Item 15. Exhibits, Financial Statements and Schedule

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 22nd day of February 2018.

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 22, 2018
/s/ Olivier Leonetti Olivier Leonetti	Chief Financial Officer (Principal Financial Officer)	February 22, 2018
/s/ Colleen O’Sullivan Colleen O’Sullivan	Vice President, Chief Accounting Officer (Principal Accounting Officer)	February 22, 2018
/s/ Michael A. Smith Michael A. Smith	Director and Chairman of the Board of Directors	February 22, 2018
/s/ Andrew K. Ludwick Andrew K. Ludwick	Director	February 22, 2018
/s/ Ross W. Manire Ross W. Manire	Director	February 22, 2018
/s/ Richard L. Keyser Richard L. Keyser	Director	February 22, 2018
/s/ Janice M. Roberts Janice M. Roberts	Director	February 22, 2018
/s/ Chirantan J. Desai Chirantan J. Desai	Director	February 22, 2018
/s/ Frank B. Modruson Frank B. Modruson	Director	February 22, 2018

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

	Page
Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2017 and 2016	F-3
Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015	F-4
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016, and 2015	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015	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-37

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 Shareholders and the Board of Directors of Zebra Technologies Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Zebra Technologies Corporation (the “Company“) as of December 31, 2017 and 2016, 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, 2017, and the related notes and financial statement schedule listed in Index Item 15 (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, 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 22, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2005.

Chicago, Illinois

February 22, 2018

F-2

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	December 31,
	2017				2016
Assets
Current assets:
Cash and cash equivalents	$	62			$	156
Accounts receivable, net	479				625
Inventories, net	458				345
Income tax receivable	40				32
Prepaid expenses and other current assets	24				64
Total Current assets	1,063				1,222
Property, plant and equipment, net	264				292
Goodwill	2,465				2,458
Other intangibles, net	299				480
Long-term deferred income taxes	119				113
Other long-term assets	65				67
Total Assets	$	4,275			$	4,632
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	51			$	—
Accounts payable	383				413
Accrued liabilities	337				323
Deferred revenue	186				191
Income taxes payable	43				22
Total Current liabilities	1,000				949
Long-term debt	2,176				2,648
Long-term deferred income taxes	—				3
Long-term deferred revenue	148				124
Other long-term liabilities	117				116
Total Liabilities	3,441				3,840
Stockholders’ Equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued	—				—
Class A common stock, $.01 par value; authorized 150,000,0000 shares; issued 72,151,857 shares	1				1
Additional paid-in capital	257				210
Treasury stock at cost, 18,915,762 and 19,267,269 shares at December 31, 2017 and December 31, 2016, respectively	(620		)		(614		)
Retained earnings	1,248				1,240
Accumulated other comprehensive loss	(52		)		(45		)
Total Stockholders’ Equity	834				792
Total Liabilities and Stockholders’ Equity	$	4,275			$	4,632

See accompanying Notes to Consolidated Financial Statements.

F-3

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

	Year Ended December 31,
	2017				2016				2015
Net sales
Net sales of tangible products	$	3,223			$	3,056			$	3,131
Revenue from services and software	499				518				519
Total Net sales	3,722				3,574				3,650
Cost of sales:
Cost of sales of tangible products	1,677				1,593				1,629
Cost of services and software	335				339				377
Total Cost of sales	2,012				1,932				2,006
Gross profit	1,710				1,642				1,644
Operating expenses:
Selling and marketing	448				444				494
Research and development	389				376				394
General and administrative	301				307				283
Amortization of intangible assets	184				229				251
Acquisition and integration costs	50				125				145
Impairment of goodwill and other intangibles	—				62				—
Exit and restructuring costs	16				19				40
Total Operating expenses	1,388				1,562				1,607
Operating income	322				80				37
Other expenses:
Foreign exchange loss	(1		)		(5		)		(23		)
Interest expense, net	(227		)		(193		)		(193		)
Other, net	(6		)		(11		)		(1		)
Total Other expenses	(234		)		(209		)		(217		)
Income (loss) before income taxes	88				(129		)		(180		)
Income tax expense (benefit)	71				8				(22		)
Net income (loss)	$	17			$	(137	)		$	(158	)
Basic earnings (loss) per share	$	0.33			$	(2.65	)		$	(3.10	)
Diluted earnings (loss) per share	$	0.32			$	(2.65	)		$	(3.10	)
Basic weighted average shares outstanding	53,021,761				51,579,112				50,996,297
Diluted weighted average and equivalent shares outstanding	53,688,832				51,579,112				50,996,297

See accompanying Notes to Consolidated Financial Statements.

