Retired)
Bay Networks
Ross W. Manire 1,3
Chief Executive Officer
(Retired)
ExteNet Systems, Inc.
Frank B. Modruson 1
Chief Information Officer
(Retired)
Accenture
Janice M. Roberts 2
Partner
Benhamou Global
Ventures, LLC
1 - Member of Audit Committee
2 - Member of Compensation
Committee
3 - Member of Nominating and
Governance Committee
Transfer Agent
and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight Delivery:
Computershare
462 South 4th Street,
Suite 1600
Louisville, KY 40202
Telephone:
+1 800 522-6645 or
+1 201 680-6578
TDD for hearing impaired:
+1 800 231-5469 or
+1 201 680-6610
Website:
www.computershare.com/
investor
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Annual Report 2018
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zebra.com
NA and Corporate Headquarters
+1 847 634 6700
Asia-Pacific Headquarters
+65 6858 0722
EMEA Headquarters
+44 1628 556000
Latin America Headquarters
+1 754 900 4050
ZEBRA and the stylized Zebra head are trademarks of Zebra Technologies
Corporation, registered in many jurisdictions worldwide. All other trademarks
are the property of their respective owners. ©2019 Zebra Technologies
Corporation and/or its affiliates. All rights reserved.
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