Zebra Technologies 10-K 2015-12-31

10-K 1 a10k12312015zbra.htm 10-K

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

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

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	36-2675536
(State or other jurisdiction of incorporation or organization)	(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		Name of Exchange on which Registered
Class A Common Stock, par value $.01 per share		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 X No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Act) (Check one):

Large accelerated filer X	Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes No X

As of July 4, 2015, the aggregate market value of each of the registrant’s Class A Common held by non-affiliates was approximately $5,649,249,748. The closing price of the Class A Common Stock on July 2, 2015, as reported on the Nasdaq Stock Market, was $112.43 per share.

As of February 22, 2016, 52,149,195 shares of Class A Common Stock, par value $.01 per share, were outstanding.

Documents Incorporated by Reference

Certain sections of the registrant’s Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be held on May 19, 2016, are incorporated by reference into Part III of this report, as indicated herein.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

INDEX

			PAGE
PART I
Item 1.		Business	3
Item 1A.		Risk Factors	11
Item 1B.		Unresolved Staff Comments	22
Item 2.		Properties	22
Item 3.		Legal Proceedings	22
Item 4.		Mine Safety Disclosures	22
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.		Selected Financial Data	24
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.		Financial Statements and Supplementary Data	36
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	36
Item 9A.		Controls and Procedures	36
Item 9B.		Other Information	39
PART III
Item 10.		Directors, Executive Officers and Corporate Governance	40
Item 11.		Executive Compensation	40
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.		Certain Relationships and Related Transactions, and Director Independence	40
Item 14.		Principal Accounting Fees and Services	40
PART IV
Item 15.		Exhibits, Financial Statement Schedules	41
SIGNATURES
Signatures			42
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Index to Consolidated Financial Statements and Schedule			F-1
EXHIBITS
Index to Exhibits			F-43

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 Zebra or its management are intended to identify such forward-looking statements, but are not the exclusive means of identifying these statements. The forward-looking statements include, but are not limited to, Zebra’s financial outlook for the first quarter and full year of 2016. These forward-looking statements are based on current expectations, forecasts and assumptions and are subject to the risks and uncertainties inherent in Zebra’s industry, market conditions, general domestic and international economic conditions, and other factors. These factors include:

•	Market acceptance of Zebra’s products and solution offerings and competitors’ offerings and the potential effects of technological changes,

•	The effect of global market conditions, including North America, Latin America, Asia-Pacific, Europe, Middle East, and Africa regions in which we do business,

•	Our ability to control manufacturing and operating costs,

•	Risks related to the manufacturing of Zebra’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,

•	Zebra’s ability to purchase sufficient materials, parts and components to meet customer demand, particularly in light of global economic conditions,

•	The availability of credit and the volatility of capital markets, which may affect our suppliers, customers and ourselves,

•	Success of integrating acquisitions, including the Enterprise business we acquired in October 2014 from Motorola Solutions, Inc.,

•	Interest rate and financial market conditions,

•	Access to cash and cash equivalents held outside the United States,

•	The effect of natural disasters on our business,

•	The impact of changes in foreign and domestic governmental policies, laws or regulations,

•	The impact of foreign exchange rates due to the large percentage of our sales and operations being outside the U.S.,

•	The outcome of litigation in which Zebra 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 Zebra’s future results. Zebra undertakes no obligation, other than as may be required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason after the date of this report.

The Company

Zebra is 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. Zebra’s solutions are proven to help our customers and end-users achieve their mission critical strategic business objectives, including improved efficiency and workflow management, increased productivity and asset utilization, real-time, actionable enterprise information, and better customer experiences.

We design, manufacture, and sell a broad range of AIDC products, including: mobile computers, barcode scanners, RFID readers, wireless LAN ("WLAN") products, 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 utilities and application software. End-users of our products include those in the retail, transportation and logistics, manufacturing, health care, 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 extensive network of partners. We provide products and services in over 170 countries, with approximately 120 facilities and 7,000 employees worldwide.

Through innovative application of our technologies, we are leading an evolution of the AIDC market into Enterprise Asset Intelligence (“EAI”) solutions, which reflect an operational framework of “sense, analyze, and act.” Specifically, EAI encompasses solutions, which automatically sense information from enterprise assets, including packages moving through a supply chain, equipment in a factory, workers in warehouse, and shoppers in a store. Operational data from these assets, including status, location, utilization, or preferences, is then analyzed to provide actionable insights. Finally, with the benefits of mobility, these insights can be acted upon to drive better and more timely decisions by the user anywhere and anytime. As a result, our solutions and technologies enable enterprise users to improve operational effectiveness and achieve critical business objectives by becoming smarter and more connected.

The evolution of the AIDC market to 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 connected devices. This enables our EAI solutions to capture and utilize real-time information from a broad range of connected sensors compared to typical AIDC solutions, which primarily draw upon only one sensor (e.g. a barcode). Cloud computing and expanded data analytics are allowing enterprises to make better business decisions through improved timeliness and visibility to information and workflows. While 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 expanded mobility, end-users are able to 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 Zebra solutions to enable organizations to collect more data in real-time on the location, movement, and condition of their assets.

Acquisition of Enterprise Business

In October 2014, Zebra 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 “Acquisition”). Enterprise is an industry leader in mobile computing and advanced data capture technologies and services, which complement Zebra’s printing and RFID products. Its products include rugged and enterprise-grade mobile computers, barcode scanners and RFID readers, WLAN solutions, and accessories, software, and services that are associated with these products. Enterprise service revenues include sales arising from maintenance, repair, product support, system installation and integration services, and other services.

The Acquisition expanded Zebra’s product lines with complementary products that together are employed by customers to obtain greater visibility and insights into their operations. It enables us to deliver end-to-end solutions supporting the IoT in targeted industries. We believe that the expanded capabilities of the combined company make Zebra a more valued strategic supplier to end-users, as well as a more important supplier of products and solutions to our channel partners.

Similar to Zebra’s business prior to the Acquisition, Enterprise’s products and services are sold to a wide range of enterprise customers globally, including those in the retail, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, and education industries.

Zebra funded the Acquisition through a combination of cash on hand of $250 million, the sale of 7.25% senior notes due 2022 in an aggregate principal amount of $1.05 billion (the “Senior Notes”), and a new credit agreement with various lenders that provided a term loan of $2.2 billion (the “Term Loan”) due 2021. The new credit agreement also included a $250 million revolving credit facility (the “Revolving Credit Facility”) and, together with the Senior Notes and the Term Loan, the “(Debt Agreements”).

Integration of Enterprise Business

Since closing the Acquisition in October 2014, integration activities by the Company have focused on creating “One Zebra” by integrating the operations of Enterprise with Legacy Zebra to create a single business with common sales, marketing, finance, supply chain, information technology ("IT"), and other functions. Our priorities have centered on maintaining business continuity while identifying and implementing cost synergies and integrating functional organizations and processes. Another key focus of the integration has been to conclude MSI-provided transition service agreements (“TSA”) related primarily to IT support services. These TSAs are an interim measure to facilitate the integration of Enterprise and enable us to continue operating Enterprise without disruption. We also completed the integration of our sales organization and sales channel. In 2015, we began a legal entity rationalization program and terminated 29 entities that were either acquired in the Acquisition or legacy entities that Zebra owned pre-Acquisition.

During 2015, significant progress was made in the areas of organizational design and culture development, including integrating all functional organizations across Zebra into a unified organizational structure. We also completed a global roll out of a new Zebra brand, implemented systems for our sales and engineering teams, and consolidated a number of real estate sites.

These efforts resulted in the elimination of a significant number of Enterprise IT applications and closure of a significant number of TSAs.

Additional integration work remains to be completed, primarily in the area of IT infrastructure and business systems, including implementation of a common enterprise resource planning (“ERP”) system, as well as systems to support our services business and network of channel partners. Until such time that Zebra is able to complete its transition to common systems, Legacy Zebra and Enterprise will continue to operate largely on separate systems, including separate ERP systems. The IT integration, when completed, will result in a modernized and right-sized IT network and streamlined business processes. We expect to make continued progress on the IT integration throughout 2016, which will include implementation of the initial stages of a phased ERP implementation. Completion of the IT integration, including a common ERP system, is expected before the end of 2017 and will enable us to terminate the remaining TSAs. We also expect a more efficient and cost effective IT network, improved operational productivity, and reduced costs.

Acquisitions (other than the Acquisition of the Enterprise Business)

Hart Systems Acquisition

In December 2013, Zebra acquired Hart Systems LLC, a leading provider of self-directed physical inventory management solutions to the retail industry. Hart has distinguished itself in the market by offering retailers a high return on investment through self-managed inventory solutions. This acquisition enables us to expand our presence in the retail market segment by offering additional inventory management services as part of Zebra’s dedicated retail solutions. It also adds "a software as a service" offering to Zebra’s product portfolio.