F-4

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

	Year Ended December 31,
	2017				2016				2015
Net income (loss)	$	17			$	(137	)		$	(158	)
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on anticipated sales hedging transactions	(15		)		7				(6		)
Unrealized gain (loss) on forward interest rate swaps hedging transactions	6				—				(7		)
Foreign currency translation adjustment	2				(4		)		(26		)
Comprehensive income (loss)	$	10			$	(134	)		$	(197	)

See accompanying Notes to Consolidated Financial Statements.

F-5

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share data)

		Class A Common Stock Shares			Class A Common Stock Amount				Additional Paid-in Capital				Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Total
Balance at December 31, 2014		51,654,337			$	1			$	147			$	(634	)		$	1,535			$	(9	)		$	1,040
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations		646,395			—				1				16				—				—				17
Shares withheld related to net share settlement		(138,881	)		—				—				(13		)		—				—				(13		)
Issuance of warrants exercisable for 250,000 shares, exercise price $89.34, expiration April 5, 2017		—			—				4				—				—				—				4
Additional tax benefit resulting from exercise of options		—			—				11				—				—				—				11
Share-based compensation		—			—				31				—				—				—				31
Net loss		—			—				—				—				(158		)		—				(158		)
Unrealized loss anticipated sales hedging transactions (net of income taxes)		—			—				—				—				—				(6		)		(6		)
Unrealized loss on forward interest rate swaps hedging transactions (net of income taxes)		—			—				—				—				—				(7		)		(7		)
Foreign currency translation adjustment		—			—				—				—				—				(26		)		(26		)
Balance at December 31, 2015		52,161,851			$	1			$	194			$	(631	)		$	1,377			$	(48	)		$	893
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations		817,943			—				(14		)		25				—				—				11
Shares withheld related to net share settlement		(95,206	)		—				—				(8		)		—				—				(8		)
Additional tax benefit resulting from exercise of options		—			—				3				—				—				—				3
Share-based compensation		—			—				27				—				—				—				27
Net loss		—			—				—				—				(137		)		—				(137		)
Unrealized loss on anticipated sales hedging transactions (net of income taxes)		—			—				—				—				—				7				7
Unrealized gain on forward interest rate swaps hedging transactions (net of income taxes)		—			—				—				—				—				—				—
Foreign currency translation adjustment		—			—				—				—				—				(4		)		(4		)
Balance at December 31, 2016		52,884,588			$	1			$	210			$	(614	)		$	1,240			$	(45	)		$	792
Cumulative effect of change in accounting principle		—			—				—				—				(9		)		—				(9		)
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations		410,239			—				12				—				—				—				12
Shares withheld related to net share settlement		(58,732	)		—				—				(6		)		—				—				(6		)
Share-based compensation		—			—				35				—				—				—				35
Net income		—			—				—				—				17				—				17
Unrealized loss on anticipated sales hedging transactions (net of income taxes)		—			—				—				—				—				(15		)		(15		)
Unrealized gain on forward interest rate swaps hedging transactions (net of income taxes)		—			—				—				—				—				6				6
Foreign currency translation adjustment		—			—				—				—				—				2				2
Balance at December 31, 2017		53,236,095			$	1			$	257			$	(620	)		$	1,248			$	(52	)		$	834

See accompanying Notes to Consolidated Financial Statements.

F-6

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Year Ended December 31,
	2017				2016				2015
Cash flows from operating activities:
Net income (loss)	$	17			$	(137	)		$	(158	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	263				304				320
Impairment of goodwill, intangibles and other assets	1				69				—
Amortization of debt issuance costs and discounts	38				23				16
Share-based compensation	35				27				31
Debt extinguishment costs	65				—				—
Deferred income taxes	(9		)		(44		)		(142		)
Unrealized gain on forward interest rate swaps	(2		)		—				(4		)
Other, net	4				3				14
Changes in operating assets and liabilities:
Accounts receivable, net	161				34				2
Inventories, net	(110		)		34				(13		)
Other assets	16				7				(7		)
Accounts payable	(40		)		125				(21		)
Accrued liabilities	4				(29		)		(5		)
Deferred revenue	17				7				16
Income taxes	26				(41		)		47
Other operating activities	(8		)		(2		)		26
Net cash provided by operating activities	478				380				122
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	—				—				(52		)
Purchases of property, plant and equipment	(50		)		(77		)		(122		)
Proceeds from the sale of a business	—				39				—
Proceeds from the sale of long-term investments	—				—				3
Purchases of long-term investments	(1		)		(1		)		(1		)
Purchases of investments and marketable securities	—				—				(1		)
Proceeds from sales of investments and marketable securities	—				—				25
Net cash used in investing activities	(51		)		(39		)		(148		)
Cash flows from financing activities:
Payments of debt issuance costs and discounts	(5		)		(5		)		—
Proceeds from issuance of long-term debt	1,371				102				—
Payments of long term-debt	(1,825		)		(484		)		(165		)
Payments of debt extinguishment costs	(65		)		—				—
Proceeds from exercise of stock options and stock purchase plan purchases	12				11				17
Taxes paid related to net share settlement of equity awards	(5		)		(8		)		(13		)
Net cash used in financing activities	(517		)		(384		)		(161		)
Effect of exchange rate changes on cash	(4		)		7				(15		)
Net decrease in cash and cash equivalents	(94		)		(36		)		(202		)
Cash and cash equivalents at beginning of year	156				192				394
Cash and cash equivalents at end of year	$	62			$	156			$	192
Supplemental disclosures of cash flow information:
Income taxes paid	$	65			$	81			$	38
Interest paid	$	195			$	180			$	183