Operations

Our operations consist of two segments - (1) Enterprise, comprised of our mobile computing, data capture, RFID and WLAN products, and services and (2) Legacy Zebra, comprised of barcode and card printing, location solutions, supplies, and services.

Enterprise

Mobile Computing: We design, manufacture, and sell rugged and enterprise-grade mobile computing products in a variety of specialized form factors and features for specific 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- 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. Zebra’s data capture products allow the capture of business critical information simply, quickly, and accurately. Common applications include asset identification and tracking and workflow management in a variety of industries, including retail, transportation and logistics, manufacturing, and healthcare. The devices collect and decode barcodes and images and transmit the resulting data to enterprise systems for analysis and timely decision making. 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.

WLAN: We offer enterprise-grade WLAN solutions, which include controllers and access points, security and management, indoor locationing, customer engagement solutions and related maintenance, integration, and managed services. Our WLAN solutions comply with various Wi-Fi (IEEE 802.11) standards. Our customers are primarily retail, hospitality, and transportation and logistics enterprises.

Services: We provide a full range of maintenance, technical support, repair and managed services, including cloud based subscriptions. These offerings include multiple service levels and typically are contracted through multi-year service agreements. We also provide services strategically aligned to the way enterprise businesses manage their mobility infrastructure, devices, and related software applications. This includes services that help customers design, test, and deploy our solutions. We also assist customers in modernizing their mobile user experiences and increasing the efficiency of their operations by migrating legacy applications to newer architectures or redesigning user software applications, workflows, and backend system integrations. We provide our services directly and also through our network of partners to extend the geographic reach of our service offerings.

Legacy Zebra

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.

Location Solutions: Zebra offers a range of RTLS and services, which incorporate active and passive RFID and other tracking technologies to provide visibility into the location and movement of enterprise assets and personnel. Our solutions enable users to locate, track, manage, and optimize the utilization of high-value assets, equipment, and people. Zebra provides substantially all elements of the location solution, including asset tags, call tags, sensors, exciters, middleware software, and application software. Applications for our location solutions span a broad array of industries where tracking assets, transactions, and people are critical. Our solutions are deployed primarily in industrial manufacturing, process industries, aerospace, transportation and logistics, sports, and healthcare environments. The National Football League and 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.

Supplies: We produce and sell stock and customized thermal labels, receipts, ribbons, plastic cards, and wristbands suitable for use with Zebra’s printers, and also wristbands which can be imaged in most commercial laser printers. Zebra supports its printing products, its resellers and its end-users with an extensive line of superior quality, high-performance supplies optimized to a particular end-user’s needs. Zebra promotes the use of genuine Zebra branded supplies with its printing equipment. Zebra also provides a family of self-laminating wristbands for use in laser printers. These wristbands are marketed under the LaserBand® name. Zebra operates 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, repair, and managed services. These offerings include multiple service levels and typically are contracted through multi-year service agreements. Zebra also provides services strategically aligned to the way businesses manage their devices and related software applications. We provide our services directly and also through our network of partners to extend the geographic reach of our service offerings.

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 Enterprise Asset Intelligence

We focus on key technologies of Enterprise Asset Intelligence, including mobile computing; barcode and card printing; data capture; RFID; location solutions; and WLAN. We also provide related software, services, and accessories. We believe we are the market leader in mobile computing, barcode printing, data capture, and RFID.

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 a strong partner network are critical parts of 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 experience to deliver end-to-end solutions across targeted 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.

Global reach and brand

We sell to customers directly and through our network of 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 Zebra has strong brand recognition with a reputation in the industry as a trusted and strategic partner and supplier.

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 Strategy

Our business strategies include (a) leverage leadership position and innovation to drive profitable growth in our core business; (b) integrate and optimize Zebra as one seamless, focused company; (c) drive our Enterprise Asset Intelligence vision; (d) continuously improve operating efficiency to expand profitability; and (e) improve cash flow generation and reduce debt.

Leverage leadership position and innovation to drive profitable growth in 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 becoming a more strategic partner to our end customers. We also expect to drive growth by capitalizing on technology transitions occurring in the industry, including the transition to more modern mobile operating systems in mobile computing and transitions in data capture to newer technologies involving 2D imaging and RFID. This will be augmented by 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.

Integrate and optimize Zebra as one seamless, focused company

We are integrating, optimizing, and reshaping Zebra into a seamless, focused company with a high-performance culture characterized by a common purpose and shared set of values. We also plan to introduce common features, functions, and user experiences across our broad portfolio of solutions to drive competitive differentiation and increase cross-selling. Our plans include developing and delivering new offerings that integrate various devices, software, and services into complete, end-to-end solutions for our customers and partners. We also expect to continue to capture near term operating and supply chain synergies and position ourselves for additional operating efficiencies driven by a common IT platform and operating model enhancements.

Drive our Enterprise Asset Intelligence vision

We believe that secular technology trends, particularly in enterprise mobility, cloud computing, and IoT are transforming our customers’ businesses and our industry and provide us with significant new opportunities to create value for our customers and for Zebra. By capitalizing on these trends, and in particular the proliferation of smart connected sensors and devices in our core market segments, we plan to provide new end-to-end solutions that integrate these sensors and devices with cloud-based workflow and analytics applications. These solutions will enable increased visibility into the enterprise, real-time, actionable information, and improved customer experiences.

Continuously improve operating efficiency to expand profitability

We intend to continuously improve profitability through operational execution, cost reductions, and further operating efficiencies derived from continuous business process improvement and the integration of the Enterprise business and systems. We also intend to increase profitability through growing our business by delivering innovative end-to-end solutions that provide significant value to our customers.

Improve cash flow generation and reduce debt

Our primary balance sheet priority is to expand operating cash flow generation through growth in the business, margin expansion, and reductions in certain uses of cash, including integration costs and capital expenditures, as well as a strong focus on managing and improving working capital efficiency. Our capital allocation priority will continue to be the reduction of debt.

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, 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 Zebra competes effectively with respect to these factors.

Many companies are engaged in the design, manufacture, and marketing of mobile computing devices, data capture solutions, RFID, WLAN, barcode and card printers, location systems and supplies.

Mobile Computing: Competitors in mobile computing include companies that have historically served enterprises with ruggedized devices. We also compete with companies engaged in the design, manufacture, and marketing of devices for broader consumer and commercial applications, including notebook computers and tablets, smart phones, cordless phones, and cellular/WLAN/wired infrastructure equipment. Competitors include the following (listed in alphabetical order): Apple, Datalogic, Honeywell, Panasonic, and Samsung.

Data Capture & RFID: Competitors that provide a broad portfolio of barcode scanning products that are suitable for the majority of global market applications include Honeywell and Datalogic. In addition, we also compete against several smaller companies that focus on limited product subsets or specific regions. These competitors include Code Corporation, Fujian Newland, and Opticon. Competition in other product categories including both fixed and hand-held UHF RFID readers, which are based on the EPC standard, remains highly fragmented.

WLAN: Many companies are engaged in the design, manufacture, and marketing of WLAN products and solutions. Zebra solutions are primarily targeted at retail applications but can also serve other market segments. Competitors to our WLAN business include (listed in alphabetical order): Aerohive Networks, Cisco, Hewlett-Packard Enterprise, and Rukus Wireless.

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 alternative 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 the purchase of our card printing equipment and supplies. Competitors to our printing business include (listed in alphabetical order): Datacard, Evolis, 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. These competitors include (listed in alphabetical order): Alien Technology, Cisco, Impinj, and Ubisense.

Supplies: The supplies industry is highly fragmented with competition comprised of numerous companies of various sizes around the world.

Customers

Zebra’s customers are diversified across a wide variety of industries, including retail, manufacturing, transportation and logistics, and healthcare industries. Over the past three years, we have had three customers that each accounted for 10% or more of our sales. All three of these customers are distributors and not end-users. No end-user accounts for 10% or more of net sales during these years. See Note 22 Major Customers in the Notes to Consolidated Financial Statements included in this Form 10-K.

	Year Ended December 31,
	2015			2014			2013
Customer A	17.0	%		17.1	%		16.8	%
Customer B	10.0	%		12.2	%		13.1	%
Customer C	9.6	%		10.5	%		12.3	%

Sales and Marketing

Sales. We sell our products, solutions, and services primarily through distributors (two-tier distribution), value added resellers (“VAR”), 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 us to reach customers in a wide array of industries around the world. We believe that the breadth of our distributor and partner network enhances our ability to compete and to effectively offer our solutions to a wide array of end-users globally. 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 global corporate marketing, solutions marketing, field marketing, business intelligence, demand center, and channel marketing functions. Our corporate marketing function manages the Zebra brand, public and industry relations, and other communications activities. Regional marketing encompasses field and channel marketing, demand generation, and sales enablement. Solutions marketing includes product and industry marketing. Business intelligence provides fact-based insights into our markets, competitors, customers, and partners. Our global demand center leads content development and digital marketing, including our website and social media. The global channel team develops and executes channel strategy and operations.

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"). Enterprise products including mobile computing, data capture, and WLAN are produced primarily in facilities located in Brazil, Mexico, and China. Barcode and card printing products are manufactured in China. We maintain the services of JDMs for certain products. 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. The majority of our products are shipped to regional distribution centers. 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 United States government. Production facilities for our supplies products are located in the United States and Western Europe. We also supplement our in-house production capabilities with those of third-party manufacturers to offer Zebra supplies, principally in Asia.

Research and Development

Zebra 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 2015, 2014, and 2013 were $394 million, $151 million, and $91 million, respectively, or 10.8% of net sales for 2015, 9.0% of net sales in 2014, and 8.8% of net sales in 2013. Zebra has more than 1,800 product development engineers worldwide focused on strengthening and broadening our extensive product portfolio.

Our Technology

Mobile Computing: Zebra’s mobile computing products incorporate a wide array of advanced technologies in rugged, ergonomic enclosures to meet the needs of specific use cases. These devices couple 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 accessories further tailors mobile computers to meet a wide variety of enterprise needs. Zebra 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: Zebra’s data capture products allow businesses to track business critical information simply, quickly, and accurately - providing critical visibility into business processes and performance, thus, enabling real-time action in response to the information. These products include barcode scanners in a variety of form factors, including handheld scanners and standalone modules designed for integration into third-party OEM devices. These 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 readers use passive Ultra High Frequency ("UHF") to provide high speed, non-line of sight data capture, reading data from hundreds or thousands of RFID tags in near real-time. Using the Electronic Product Code ("EPC") standard, our customers take advantage of RFID technology across multiple industries to track high-value assets, monitor shipments, and drive increased retail sales though improved inventory accuracy. Zebra also offers mobile computers that support high frequency (“HF”) near-field communications (“NFC”), and low frequency (“LF”) radio technologies.

WLAN: Zebra’s WLAN products provide the wireless backbone throughout an enterprise. Built upon industry standard wi-fi protocols, our products are differentiated by scalability, enhanced capacity controls, site survivability, comprehensive security and location-based services for enterprises. Zebra’s WiNG 5 technology enables geographically distributed enterprises to rapidly deploy controller-less WLAN solutions at multiple branch locations for corporate and guest access, all managed centrally. Integrated network, RF management, and application services allow an enterprise to prioritize mission critical or latency sensitive traffic like voice and video, and provide proactive assurance for the wireless network. Network security utilizes a comprehensive threat library to protect the network from a broad spectrum of intruders. Device management protocols allow a single network infrastructure to onboard mobile users, campus and remote employees, authorized visitors, as well as guest users with their own devices.

Barcode and Card Printing: All Zebra printers and print engines incorporate thermal printing and RFID tag encoding technology. Thermal printing technology creates an image by heating certain pixels of an electrical printhead to selectively image a ribbon or heat-sensitive 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.

Zebra’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. Customers benefit by utilizing the choice or combination of asset tracking products that can be “application matched” based on ISO/IEC 24730-2, Cisco CCX Wi-Fi, precision GPS, and ultra-wideband (“UWB”) technologies. 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: Zebra’s supplies business includes thermal labels, receipts, ribbons, plastic cards and wristbands suitable for use with Zebra’s printers, and also 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. Zebra offers 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, temperature extremes, exceptional image quality, or long life.

Intellectual Property

Zebra relies on a combination of trade secrets, patents, trademarks, copyrights, and contractual rights to establish and protect its innovations, and holds a large portfolio of intellectual property rights in the United States and other countries. As of December 31, 2015, Zebra and its wholly-owned subsidiaries owned approximately 900 trademark registrations, 680 trademark applications, 3,600 patents, and 950 patent applications, worldwide. Zebra continues to actively seek to obtain patents and trademarks, whenever possible and practical, to secure intellectual property rights in its 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, 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 January 31, 2016, Zebra employed approximately 7,000 persons, of which 670 were corporate employees. Some portions of our business, primarily in Europe and China, are subject to labor laws that differ significantly from those in the United States. 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.

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 2015, 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.

Contact Information

Zebra Technologies is a Delaware corporation. Our principal offices are located at 3 Overlook Point, Lincolnshire, Illinois 60069. Our main telephone number is +1 (847) 634-6700, and our primary Internet Web site address is www.zebra.com. You can find all of Zebra’s filings with the SEC free of charge through the investor page on our Web site, immediately upon filing.

Additional Information

For financial information regarding Zebra, see the Consolidated Financial Statements and the related Notes, which are included in the Annual Report on Form 10-K.

Investors should carefully consider the risks, uncertainties, and other factors described below, as well as other disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations, because they could have a material adverse effect on Zebra’s business, financial condition, operating results, cash flows and growth prospects. 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.

We have organized the risk factors into three sections: (1) Risks related to our business; (2) Risks related to the Acquisition and Integration of Enterprise; and (3) Risks related to our Indebtedness.

Risks related to our business

Zebra has substantial operations and sells a significant portion of its products outside of the U.S. and purchases important components, including final products, from foreign suppliers. Shipments to non-U.S. customers are expected to continue to account for a material portion of net sales. Zebra also expects to continue the use of third-party contract manufacturing services with non-US 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;

•	Adverse changes in, or uncertainty of, local business laws or practices, including the following:

•	Foreign governments may impose burdensome tariffs, quotas, taxes, trade barriers or capital flow restrictions;

•	Restrictions on the export or import of technology may reduce or eliminate the ability to sell in or purchase from certain markets;

•	Political and economic instability may reduce demand for our products or put our non-U.S. assets at risk;

•	Potentially limited intellectual property protection in certain countries may limit recourse against infringing on our products or cause Zebra to refrain from selling in certain geographic territories;

•	Staffing may be difficult 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 Zebra’s 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.

Zebra 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, Zebra must adapt to rapidly changing technological and application needs by continually improving its products, as well as introducing new products and services, to address user demands.

Zebra’s industry is characterized by:

•	Evolving industry standards,

•	Frequent new product and service introductions,

•	Evolving distribution channels,

•	Increasing demand for customized product and software solutions,

•	Changing customer demands, and

•	Changing security protocols.

Future success will depend on Zebra’s ability to effectively and economically adapt in this evolving environment. Zebra could incur substantial costs if it has to modify its business to adapt to these changes, and may even be unable to adapt to these changes.

Zebra 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. Zebra faces significant competition in developing and selling its products and solutions. Some competitors have substantial marketing, financial, development, and personnel resources. To remain competitive, Zebra believes it must continue to effectively and economically provide:

•	Technologically advanced systems that satisfy user demands,

•	Superior customer service,

•	High levels of quality and reliability, and

•	Dependable and efficient distribution networks.

Zebra cannot assure it will be able to compete successfully against current or future competitors. Increased competition in mobile computing products, data capture products, printers, WLAN products and solutions, or supplies may result in price reductions, lower gross profit margins, and loss of market share, and could require increased spending on research and development, sales and marketing, and customer support. Some competitors may make strategic acquisitions or establish cooperative relationships with suppliers or companies that produce complementary products, which may create additional pressures on Zebra’s competitive position in the marketplace.

Zebra is vulnerable to the potential difficulties associated with the increase in the complexity of its business. Zebra has grown rapidly over the last several years through the 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 Zebra:

•	Managing our distribution channel partners;

•	Managing our contract manufacturing and supply chain;

•	Manufacturing an increased number of products;

•	Increased administrative and operational burden;

•	Maintaining and improving information technology infrastructure to support growth;

•	Increased logistical problems common to complex, expansive operations; and

•	Increasing international operations.

Inability to consummate future acquisitions at appropriate prices could negatively impact our growth rate and stock price. Zebra’s ability to grow revenues, earnings and cash flow depends in part upon our ability to identify and successfully acquire and integrate businesses at appropriate prices and to realize anticipated synergies. Acquisitions can be difficult to identify and consummate due to competition among prospective buyers and the need to satisfy applicable closing conditions and obtain antitrust and other regulatory approval on acceptable terms.