See accompanying Notes to Consolidated Financial Statements.

F-7

ZEBRA TECHNOLOGIES CORPORATIONAND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Description of Business

Zebra Technologies Corporation and its wholly-owned subsidiaries (“Zebra” or the “Company”) is a global leader providing innovative Enterprise Asset Intelligence (“EAI”) solutions in the automatic identification and data capture solutions industry. We design, manufacture, and sell a broad range of products that capture and move data. We also provide a full range of services, including maintenance, technical support, repair, and managed services, including cloud-based subscriptions. End-users of our products and services include those in retail and e-commerce, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, and education industries around the world. We provide our products and services globally through a direct sales force and an extensive network of channel partners.

Note 2 Summary of Significant Accounting Policies

Principles of Consolidation. These accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States and include the accounts of Zebra and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Calendar. Zebra operates on a 4 week/4 week/5 week fiscal quarter, and each fiscal quarter ends on a Saturday. The fiscal year always begins on January 1 and ends on December 31. This fiscal calendar results in some fiscal quarters being either greater than or less than 13 weeks, depending on the days of the week on which those dates fall. During the 2017 fiscal year, our quarter end dates were April 1, July 1, September 30, and December 31.

Use of Estimates. These consolidated financial statements were prepared using estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of estimates include: cash flow projections and other assumptions included in our annual goodwill impairment test; loss contingencies; product warranties; useful lives of our tangible and intangible assets; allowances for doubtful accounts; the recognition and measurement of income tax assets and liabilities; and share-based compensation forfeiture rates. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents. Cash consists primarily of deposits with banks. In addition, the Company considers highly liquid short-term investments with original maturities of less than three months to be cash equivalents. These highly liquid short-term investments are readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of a change in value because of changes in interest rates.

Included in the Company’s Cash and cash equivalents are amounts held by foreign subsidiaries. The Company had $54 million and $98 million of foreign cash and cash equivalents included in the Company’s total cash positions of $62 million and $156 million as of December 31, 2017 and 2016, respectively.

Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable consist primarily of amounts due to us from our customers in the course of normal business activities. Collateral on trade accounts receivable is generally not required. The Company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on our assessment of known delinquent accounts. Accounts are written off against the allowance account when they are determined to be no longer collectible. During 2017, the Company initiated a receivables financing facility of up to $180 million. See Note 8, Long-Term Debt for further information.

Inventories. Inventories are stated at the lower of a moving-average cost (which approximates cost on a first-in, first-out basis) and net realizable value. Manufactured inventory cost includes materials, labor, and manufacturing overhead. Purchased inventory cost also includes internal purchasing overhead costs.

Provisions are made to reduce excess and obsolete inventories to their estimated net realizable values. Inventory provisions are based on forecasted demand, experience with specific customers, the age and nature of the inventory, and the ability to redistribute inventory to other programs or to rework into other consumable inventory.

The components of Inventories, net are as follows (in millions):

F-8

	December 31,
	2017				2016
Raw material	$	116			$	111
Work in process	1				1
Finished goods	341				233
Inventories, net	$	458			$	345

Property, Plant and Equipment. Property, plant and equipment is stated at cost. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the various classes of property, plant and equipment, which are 30 years for buildings and range from 3 to 10 years for all other asset categories. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.

Property, plant and equipment, net is comprised of the following (in millions):

	December 31,
	2017				2016
Buildings	$	54			$	51
Land	8				10
Machinery and equipment	233				226
Furniture and office equipment	19				15
Software and computer equipment	235				197
Leasehold improvements	69				64
Projects in progress	23				35
	641				598
Less accumulated depreciation	(377		)		(306		)
Property, plant and equipment, net	$	264			$	292

Depreciation expense was $79 million, $75 million and $69 million for the periods ended December 31, 2017, 2016 and 2015, respectively.

Income Taxes. The Company accounts for income taxes under the liability method in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes. Accordingly, deferred income taxes are provided for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities are measured using tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company recognizes the benefit of tax positions when it is more likely than not to be sustained on its technical merits. The Company recognizes interest and penalties related to income tax matters as part of income tax expense. The Company has elected consolidated tax filings in certain of its jurisdictions which may allow the group to offset one member’s income with losses of other members in the current period and on a carryover basis. The Company classifies its balance sheet tax accounts adopting a jurisdictional netting principle for those countries where a consolidated tax return election is in place.