Zebra could encounter difficulties in any acquisition it undertakes, including unanticipated integration problems and business disruption. Acquisitions could also dilute stockholder value and adversely affect operating results. Zebra may acquire or make investments in other businesses, technologies, services, or products. An acquisition may present business issues which are new to Zebra. The process of integrating any acquired business, technology, service, or product into our operations may result in unforeseen operating difficulties and expenditures.

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Not applicable.

Zebra’s corporate headquarters are located in Lincolnshire, Illinois; a northern suburb of Chicago. Zebra also operates manufacturing, production and warehousing facilities, administrative, research, and sales facilities in other U.S. and international locations.

As of December 31, 2015, Zebra owned 3 lab and warehouse facilities located in: Holtsville, NY; Preston, UK; and Mississauga, Ontario, Canada. The Company operates from 11 facilities for the purposes of manufacturing, production, and warehousing, 7 of which are located in the United States and 4 are located in other countries. As of December 31, 2015, the Company leased 123 office facilities, 41 of which were located in the United States and 82 were located in 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.

See Note 16 Contingencies in the Notes to Consolidated Financial Statements included in this Form 10-K.

Not applicable.

PART II

Stock Information: Price Range and Common Stock

Our Class A Common Stock is traded on The NASDAQ Stock Market under the symbol ZBRA. The following table shows the high and low trade prices for each fiscal quarter in 2015 and 2014, as reported by The NASDAQ Stock Market.

2015		High				Low				2014		High				Low
First Quarter		$	92.48			$	74.40			First Quarter		$	72.76			$	52.61
Second Quarter		119.47				88.41				Second Quarter		87.53				60.06
Third Quarter		117.00				71.95				Third Quarter		86.02				72.10
Fourth Quarter		83.02				63.92				Fourth Quarter		79.11				58.95

Source: The NASDAQ Stock Market

At February 22, 2016, the last reported price for the Class A Common Stock was $68.31 per share, and there were 157 registered stockholders of record for Zebra’s Class A Common Stock. In addition, we had approximately 24,950 stockholders who owned Zebra stock in street name.

Dividend Policy

Since our initial public offering in 1991, we have not declared any cash dividends or distributions on our capital stock. Zebra currently does not anticipate paying any cash dividends in the foreseeable future.

Treasury Shares

Zebra did not purchase shares of Zebra Class A Common Stock during 2015.

In November 2011, Zebra’s Board authorized the purchase of up to an additional 3,000,000 shares under the purchase plan program and the maximum number of shares that may yet be purchased under the program is 665,475. The November 2011 authorization does not have an expiration date.

FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA

(In millions, except shares and per share amounts)

	Year Ended December 31,
(Loss)/Earnings (1)	2015					2014					2013				2012				2011
Net sales	$	3,652				$	1,671				$	1,038			$	996			$	983
Cost of sales	2,008					893					535				505				496
Gross profit	1,644					778					503				491				487
Acquisition and integration costs	144					127					5				3				—
Exit and restructuring costs	39					6					6				1				2
Other operating expenses	1,408					556					332				323				303
Total operating expenses	1,591					689					343				327				305
Operating income	53					89					160				164				182
(Loss) income from continuing operations before income taxes	(164		)	(2	)	17			(2	)	164				164				180
(Loss) income from continuing operations, net of tax	(137		)			32					134				122				131
Income (loss) from discontinued operations, net of tax (3)	—					—					—				1				44
Net (loss) income	$	(137	)			$	32				$	134			$	123			$	175
Basic earnings per share:
(Loss) income from continuing operations	$	(2.69	)			$	0.64				$	2.65			$	2.36			$	2.42
Income (loss) from discontinued operations (3)	—					—					—				0.02				0.82
Net (loss) income	$	(2.69	)			$	0.64				$	2.65			$	2.38			$	3.24
Diluted earnings per share:
(Loss) income from continuing operations	$	(2.69	)			$	0.63				$	2.63			$	2.35			$	2.40
Income (loss) from discontinued operations (3)	—					—					—				0.02				0.82
Net (loss) income	$	(2.69	)			$	0.63				$	2.63			$	2.37			$	3.22
Weighted average shares outstanding
Basic	50,996,297					50,789,173					50,692,942				51,566,468				53,853,579
Diluted	50,996,297					51,379,698					51,063,189				51,843,051				54,190,871

	December 31,
Balance Sheet (1)	2015				2014				2013				2012				2011
Cash and cash equivalents, investments and marketable securities	$	192			$	418			$	416			$	394			$	327
Working capital (4)	456				719				635				616				476
Total assets	5,024				5,539				1,120				968				899
Long-term obligations (5)	3,234				3,346				15				14				12
Stockholders’ equity	913				1,040				959				857				777

(1)	Includes the Enterprise business from its date of acquisition October 27, 2014.

(2)	2015 includes interest expense of $197 million and forward swaps gain of $4 million. 2014 includes interest expense of $57 million and forward swaps loss of $5 million.

(3)	In 2011, the Company sold two businesses, Navis, LLC and Proveo AG and reported the results as discontinued operations.

(4)	Calculated as current assets minus current liabilities.

(5)	Long-term obligations includes long-term debt, deferred revenue, and other long-term liabilities.

Overview

Percentage changes provided throughout Management's Discussion and Analysis of Financial Condition and Results of Operations were calculated on amounts rounded to the nearest thousand.

Zebra 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; WLAN products; specialty printers for barcode labeling and personal identification; RTLS; related accessories and supplies, such as self-adhesive labels and other consumables; and utilities and application software. End-users of our products include those in the retail, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, and education industries 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 extensive network of partners. We provide products and services in over 170 countries, with approximately 120 facilities and 7,000 employees worldwide.

In October 2014, Zebra acquired the Enterprise from MSI, excluding its iDEN, or Integrated Digital Enhanced Network Business, for $3.45 billion in cash. Enterprise is an industry leader in mobile computing and advanced data capture technologies and services, which complement Zebra’s printing and RFID products. Its products include rugged and enterprise-grade mobile computers; barcode scanners and imagers; RFID readers; WLAN solutions; and accessories, software; and services that are associated with these products. Enterprise service revenues include sales arising from maintenance, repair, product support, system installation and integration services, and other services.

Similar to Zebra’s pre-Acquisition business, Enterprise’s products and services are sold to a wide range of enterprise customers globally, including those in the retail, transportation and logistics, manufacturing, health care, hospitality, warehouse and distribution, energy and utilities, and education industries.

Zebra financed the Acquisition through a combination of cash on hand and borrowings of $3.25 billion (the “Indebtedness”), including the sale of 7.25% senior notes due 2022 with an aggregate principal amount of $1.05 billion and a new credit agreement with various lenders that provided a term loan of $2.20 billion due 2021. The new credit agreement also included a $250 million revolving credit facility.

Segments

Commencing with the completion of the Acquisition in October 2014, the Company’s operations consist of two reportable segments: Legacy Zebra and Enterprise.

Legacy Zebra

The Legacy Zebra segment is an industry leader in barcode printing and asset tracking technologies. Its major product lines include barcode and card printers, location solutions, supplies, and services. Industries served include retail, transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America; Latin America; Asia-Pacific; and Europe, Middle East, and Africa.

Enterprise

The Enterprise segment is an industry leader in automatic information and data capture solutions. Its major product lines include mobile computing, data capture, RFID, WLAN, and services. Industries served include retail, transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America; Latin America; Asia-Pacific; and Europe, Middle East, and Africa.

Geographic Information. For the year ended December 31, 2015, the Company recorded $3.7 billion of net sales in its consolidated statements of operations, of which approximately 48.6% were attributable to North America; approximately 32.7% were attributable to Europe, Middle East, and Africa ("EMEA"); and other foreign locations accounted for the remaining 18.7%.