The Tax Cut and Jobs Act (“TCJA” or “the Act”) enacted on December 22, 2017 contains provisions related to the taxation of certain foreign earnings under the Global Intangible Low-Taxed Income (“GILTI”) regime which is effective for tax years beginning on or after January 1, 2018. Under guidance issued by the Financial Accounting Standards Board on January 10, 2018, companies must account for the impact of the GILTI tax as either a temporary difference in the book and tax basis of assets giving rise to the GILTI income, net of a foreign tax credit, or as a charge to tax expense in the year GILTI income is included in the U.S. tax return. The Company has elected to treat its GILTI inclusions as a charge to tax expense in the year included in its U.S. tax return.

The effects of changes in tax rates and laws on deferred tax balances are recorded as a component of tax expense related to continuing operations for the period in which the law was enacted, even if the assets and liabilities related to items of accumulated other comprehensive income (“AOCI”). In other words, backward tracing of the income tax effects of items originally recognized through AOCI is prohibited. On February 7, 2018, the Financial Accounting Standards Board issued guidance requiring the reclassification to retained earnings of tax effects stranded in accumulated AOCI due to tax reform. The guidance requires that these changes be effective with fiscal years beginning on or after December 15, 2018 but allows

F-9

companies to early adopt the provision. The Company plans to adopt this provision with its fiscal year beginning January 1, 2018.

Goodwill. Goodwill is not amortized but is evaluated for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. If a quantitative assessment is completed as part of our impairment analysis for a reporting unit, we may engage a third-party appraisal firm to assist in the determination of estimated fair value for each reporting unit. This determination includes estimating the fair value using both the income and market approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows and discount rates. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping. The fair value of the reporting unit is compared to the carrying amount of the reporting unit. If a reporting unit is considered impaired, the impairment is recognized in the amount by which the carrying amount exceeds the fair value of the reporting unit.

The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units 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; control premiums appropriate for acquisitions in the industries in which we compete; the discount rates; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization and capital expenditures. The allocation requires several analyses to determine the fair value of assets and liabilities including, among other things, customer relationships and trade names. Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates.

Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of any goodwill impairment charge, or both.

We also compare the sum of the estimated fair values of the reporting units to the Company’s total value as implied by the market value of the Company’s securities. This comparison indicated that, in total, our assumptions and estimates were reasonable. However, future declines in the overall market value of the Company’s securities may indicate that the fair value of one or more reporting units has declined below its carrying value.

One measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit “passed” (fair value exceeds the carrying amount) or “failed” (the carrying amount exceeds fair value) the first step of the goodwill impairment test. See Note 4, Goodwill and Other Intangibles, net, for additional information.

Other Intangibles. Other intangible assets capitalized consist primarily of current technology, customer relationships, trade names, unpatented technology, and patents and patent rights. These assets are recorded at cost and amortized on a straight-line basis over the asset’s useful life which range from 3 years to 15 years.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. The Company accounts for long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment. The statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Cost Method Investments. The Company’s long-term investments are accounted for using the cost method. These investments are primarily in venture capital backed technology companies, where the Company's ownership interest is less than 20% of each investee. Under the cost method of accounting, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions and additional investments. The Company held cost method investments in the amount of $25 million as of December 31, 2017 and 2016. These investments are included in Other long-term assets on the Consolidated Balance Sheets. The Company recognized impairments of $1 million during fiscal 2017 which were recorded within Other expenses in the Consolidated Statements of Operations. There were $7 million of impairments to cost method investments in fiscal 2016 and no impairments in fiscal 2015.

Revenue Recognition. Revenue includes sales of hardware, supplies and services (including repair services and product maintenance service contracts, which typically occur over time, and professional services, which typically occur in the early stages of a project). We enter into revenue arrangements that may consist of multiple deliverables of our hardware products and services due to the needs of our customers. For these type of revenue arrangements, we apply the guidance in ASC 605,

F-10

Revenue Recognition to identify the separate units of accounting by determining whether the delivered items have value to the customer on a standalone basis. Generally, there is no right of return for the hardware we sell. Allocation of arrangement consideration to repair services, product maintenance services, and extended warranty is equal to the stated contractual rate for such services, in accordance with the guidance in ASC 605-20. We also follow the accounting principles that establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“BESP”). Generally, our agreements contain termination provisions whereby we are entitled to payment for delivered equipment and services rendered through the date of the termination. Some of our agreements may also contain cancellation provisions that in certain cases result in customer penalties. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred and title has passed to the customer, which typically happens at the point of shipment provided that no significant obligations remain, the price is fixed and determinable and collectability of the sales price is reasonably assured. For hardware sales, in addition to the criteria discussed above, revenue recognition incorporates allowances for discounts, price protection, returns and customer incentives that can be reasonably estimated. In addition to cooperative marketing and other incentive programs, the Company has arrangements with some distributors, which allow for price protection and limited rights of return, generally through stock rotation programs. Under the price protection programs, the Company gives distributors credits for the difference between the original price paid and the Company’s then current price. Under the stock rotation programs, distributors are able to exchange certain products based on the number of qualified purchases made during the period. We monitor and track these programs and record a provision for future payments or credits granted as reductions of revenue based on historical experience. Recorded revenues are reduced by these allowances. The Company enters into product maintenance and support agreements; revenues are deferred and then recognized ratably over the service period and the cost of providing these services is expensed as incurred. The Company includes shipping and handling charges billed to customers as revenue when the product ships; any costs incurred related to these services are included in cost of sales. Taxing authorities may assess tax on the Company based on the gross receipts from customers, referred to as indirect taxes. The Company’s policy is to record indirect taxes as a short-term liability and not as a component of gross revenue.

Research and Development Costs. Research and development costs (“R&D”) are expensed as incurred. These costs include:

•	Salaries, benefits, and other R&D personnel related costs,

•	Consulting and other outside services used in the R&D process,

•	Engineering supplies,

•	Engineering related information systems costs, and

•	Allocation of building and related costs.

Advertising. Advertising is expensed as incurred. Advertising costs totaled $18 million, $18 million and $22 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Warranty. The Company generally provides warranty coverage of 1 year on mobile computers, printers and batteries. Advanced data capture products are warrantied from 1 to 5 years, depending on the product. Thermal printheads are warrantied for 6 months and battery-based products, such as location tags, are covered by a 90-day warranty. A provision for warranty expense is adjusted quarterly based on historical warranty experience.

The following table is a summary of the Company’s accrued warranty obligation (in millions):

	Year Ended December 31,
Warranty reserve	2017				2016				2015
Balance at the beginning of the year	$	21			$	22			$	25
Warranty expense	28				31				30
Warranty payments	(31		)		(32		)		(33		)
Balance at the end of the year	$	18			$	21			$	22

Fair Value of Financial Instruments. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our financial assets and liabilities that require recognition under the accounting guidance generally include our available-for-sale investments, employee deferred compensation plan investments, foreign currency derivatives, and interest rate swaps. In accordance with ASC 815, Derivatives and Hedging, we recognize derivative instruments and hedging activities as either assets or liabilities on the Consolidated Balance Sheets and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. See Note 7, Derivative Instruments for additional information on our derivatives and hedging activities.

The Company has foreign currency forwards to hedge certain foreign currency exposures and interest rate swaps to hedge a portion of the variability in future cash flows on debt. We use broker quotations or market transactions, in either the listed or

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over-the-counter markets to value our foreign currency exchange contracts and relevant observable market inputs at quoted intervals, such as forward yield curves and the Company’s own credit risk to value our interest rate swaps.

The Company’s investments in marketable debt securities are classified as available-for-sale except for securities held in the Company’s deferred compensation plans, which are considered to be trading securities. In general, we use quoted prices in active markets for identical assets to determine fair value. If active markets for identical assets are not available to determine fair value, then we use quoted prices for similar assets or inputs that are observable either directly or indirectly.

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term nature of these financial instruments. See Note 6, Fair Value Measurements for financial assets and liabilities carried at fair value.

Share-Based Compensation. At December 31, 2017, the Company had a share-based compensation plan and an employee stock purchase plan under which shares of our common stock were available for future grants and sales, and which are described more fully in Note 11, Share-Based Compensation. We account for these plans in accordance with ASC 505, Equity and ASC 718, Compensation - Stock Compensation. The Company recognizes compensation costs using the straight-line method over the vesting period upon grant of up to 4 years, net of estimated forfeitures.

The compensation expense and the related income tax benefit for share-based compensation were included in the Consolidated Statements of Operations as follows (in millions):

	Year Ended December 31,
Compensation costs and related income tax benefit	2017				2016				2015
Cost of sales	$	3			$	2			$	3
Selling and marketing	8				6				8
Research and development	11				9				8
General and administration	16				11				14
Total compensation expense	$	38			$	28			$	33
Income tax benefit	$	11			$	9			$	11

Foreign Currency Translation. The balance sheet accounts of the Company’s non-U.S. subsidiaries, those not designated as U.S. dollar functional currency, are translated into U.S. dollars using the year-end exchange rate, and statement of earnings items are translated using the average exchange rate for the year. The resulting translation gains or losses are recorded in Stockholders’ equity as a cumulative translation adjustment, which is a component of Accumulated other comprehensive income loss within the Consolidated Balance Sheets.