Results of Operations: Year Ended 2015 versus Year Ended 2014 and Year Ended 2014 versus Year Ended 2013

Consolidated Results of Operations (Acquisition of Enterprise impacted the last two months of 2014)

(Amounts in millions, except percentages)

	Year Ended December 31,											Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Net sales	$	3,652			$	1,671			$	1,038		118.6	%		60.9	%
Gross profit	1,644				778				503			111.3	%		54.5	%
Operating expenses	1,591				689				343			130.8	%		100.8	%
Operating income	$	53			$	89			$	160		(40.1	)%		(44.5	)%
Gross margin	45.0		%		46.6		%		48.5		%

Net sales by product category were as follows (amounts in millions, except percentages):

	Year Ended December 31,											Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Hardware	$	2,865			$	1,234			$	740		132.2	%		66.6	%
Supplies	268				265				244			1.2	%		8.7	%
Service and Software	519				172				54			201.8	%		220.8	%
Total Net sales	$	3,652			$	1,671			1,038

Net sales to customers by geographic region were as follows (in millions, except percentages):

	Year Ended December 31,											Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Europe, Middle East, and Africa	$	1,194			$	583			$	326		104.8	%		78.6	%
Latin America	220				135				99			63.6	%		35.9	%
Asia-Pacific	463				216				153			114.2	%		41.4	%
Total International	1,877				934				578			101.0	%		61.4	%
North America	1,775				737				460			140.9	%		60.3	%
Total Net sales	$	3,652			$	1,671			$	1,038

Operating expenses are summarized below (in millions, except percentages):

	Year Ended December 31,											Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Selling and marketing	$	486			$	213			$	138		128.0	%		54.5	%
Research and development	394				151				91			160.8	%		65.8	%
General and administrative	277				138				96			100.2	%		43.2	%
Amortization of intangible assets	251				54				7			363.7	%		632.7	%
Acquisition and integration costs	144				127				5			13.6	%		NM
Exit and restructuring costs	39				6				6			553.9	%		2.0	%
Total Operating expenses	$	1,591			$	689			$	343		130.8	%		100.8	%

The Company's non-operating income and expense items and income taxes are summarized in the following tables (in millions, except percentages):

	Year Ended December 31,											Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Foreign exchange loss	$	(22	)		$	(9	)		$	(1	)	151.7	%		NM
Interest expense, net	(194		)		(62		)		—			213.0	%		NM
Other, net	(1		)		(1		)		5			(25.4	)%		(126.8	)%
Total other (expenses)/income	$	(217	)		$	(72	)		4			201.6	%		NM

	Year Ended December 31,										Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Income tax (benefit) expense	$	(27	)		$	(15	)		30		76.7	%		(150.7	)%

2015 compared to 2014

Net sales growth of 118.6% for the twelve months ended December 31, 2015 as compared to the prior year was primarily as a result of the Acquisition of the Enterprise business and higher North America sales, offset partially by $149 million of unfavorable foreign currency effects, net of hedges. The Enterprise business contributed $1,889 million or 95.3% of the increase in total net sales, increased gross profit by $809 million or 93.4%, and increased recurring operating expenses by $817 million or 95.9%, and non-recurring operating expenses by $41 million or 82.4%. Included within the total recurring operating expenses was an increase of $197 million of amortization expense as a result of intangibles acquired. Within non-recurring operating expenses were increases of $17 million of integration and acquisition costs as a result of IT costs of transitioning and exiting the Motorola platforms and $24 million of exit and restructuring costs as a result of integrating acquired facilities and related employees.

Included in the total Enterprise impacts of 2015 versus 2014 are the following purchase accounting adjustments: a $10 million reduction in revenue related to the valuation of service contracts acquired, a $25 million decrease to cost of sales related to a step up in value of inventory acquired, and a $167 million increase in depreciation and amortization expenses.

Net sales, excluding the impact of the Acquisition of the Enterprise business, increased by $92 million or 7.7% in 2015 versus 2014. The unfavorable impact of foreign currency reduced sales by $70 million. This increase is primarily due to sales growth in the North America and Asia-Pacific regions, specifically higher volumes of barcode printers and location solutions. Latin America sales were lower driven by a weak macro-economic environment. Consolidated net sales, excluding the effect of the Enterprise business, grew 12.5%, on a constant currency basis.

Gross margin as a percent of sales, excluding the effect of the Enterprise business, was 50.9% for the year ended December 31, 2015 compared to 50.0% in the comparable year ended December 31, 2014. This increase in margins reflects the favorable impact of higher unit sales within the North America and Asia-Pacific regions and lower product costs for both hardware and supplies, offset partially by unfavorable foreign currency effects, net of hedges.

Operating expenses for the year ended December 31, 2015, excluding the effect of the Enterprise business, were $414 million compared to $370 million in the prior year. Included in the increase were exit and restructuring costs within Legacy Zebra of $9 million related to organizational redesign. As a percentage of sales, operating expenses, excluding the Enterprise business, were 32.1% for the year ended December 31, 2015 compared to 31.0% for the year ended December 31, 2014 primarily due to additional investments made to support business growth in the sales, research and development, and administrative functions, and exit and restructuring costs.

Operating income for the year ended December 31, 2015, excluding the effect of the Enterprise business, increased $13 million or 6.1% compared to the prior year. The increase is primarily due to higher sales and gross profit, partially offset by higher operating expenses and the unfavorable foreign currency effects, net of hedges.

The Company recognized a foreign exchange loss of $22 million for 2015 as a result of changes in the value of non-US dollar assets and liabilities primarily related to the Enterprise business that were not hedged during the period.

Interest expense was $194 million for the year ended December 31, 2015 compared to $62 million for 2014 mainly reflecting the indebtedness incurred related to the Acquisition of $3.2 billion borrowed in October of 2014. There was also $4 million of

forward interest rate swap gains in 2015 included in interest expense compared to a $5 million loss in 2014 primarily due to the changes in the market interest rates.

In 2015, the Company recognized a tax benefit of $27 million compared to a tax benefit of $15 million for 2014. The Company’s effective tax rates were 16.1% and (95.0)% as of December 31, 2015 and December 31, 2014, respectively. The Company’s effective tax rate was lower than the federal statutory rate of 35% primarily due to pre-tax losses in the United States and corporate structure realignment initiatives in various non-US jurisdictions.

Since the date of the Acquisition, as part of its corporate initiatives of integrating the Enterprise business, the Company has been executing its integration plan for the Enterprise business (the “Integration Plan”). The Company anticipates completing the Integration Plan as soon as practicable and expects that the Integration Plan will allow the combined businesses to achieve further synergies and cost savings associated with the Acquisition. As part of the Integration Plan, the Company began realigning certain acquired assets of the Enterprise business with and into the Company’s corporate structure and business model.

2014 compared to 2013

Net sales growth of 60.9% for the twelve months ended December 31, 2014 as compared to 2013 was primarily a result of the Acquisition of the Enterprise business and higher sales in all regions and product categories. The Enterprise business contributed $476 million or 75.3% of the increase in total net sales, increased gross profit by $180 million or 65.7%, increased recurring operating expenses by $185 million or 83.1%, and non-recurring operating expenses by $135 million or 108.5%. Included within the total recurring operating expenses were $47 million of amortization expense as a result of the Acquisition. Included within non-recurring operating expenses were $127 million of acquisition related costs also as a result of the Acquisition and $6 million of exit and restructuring costs related to organizational redesign.

Included in the total Enterprise impacts of 2014 are the following purchase accounting adjustments: $6 million reduction in revenue related to the valuation of service contracts acquired, $29 million increase to cost of sales related to a step up in value of inventory acquired, and $35 million increase in depreciation and amortization expenses.

Net sales, excluding the impact of the Enterprise business, increased by $157 million or 15.1% in 2014 versus 2013. The Company experienced net sales growth across all regions and all product categories in 2014 with notable increases in supplies and service contracts, and sales of tabletop, desktop, and mobile printers. Sales growth of $24 million was also derived from the December 2013 acquisition of Hart Systems, LLC.

Gross margin as a percent of sales, excluding the effect of the Enterprise business, was 50.0% for the year ended December 31, 2014 compared to 48.5% in the comparable year ended December 31, 2013. The improvement in gross margin reflected the favorable impact of higher sales, as well as product cost reductions on printers and supplies, and the December 2013 acquisition of Hart Systems LLC. The gross profit increase in 2014 versus 2013 was primarily due to the higher sales, improved gross margin percentage, and the December 2013 acquisition of Hart Systems LLC.

Operating expenses for the year ended December 31, 2014, excluding the effect of the Enterprise business, were $369 million compared to $343 million in the prior year. As a percentage of sales, operating expenses, excluding the Enterprise business, were 31.0% for the year ended December 31, 2014 compared to 33.1% for the year ended December 31, 2013 primarily due to a higher rate of sales growth than the rate of increase in expenses.

Operating income for the year ended December 31, 2014, excluding the effect of the Enterprise business, increased $68 million or 42.0% compared to the prior year. The increase is primarily due to higher sales and gross margin percentage improvement, which resulted in a gross profit increase of $94 million. This was partially offset by higher operating expenses to support business growth.

The Company recognized a foreign exchange loss of $9 million for 2014 as a result of changes in the value of non-US dollar assets and liabilities that were not hedged during the period. Zebra did not hedge the Enterprise monetary assets until the second quarter of 2015.

Interest expense was $62 million for the year ended 2014 compared to a minimal amount in 2013 mainly reflecting the indebtedness incurred related to the Acquisition. There is also $5 million of forward swap loss included in interest expense in 2014.