Acquisitions. We account for acquired businesses using the acquisition method of accounting. This method requires that the purchase price be allocated to the identifiable assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill.

The estimates used to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments. We use information available to us to make fair value determinations and engage independent valuation specialists, when necessary, to assist in the fair value determination of significant acquired long-lived assets. While we use our best estimates and assumptions as a part of the purchase price allocation process, our estimates are inherently uncertain and subject to refinement. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships, customer attrition rates, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but due to the inherent uncertainty during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Recently Adopted Accounting Pronouncement

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles - Goodwill and Other (Topic 350).” The amendments of this ASU are effective for annual or any interim goodwill impairment tests beginning after December 15, 2019, and early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The amendments in this ASU simplify goodwill impairment testing by eliminating the Step 2 procedure to determine the implied fair value of goodwill of a reporting unit which fails the Step 1 procedure. The implication of this update results in the amount by which a carrying amount exceeds the reporting unit’s fair value to be recognized as an impairment charge in the interim or annual period identified. The standard is effective for public companies in the first calendar quarter of 2020 with early adoption permitted on a prospective basis. The Company has adopted

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this ASU on a prospective basis effective as of January 1, 2017 and has concluded that this pronouncement has no impact on its consolidated financial statements or existing accounting policies.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805)- Clarifying the Definition of a Business,” which clarifies the definition of a business when considering whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The clarified definition requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This definition reduces the number of transactions that need to be further evaluated as to be considered a business, an asset must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2017. This ASU should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company adopted this ASU on January 1, 2017, on a prospective basis, and there was no impact on the Company’s consolidated financial statements or existing accounting policies.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory.” This ASU allows for an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this ASU eliminate the exception for an intra-entity transfer of an asset other than inventory. The standard will be effective for public companies in the first calendar quarter of 2018, with early adoption permitted and on a modified retrospective basis as of the beginning of the period of adoption. The Company adopted this ASU on January 1, 2017. The Company recorded a reduction to retained earnings for the prior period catch-up of approximately $9 million for the unamortized prepaid tax on an intra-entity transfer of workforce in place. In the first quarter of 2017, the Company also recorded a $12 million benefit related to an intercompany transfer of intellectual property as a result of newly adopted accounting standards. The Company recognized no additional tax benefit in the fiscal year ended December 31, 2017.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.” This ASU provides clarification guidance on eight specific cash flow presentation issues that have developed due to diversity in practice. The issues include, but are not limited to, debt prepayment or extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and cash receipts from payments on beneficial interests in securitization transactions. The amendments in this ASU where practicable will be applied retrospectively. The Company has retrospectively adopted this ASU during the third quarter 2017. The Company has recognized $4 million in the current year as financing activities and reclassified $5 million in the prior year of cash paid for debt issuance costs and discounts on the Consolidated Statements of Cash Flows from operating activities to financing activities. There was no impact to the Consolidated Statements of Cash Flow in 2015.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU requires that entities recognize excess tax benefits and deficiencies related to employee share-based payment transactions as income tax expense and benefit versus additional paid in capital. This ASU also eliminates the requirement to reclassify excess tax benefits and deficiencies from operating activities to financing activities within the Consolidated Statements of Cash Flows. The Company has adopted recognition of excess tax benefits and deficiencies within income tax expense effective January 1, 2017 on a prospective basis. The Company has adopted presentation of excess tax benefits and deficiencies within operating activities in the Consolidated Statements of Cash Flows effective January 1, 2017 on a retrospective basis. The Company recognized $7 million as operating activities in the current year and reclassified excess tax benefits of $3 million, and $12 million on the Consolidated Statements of Cash Flows from financing activities to operating activities for the years ended December 31, 2016 and 2015, respectively. The Company has reflected a tax benefit of $7 million for the year ending December 31, 2017, as a discrete item within the Consolidated Statements of Operations under the new ASU.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value for entities that measure inventory using first-in, first-out (FIFO) or average cost. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company has adopted this ASU effective January 1, 2017 on a prospective basis. There are no material impacts to the Company's consolidated financial statements or disclosures resulting from the adoption of this ASU.

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” Several ASUs have been issued since the issuance of ASU 2014-09 which modify certain sections of ASU 2014-09, and are intended to promote a more consistent interpretation and application of the principles outlined in the new standard. The core principle of the new standard is

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that a company should recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The new standard also requires that certain costs to obtain a contract, which have generally been expensed as incurred under the current guidance, will now be capitalized and amortized in a pattern consistent with the transfer to the customer of the goods or services to which the asset relates.

We completed the assessment and implementation phases of the process to adopt ASU 2014-09. We also completed updating our accounting policy around revenue recognition and evaluating new disclosure requirements. We will continue to implement and enhance appropriate changes to our business processes, systems, and controls, as necessary, to support recognition and disclosure under the new standard. The new disclosure requirements will change the content and presentation of the financial statement footnotes.