In 2014, the Company recognized a tax benefit of $15 million compared to tax expense of $30 million for 2013. The Company’s effective tax rates were (95)% and 18.1% as of December 31, 2014 and December 31, 2013, respectively. The 2014

rate benefit is primarily driven by foreign earnings taxed at lower rates and a domestic pre-tax loss, which is attributable to third-party interest expense and acquisition expenses.

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 21 Segment Information and Geographic Data in the Notes to the Consolidated Financial Statements included in this Form 10-K. The segment results exclude purchase accounting adjustments, amortization, acquisition, integration, and exit and restructuring costs.

Legacy Zebra Segment

(amounts in millions, except percentages)

	Year Ended December 31,											Percent Change 2015 vs 2014			Percent Change 2014 vs 2013
	2015				2014				2013
Net sales	$	1,287			$	1,195			$	1,038		7.7	%		15.1	%
Gross profit	655				598				504			9.6	%		18.7	%
Operating expenses	395				360				325			9.7	%		10.6	%
Operating income	$	260			$	238			$	179		9.4	%		33.3	%
Gross margin	50.9		%		50.0		%		48.5		%

2015 compared to 2014

Net sales for 2015 increased $92 million or 7.7% compared to 2014. Net sales growth compared to 2014 on a constant currency basis was $149 million or 12.5%. This reflects higher net sales for the North America and Asia-Pacific regions. Net sales in EMEA were essentially unchanged while Latin America net sales were lower. On a constant currency basis, net sales in EMEA increased 14% compared to 2014. The increase in net sales for the North America region was primarily due to higher volume of sales related to barcode printers and location solutions. The higher level of net sales for EMEA and Asia-Pacific regions reflected increased volumes of barcode printers. The decrease in net sales in the Latin America region was primarily driven by a weak macro-economic environment.

Gross margin as a percentage of sales was 50.9% for the year ended December 31, 2015 compared to 50.0% for 2014. This increase in margins reflects the favorable impact of higher unit sales and lower product costs for both hardware and supplies, offset partially by unfavorable foreign currency effects, net of hedges.

Operating income for the year ended December 31, 2015, increased 9.4% as a result of higher sales and gross profit partially offset by increases in operating expenses and unfavorable foreign currency effects, net of hedges. Operating expenses increased compared to the prior year primarily to support business growth.

2014 compared to 2013

Net sales for 2014 increased 15.1% compared to 2013. This increase is a result of growth across all regions and across all product categories, with notable increases in supplies and service contracts, and sales of tabletop, desktop, and mobile printers. Increased services and software revenue is attributable to both organic growth and the December 2013 acquisition of Hart Systems LLC, which increased sales by $24 million. Movement in foreign currency, net of hedges, increased sales growth by $10 million.

Gross margin for 2014 of 50.0% versus 48.5% for 2013, reflects the favorable impact of higher sales, as well as lower product costs, including the improved absorption of fixed costs and lower freight costs, and revenue associated with the December 2013 acquisition of Hart Systems LLC. Favorable movements in foreign currency, net of hedges, increased gross profit by $7 million.

Operating income for the year ended December 31, 2014 increased 33.3% from the prior year. This is the result of 15.1% sales growth and gross margin improvement of 150 basis points. This resulted in a gross profit improvement of $94 million, or 18.7%. This was partially offset by increases in operating expenses to support business growth.

Enterprise Segment (amounts in millions, except percentages)

	Year Ended December 31,								Percent Change 2015 vs 2014
	2015				2014
Net sales	$	2,381			$	482			393.9	%
Gross profit	1,009				215				369.6	%
Operating expenses	761				150				407.9	%
Operating income	$	248			$	65			281.6	%
Gross margin	42.4		%		44.5		%

2015 compared to 2014

On October 27, 2014, the Company acquired Enterprise, an industry leader in mobile computing and data capture technologies and services, therefore 2014 only includes results since the acquisition date.

For the year ended December 31, 2015, net sales for Enterprise were $2.4 billion compared to $482 million in 2014, which includes net sales only for the period following the Acquisition. Mobile computing, data capture, and repair services generated the majority of Enterprise net sales for the year in 2015 and 2014. The regions which accounted for the majority of 2015 and 2014 Enterprise net sales included North America and EMEA. Sales in the fourth quarter were $636 million, up 5.1% compared to the third quarter due to higher net sales in EMEA.

Gross profit margin for the full year 2015 was 42.4%. Gross margin of 44.5% in 2014 reflects only the period following the Acquisition on October 27, 2014. Gross margin in the fourth quarter was 42.4%, comparable to the third quarter of 2015, reflecting higher gross margin in services offset by unfavorable foreign currency effects.

Enterprise's operating expenses for 2015 were $761 million and operating income for 2015 was $248 million. Operating expenses in the fourth quarter decreased $12 million to 28.6% of sales compared to 31.9% in the third quarter of 2015 due to the improved operating leverage.

Retail Solutions Group Goodwill

The Retail Solutions Group reporting unit had total goodwill of $59 million as of December 31, 2015. During the fourth quarter of 2015, we finalized the determination of estimated fair value of the Retail Solutions Group reporting unit as of the first day of the fourth quarter of 2015. The determination of fair value and the allocation of that value to individual assets and liabilities within the Retail Solutions Group reporting unit requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; a control premium appropriate for acquisitions in the industries in which the Retail Solutions Group reporting unit competes; a discount rate; a terminal growth rate; and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures. The estimate of fair value indicated that the fair value of the Retail Solutions Group reporting unit exceeded its carrying value by approximately 12% as of the valuation date. Although we believe our estimate of fair value is reasonable, actual financial results could differ from that estimate due to the inherent uncertainty involved in making such estimate.

Critical Accounting Policies and Estimates

Management prepared the consolidated financial statements of Zebra under accounting principles generally accepted in the United States of America. These principles require the use of estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions we used are reasonable, based upon the information available at that time.

Our estimates and assumptions affect the reported amounts in our consolidated financial statements. See Note 2 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in this Form 10-K.

Recently Issued Accounting Pronouncements

See Note 2 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in this Form 10-K.

Liquidity and Capital Resources

In connection with the Acquisition in October 2014, we incurred indebtedness totaling $3.25 billion. As of December 31, 2015, we had long-term debt totaling $3.09 billion. We did not have any borrowings against our revolving credit facility with $247 million available ($250 million less $3 million of outstanding letters of credit). See Note 14 Long-Term Debt in the Notes to Consolidated Financial Statements included in this Form 10-K for further details and under Financing activities below. 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, capital expenditures, repatriation of foreign cash and investments, and acquisitions of third-parties. Management believes that 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):

	Year Ended December 31,
	2015				2014				2013
Cash flow (used in) provided by:
Operating activities	$	111			$	248			$	194
Investing activities	(148		)		(3,111		)		(153		)
Financing activities	(149		)		3,192				(44		)
Effect of exchange rates on cash balances	(16		)		2				1
Net (decrease) increase in cash and cash equivalents	$	(202	)		$	331			$	(2	)

The change in our cash and cash equivalents balance is reflective of the following:

2015 vs. 2014

Cash flows from operations decreased $137 million during 2015 to $111 million. While an increase in net loss of $169 million netted against an increase in non-cash operating items of $179 million yielded an increase in cash flow from operations of $10 million, the overall decrease in cash provided by operating activities is primarily attributable to changes in certain assets and liabilities of $147 million during 2015. These changes consisted primarily of a decrease in cash inflows related to accounts payable and accrued liabilities of $260 million offset by a $64 million decrease in cash outflows for accounts receivable and a $43 million increase in cash inflows for income taxes payable.

Net cash used in investing activities during 2015 included additional consideration of $51 million paid to MSI in relation to the opening cash balance and working capital adjustments. In addition, there were capital expenditures of $122 million in 2015 compared to $39 million in 2014. The increase in capital expenditures in 2015 as compared to 2014 consisted primarily of investments in IT infrastructure, software applications, facilities, engineering, development, test equipment, and production and tooling equipment. Reflecting the effect of the Acquisition on the Company’s capital structure, net cash used for investing activities during 2014 included $3.4 billion paid to MSI and purchases of marketable securities of $651 million offset by $644 million and $336 million of proceeds from the sale and maturity of investments in marketable securities, respectively.

Net cash used in financing activities during 2015 consisted primarily of principal repayments of $165 million under the Term Loan compared to proceeds of $3.2 billion from the issuance of long-term debt to fund the Acquisition during 2014. Additionally, proceeds received from the exercise of stock options and employee stock purchase plan purchases ("ESPP") were $17 million this year compared to $26 million in 2014 reflecting decreased option exercises and ESPP purchases. The taxes paid related to the net share settlement of equity awards were $13 million in 2015 compared to $5 million in 2014 reflecting increased restricted stock trading activity.

2014 vs. 2013

Cash flows from operations increased $54 million during 2014 to $248 million. While a decrease in net income of $102 million netted against an increase in non-cash operating items of $13 million yielded a decrease in cash flow from operations of $89 million, the overall increase in cash provided by operating activities was primarily attributable to changes in certain assets and liabilities of $143 million during 2014. These changes consisted primarily of an increase in cash inflows of accounts payable and accrued liabilities of $213 million offset by a $63 million increase in cash outflows related to accounts receivable.

Net cash used in investing activities during 2014 included $3.4 billion paid to MSI in the Acquisition and purchases of marketable securities of $651 million offset by $644 million and $336 million of proceeds from the sale and maturity of investments in marketable securities respectively. During 2013, net cash used in investing activities included $95 million paid for the acquisition of Hart Systems LLC and $410 million for the purchase of marketable securities offset by $337 million and $49 million of proceeds from the sale and maturity of investments in marketable securities, respectively.

Net cash provided by financing activities during 2014 consisted primarily of proceeds of $3.2 billion from the issuance of long-term debt to fund the Acquisition. Additionally, proceeds received from the exercise of stock options and ESPP were $26

million in 2014 compared to $23 million in 2013 reflecting increased option exercises and ESPP purchases. The taxes paid related to the net share settlement of equity awards were $5 million in 2014 compared to $8 million in 2013 reflecting decreased restricted stock trading activity.

Effect of exchange rates on cash

Certain assets on the consolidated balance sheet are denominated in foreign currency and, as such, include the effects of foreign currency translation. The effect of exchange rate changes on cash during the years ended December 31, 2015 and 2014 were $16 million loss and $2 million gain, respectively.

The following table shows our level of indebtedness and other information as of December 31, 2015 (in millions):

Senior Notes	$	1,050
Term loan	2,035
Less: debt issuance costs	(26		)
Less: unamortized discounts	(47		)
Total outstanding debt	$	3,012

Private Offering

On October 15, 2014, the Company completed a private offering of $1.05 billion in 7.25% Senior Notes due October 15, 2022. Interest on the Senior Notes is payable in cash on April 15 and October 15 of each year.

The indenture covering the Senior Notes contains certain covenants limiting among other things the ability of the Company and its restricted subsidiaries, with certain exceptions as described in the indenture, to; (i) incur indebtedness or issue certain preferred stock; (ii) incur liens; (iii) pay dividends or make distributions in respect of capital stock; (iv) purchase or redeem capital stock; (v) make investments or certain other restricted payments; (vi) sell assets; (vii) issue or sell stock of restricted subsidiaries; (viii) enter into transactions with stockholders or affiliates; or (ix) effect a consolidation or merger. On December 31, 2015, the Company was in compliance with the covenants.

Credit Facilities

On October 27, 2014, the Company entered into a credit agreement, which provides for a term loan of $2.2 billion ("Term Loan") and a revolving credit facility of $250 million ("Revolving Credit Facility"). Borrowings under the Term Loan bear interest at a variable rate plus an applicable margin, subject to an all-in floor of 4.75%. As of December 31 2015, the Term Loan interest rate was 4.75%. Interest payments are payable quarterly. The October 2012 revolving credit agreement for $250 million with a syndicate of banks was terminated upon execution of this credit agreement. The Company has entered into interest rate swaps to manage interest rate risk on its long-term debt. See Note 13 Derivative Instruments in the Notes to Consolidated Financial Statements in this Form 10-K for further details.

The credit agreement requires the Company to prepay the Term Loan and Revolving Credit Facility, under certain circumstances or transactions defined in the credit agreement. Also, the Company may voluntarily prepay its obligations under the Term Loan at any time in whole or in part, without premium or penalty. The Company has made such optional principal prepayments of $165 million in 2015. In February 2016, the Company made additional optional principal prepayments of $80 million. Unless satisfied by further optional prepayments, the Company is required to make a scheduled principal payment of $1.99 billion due on October 27, 2021.

The Revolving Credit Facility is available for working capital and other general corporate purposes including letters of credit. The amount (including letters of credit) shall not exceed $250 million. As of December 31, 2015, the Company had established letters of credit totaling $3 million, which reduced funds available for other borrowings under the agreement to $247 million. The Revolving Credit Facility will mature and the commitments thereunder will terminate on October 27, 2019.

Borrowings under the Revolving Credit Facility bear interest at a variable rate plus an applicable margin. The applicable margin for borrowings under the Revolving Credit Facility ranges from 2.25% to 2.75% depending on the Company’s consolidated total secured net leverage ratio, which is evaluated on a quarterly basis. Interest payments are payable quarterly. As of December 31 2015, the Company did not have any borrowings against the Revolving Credit Facility.

The Revolving Credit Facility contains certain covenants limiting among other things, the ability of the Company and its restricted subsidiaries, with certain exceptions as described in the credit agreement, to: (i) incur indebtedness, make guarantees or issue certain equity securities; (ii) pay dividends on its capital stock or redeem, repurchase or retire its capital stock; (iii) make certain investments, loans and acquisitions; (iv) sell certain assets or issue capital stock of restricted subsidiaries; (v) create liens or engage in sale-leaseback transactions; (vi) merge, consolidate or transfer or dispose of substantially all of their assets; (vii) engage in certain transactions with affiliates; (viii) alter the business it conducts; (ix) amend, prepay, redeem

or purchase subordinated debt; and (x) enter into agreements limiting subsidiary dividends and distributions. The Revolving Credit Facility also requires the Company to comply with a financial covenant consisting of a quarterly maximum consolidated Total Secured Net Leverage Ratio, (as defined in the credit agreement). This test is only required to be performed at the end of the fiscal quarter and when 20% of the commitments under the Revolving Credit Facility have been drawn and remain outstanding.

The Term Loan and obligations under the Revolving Credit Facility are collateralized by a security interest in substantially all of the Company’s assets as defined in the security agreement and guaranteed by its direct and indirect wholly-owned existing and future domestic restricted subsidiaries, subject to certain exceptions.

Certain domestic subsidiaries of the Company (the “Guarantor Subsidiaries”) guarantee the Notes, the Term Loan and the Revolving Credit Facility on a senior basis: For the year ended December 31, 2015, the non-Guarantor Subsidiaries would have (a) accounted for 44% of our total revenue and (b) held 24% or $1.3 billion of our total assets and approximately 10% or $430 million of our total liabilities including trade payables but excluding intercompany liabilities.

On December 31, 2015, the Company was in compliance with all covenants.

Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2016. We believe that our existing cash and investments, borrowings available under our Revolving Credit Facility, together with cash flows expected from operations will be sufficient to meet expected operating, capital expenditure and debt obligation requirements for the next 12 months.

As of December 31, 2015, the Company's cash position of $192 million included foreign cash and investments of $166 million.

Management believes that existing capital resources and funds generated from operations are sufficient to finance anticipated capital requirements.

Contractual Obligations

Zebra’s contractual obligations as of December 31, 2015 were (in millions):

	Payments due by period
	Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating lease obligations	$	140			$	26			$	47			$	29			$	38
Deferred compensation liability	9				—				—				—				9
Long-term debt – principal payments	3,085				—				—				—				3,085
Interest payments	1,080				173				345				346				216
Interest rate swap	57				8				25				20				4
Purchase obligations	260				260				—				—				—
Total	$	4,631			$	467			$	417			$	395			$	3,352

Purchase obligations are for purchases made in the normal course of business to meet operational requirements, primarily raw materials and finished goods.

Uncertain tax position liabilities of $36 million have been excluded from the above table as we cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing authority.

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

Historically, we mitigated interest rate risk on marketable security investments with an investment policy and use of outside professional investment managers; our objective was to achieve stable and predictable targeted rates of return and to provide the liquidity necessary for the operation of the business.

In connection with the acquisition of Enterprise, Zebra incurred significant debt, including variable rate debt (subject to interest rate caps). As of December 31, 2015, we had $2 billion of debt outstanding under our Term Loan, which bears interest determined by reference to a variable rate index. To mitigate this risk, we entered into forward interest rate swaps to hedge the interest rate risk associated with the variable interest payments on our Term Loan that was used to fund the acquisition of Enterprise. Refer to Note 13 Derivative Instruments in the Notes to Consolidated Financial Statements included in this Form 10-K for further discussions of hedging activities.

Foreign Exchange Risk

We provide products and services in over 170 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 13 Derivative Instruments in the Notes to the Consolidated Financial Statements included in this Form 10-K for further discussions of hedging activities.