As a result of applying the provisions of the new standard, certain of our agreements will have different timing of revenue recognition as compared to ASC 605, Revenue Recognition. We will adopt this new ASU on January 1, 2018 using the modified retrospective approach. The Company expects to record an increase to retained earnings on its Consolidated Balance Sheets of approximately $17 million to $20 million in the first quarter of 2018 due to the cumulative impact of adopting ASU 2014-09. The increase to retained earnings will result from the initial capitalization of previously expensed services sales commissions, the impact of revenue recognized for open service contracts sold with other products, and the impact of different revenue recognition timing patterns for open customer contract arrangements initiated before January 1, 2018. Additionally, new disclosures of disaggregated revenue information by reportable segment, as well as new disclosures of remaining performance obligations will be included in the Company’s filings beginning with the first quarter of fiscal 2018.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326) -Measurement of Credit Losses on Financial Instruments.” The new standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. There are two transition methods available under the new standard dependent upon the type of financial instrument, either cumulative effect or prospective. The standard will be effective for the Company in the first quarter of 2020. Earlier adoption is permitted only for annual periods after December 15, 2018. Management is currently assessing the impact of adoption on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Subtopic 842).” This ASU increases the transparency and comparability of organizations by recognizing lease assets and liabilities on the Consolidated Balance Sheets and disclosing key quantitative and qualitative information about leasing arrangements. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases were not previously recognized in the Consolidated Balance Sheets. The recognition, measurement, presentation, and cash flows arising from a lease by a lessee have not significantly changed. This standard will be effective for the Company in the first quarter of 2019, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. Management is currently assessing the impact of adoption on its consolidated financial statements. The impact of this ASU is non-cash in nature and will not affect the Company’s cash position.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. This ASU requires updates to the presentation of other comprehensive income resulting from a change in instrument-specific credit risk. This standard will be effective for the Company in the first quarter of 2018. Early adoption is prohibited for those provisions that apply to the Company. Amendments should be applied by means of cumulative effect adjustment to the Consolidated Balance Sheets as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values including disclosure requirements should be applied prospectively to equity investments that exist as of the date of adoption of the ASU. The impacts of adoption primarily relate to presentation, and there are no material impacts to the Company's consolidated financial statements or disclosures resulting from the adoption of this ASU.

Note 3 Business Combinations and Divestitures

Acquisitions

On October 27, 2014, the Company completed the Acquisition from Motorola Solutions Inc. (“MSI”) for a purchase price of $3.45 billion. During the year ended December 31, 2015, the Company paid additional consideration of $52 million to MSI, which included a $2 million opening cash adjustment and settlement of working capital adjustments. The Acquisition enables the Company to further sharpen its strategic focus on providing mission critical Enterprise Asset Intelligence solutions for its customers.

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Divestitures

On September 13, 2016, the Company entered into an Asset Purchase Agreement with Extreme Networks, Inc. to dispose of the Company’s wireless LAN (“WLAN”) business (“Divestiture Group”) for a gross purchase price of $55 million. On October 29, 2016, the Company completed the disposition of the Divestiture Group and recorded net proceeds of $39 million. In 2017, the Company and Extreme Networks, Inc. finalized the net working capital amounts for the Divestiture Group. The finalized amount did not differ materially from the original estimate.

The Company incurred a non-cash pre-tax charge related to the disposal group during the third quarter of 2016. This charge, which totaled $62 million, consisted of impairments of goodwill for $32 million and other intangibles for $30 million and is shown separately on the Consolidated Statements of Operations for the year ended December 31, 2016.

WLAN operating results are reported in the EVM segment through the closing date of the WLAN divestiture of October 28, 2016. Within the fiscal year ended December 31, 2016 Consolidated Statement of Operations, the Company generated revenue and gross profit from these assets of $106 million and $47 million, respectively.

Note 4 Goodwill and Other Intangibles, net

The balances and changes in Other Intangibles, net are as follows (in millions):

	December 31, 2017
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Amortized intangible assets
Current technology	$	24			$	(23	)		$	1
Trade names	41				(41		)		—
Unpatented technology	242				(205		)		37
Patents and patent rights	235				(215		)		20
Customer relationships	481				(240		)		241
Total	$	1,023			$	(724	)		$	299
Amortization expense for the year ended December 31, 2017					$	184

	December 31, 2016
	Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Amortized intangible assets
Current technology	$	24			$	(21	)		$	3
Trade names	40				(40		)		—
Unpatented technology	241				(146		)		95
Patent and patent rights	238				(161		)		77
Customer relationships	478				(173		)		305
Total	$	1,021			$	(541	)		$	480
Amortization expense for the year ended December 31, 2016					$	229

Estimated amortization expense for future periods is as follows (in millions):	Amount
For the year ended December 31, 2018	$	96
For the year ended December 31, 2019	83
For the year ended December 31, 2020	39
For the year ended December 31, 2021	37
For the year ended December 31, 2022	31
Thereafter	13
Total	$	299

There was no impairment of Other Intangible assets recorded during fiscal 2017. Impairment of Other Intangible assets of $30 million was recorded during fiscal 2016 related to the wireless LAN business divestiture which is reflected within the EVM segment.