The following table sets forth the impact of a hypothetical ten percent (plus or minus) movement in the dollar/pound, dollar/euro, euro/pound, dollar/Czech koruna, dollar/Brazilian real, dollar/Canadian dollar and dollar/Malaysian ringgit rates measured as if Zebra did not engage in the selective hedging practices described above. The risk is increased through additional exposure as it relates to the acquisition of Enterprise. It is based on the dollar/euro, dollar/pound, euro/pound, dollar/Czech koruna, dollar/Brazilian real, dollar/Canadian dollar and dollar/Malaysian ringgit exchange rates and euro, pound, Czech koruna, Brazilian real, Canadian dollar and Malaysian ringgit denominated assets and liabilities (in millions, except per share data).

	December 31,
Foreign exchange	2015				2014
Dollar/Pound
Effect on Pretax Income	$	1			$	—
Effect on Diluted EPS (after tax)	$	0.01			$	—
Dollar/Euro
Effect on Pretax Income	$	13			$	5
Effect on Diluted EPS (after tax)	$	0.16			$	0.07
Euro/Pound
Effect on Pretax Income	$	1			N/A
Effect on Diluted EPS (after tax)	$	0.02
Dollar/Czech Koruna
Effect on Pretax Income	$	1			N/A
Effect on Diluted EPS (after tax)	$	0.01
Dollar/Brazilian Real
Effect on Pretax Income	$	1			N/A
Effect on Diluted EPS (after tax)	$	0.01
Dollar/Canadian dollar
Effect on Pretax Income	$	1			N/A
Effect on Diluted EPS (after tax)	$	0.01
Dollar/Malaysian Ringgit
Effect on Pretax Income	$	—			N/A
Effect on Diluted EPS (after tax)	$	—

The financial statements and schedules of Zebra are annexed to this report as pages F-2 through F-44. An index to such materials appears on page F-1.

Not applicable.

Evaluation of Disclosure Controls and Procedures

The Company has conducted an evaluation of the effectiveness of the design and operation of its 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 its Disclosure Committee, and with the participation of management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company has concluded that, due to a material weakness in our internal controls over financial reporting as described below, its disclosure controls and procedures were not effective as of December 31, 2015.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls 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 controls over financial reporting as of December 31, 2015. 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, our management believes that, as of December 31, 2015, our internal controls over financial reporting were not effective, due to the identification of a material weakness.

A material weakness is a deficiency, or combination of deficiencies, in the internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As of the first quarter of 2015, the Company identified a material weakness related to the process to prepare and review its quarterly and annual income tax provision. The material weakness relates to deficiencies in the design and operation of controls in response to the increased complexity in the legal entity structure of the business following the Enterprise acquisition. These deficiencies impacted our ability to accurately forecast pretax income and deferred taxes, by legal entity, in a timely manner.

This material weakness did not result in the restatement of prior quarterly or annually filed financial statements.

Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on Zebra’s internal controls over financial reporting. Ernst & Young LLP’s report is included on page 39 of this report on Form 10-K.

Remediation Plan

Management and the Board of Directors are committed to the continued improvement of the Company’s overall system of internal controls over financial reporting. Our remediation plan, which started during 2015, is to implement additional processes, controls and procedures relating to the preparation and review process of our quarterly and annual income tax provision. We will continue to implement remedial measures to improve and develop internal controls, processes and procedures in the income tax provision process in order to address the material weakness.

The identification, review, assessment and remediation of internal control deficiencies is overseen by senior management and the Audit Committee of the Board of Directors, and is undertaken primarily through the integration of processes and procedures with existing Company processes and procedures, development and implementation of formal policies, improved processes and documented procedures, as well as the hiring of additional finance and tax personnel.

Changes in Internal Controls over Financial Reporting

In 2015, the Company expanded the scope of management’s assessment of internal controls over financial reporting to include the newly acquired Enterprise business and related business processes and systems. This has included the addition of internal controls over financial reporting, which may have been in operation previously, but which were not relied upon in prior years by the Company for purposes of supporting management’s assessment of internal controls over financial reporting. This has also included the addition of new corporate-level internal controls over financial reporting in response to process and system related changes associated with the acquisition of Enterprise.

During the quarter covered by this report, there have been no other changes in the internal controls that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

Inherent Limitations on the Effectiveness of Controls

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure controls and procedures or the internal controls over financial reporting will prevent 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 all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Zebra Technologies Corporation:

We have audited Zebra Technologies Corporation and subsidiaries’ ("the Company") internal control over financial reporting as of December 31, 2015, 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). Zebra Technologies Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls related to the Company’s income tax process. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Zebra Technologies Corporation and subsidiaries as of December 31, 2015 and 2014, and 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, 2015. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2015 financial statements, and this report does not affect our report dated February 29, 2016, which expressed an unqualified opinion on those financial statements.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Zebra Technologies Corporation and subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2015 based on the COSO criteria.

/s/Ernst & Young LLP

Chicago, Illinois

February 29, 2016

Not applicable.

PART III

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 – Corporate Governance page of Zebra’s Internet web site, www.zebra.com, and is available for download. Any waiver from the Code of Ethics and any amendment to the Code of Ethics will be disclosed on such page of Zebra’s web site

All other information in response to this item is incorporated by reference from the Proxy Statement sections entitled "Corporate Governance,” “Election of Directors,” “Board and Committees of the Board,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance.”

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.”

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.”

The information in response to this item is incorporated by reference from the Proxy Statement section entitled “Corporate Governance.”

The information in response to this item is incorporated by reference from the Proxy Statement section entitled “Fees of Independent Auditors.”

PART IV

The financial statements and schedule filed as part of this report are listed in the accompanying Index to Financial Statements and Schedule. The exhibits filed as a part of this report are listed in the accompanying Index to Exhibits.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized, on the 29th day of February 2016.

ZEBRA TECHNOLOGIES CORPORATION
By: /s/ Anders Gustafsson
Anders Gustafsson
Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, the report has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Anders Gustafsson Anders Gustafsson	Chief Executive Officer and Director (Principal Executive Officer)	February 29, 2016
/s/ Michael C. Smiley Michael C. Smiley	Chief Financial Officer (Principal Financial Officer)	February 29, 2016
/s/ Stephen Boshold Stephen Boshold	Acting Chief Accounting Officer	February 29, 2016
/s/ Michael A. Smith Michael A. Smith	Director and Chairman of the Board of Directors	February 29, 2016
/s/ Chirantan Desai Chirantan Desai	Director	February 29, 2016
/s/ Richard Keyser Richard Keyser	Director	February 29, 2016
/s/ Andrew Ludwick Andrew Ludwick	Director	February 29, 2016
/s/ Ross W. Manire Ross W. Manire	Director	February 29, 2016
/s/ Frank B. Modruson Frank B. Modruson	Director	February 29, 2016
/s/ Janice M. Roberts Janice M. Roberts	Director	February 29, 2016

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

	Page
Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014	F-3
Consolidated Statements of Operations for the year ended December 31, 2015, 2014, and 2013	F-4
Consolidated Statements of Comprehensive (Loss) Income for the year ended December 31 2015, 2014 and 2013	F-5
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2015, 2014, and 2013	F-6
Consolidated Statements of Cash Flows for the year ended December 31, 2015, 2014, and 2013	F-7
Notes to Consolidated Financial Statements	F-8
Financial Statement Schedule
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts	F-42

All other financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or related notes.

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Zebra Technologies Corporation

We have audited the accompanying consolidated balance sheets of Zebra Technologies Corporation and subsidiaries ("the Company") as of December 31, 2015 and 2014, and 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, 2015. Our audits also included the financial statement schedule listed in Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zebra Technologies Corporation and subsidiaries at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for the balance sheet classification of deferred taxes in 2015.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Zebra Technologies Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2015, 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 29, 2016 expressed an adverse opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

February 29, 2016

F-2

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	December 31,
	2015				2014
Assets
Current assets:
Cash and cash equivalents	$	192			$	394
Investments and marketable securities	—				24
Accounts receivable, net	674				671
Inventories, net	394				394
Deferred income taxes	—				123
Income tax receivable	4				13
Prepaid expenses and other current assets	68				53
Total Current assets	1,332				1,672
Property and equipment, net	298				255
Goodwill	2,493				2,490
Other intangibles, net	757				1,029
Long-term deferred income taxes	52				—
Other long-term assets	92				93
Total Assets	$	5,024			$	5,539
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	289			$	327
Accrued liabilities	358				421
Deferred revenue	198				196
Current portion of long-term debt	—				4
Income taxes payable	31				5
Total Current liabilities	876				953
Long-term debt	3,012				3,156
Long-te

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