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Changes in the net carrying value amount of goodwill were as follows (in millions):

	Total
Goodwill as of December 31, 2015	$	2,490
Impairment charge – wireless LAN divestiture	(32		)
Goodwill as of December 31, 2016	2,458
Foreign exchange impact	7
Goodwill as of December 31, 2017	$	2,465

As of December 31, 2017, goodwill totaled $2.3 billion for the EVM reportable segment and $154 million for the AIT reportable segment.

There was no goodwill impairment recorded in fiscal 2017. Goodwill impairment of $32 million was recorded during fiscal 2016 related to the wireless LAN business divestiture which is reflected within the EVM segment.

The Company completed its annual goodwill impairment testing during the fourth quarter 2017. For all of the Company’s reporting units, the estimated fair values exceeded the carrying values ranging from approximately 20% to 90%.

Note 5 Costs Associated with Exit and Restructuring

In the first quarter 2017, the Company’s executive leadership approved an initiative to continue the Company’s efforts to increase operational efficiency (the “Productivity Plan”). The Company expects the Productivity Plan to build upon the exit and restructuring initiatives specific to the acquisition of the Enterprise business (“Enterprise”) from Motorola Solutions, Inc. in October 2014, (the “Acquisition Plan”). Actions under the Productivity Plan include organizational design changes, process improvements and automation. Implementation of actions identified through the Productivity Plan is expected to be substantially complete by December 2018. Exit and restructuring costs are not included in the operating results of our segments as they are not deemed to impact the specific segment measures as reviewed by our Chief Operating Decision Maker and therefore are reported as a component of Corporate, eliminations. See Note 15, Segment Information and Geographic Data.

Total exit and restructuring charges of $12 million life-to-date and year-to-date specific to the Productivity Plan have been recorded through December 31, 2017 and relate to severance and related benefits, lease exit costs and other expenses. Total remaining charges associated with this plan are expected to be in the range of $8 million to $12 million with activities expected to be substantially complete by the end of fiscal 2018.

Total exit and restructuring charges of $69 million life-to-date specific to the Acquisition Plan have been recorded through December 31, 2017 and include severance and related benefits, lease exit costs and other expenses. Charges related to the Acquisition Plan for the twelve-month period ended December 31, 2017 and 2016, were $4 million and $19 million, respectively. The Company has substantially completed the activities associated with the Acquisition Plan.

The Company incurred total exit and restructuring costs as follows (in millions):

Type of Cost		Cumulative costs incurred through December 31, 2017				Costs incurred for the year ended December 31, 2017				Cumulative costs incurred through December 31, 2016
Severance, stay bonuses, and other employee-related expenses		$	69			$	15			$	54
Obligations for future lease payments		12				1				11
Total		$	81			$	16			$	65

A rollforward of the exit and restructuring accruals is as follows (in millions):

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	Year Ended December 31,
	2017				2016
Balance at beginning of year	$	10			$	15
Charged to earnings	16				19
Cash paid	(18		)		(22		)
WLAN Divestiture	—				(2		)
Balance at the end of year	$	8			$	10

Liabilities related to exit and restructuring activities are included in the following reported financial statement line items in the Company’s Consolidated Balance Sheets (in millions):

	Year Ended December 31,
	2017				2016
Accrued liabilities	$	6			$	7
Other long-term liabilities	2				3
Total liabilities related to exit and restructuring activities	$	8			$	10

Settlement of the specified long-term balance will be completed by October 2023 due to the remaining obligation of non-cancellable lease payments associated with the exited facilities.

Note 6 Fair Value Measurements

Financial assets and liabilities are to be measured using inputs from three levels of the fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into the following three broad levels:

Level 1:		Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. (e.g. U.S. Treasuries and money market funds).
Level 2:		Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3:		Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. In addition, the Company considers counterparty credit risk in the assessment of fair value.

The Company’s financial assets and liabilities carried at fair value as of December 31, 2017, are classified below (in millions):

	Level 1				Level 2				Level 3				Total
Assets:
Money market investments related to the deferred compensation plan	$	15			$	—			$	—			$	15
Total Assets at fair value	$	15			$	—			$	—			$	15
Liabilities:
Forward interest rate swap contracts(2)	$	—			$	18			$	—			$	18
Foreign exchange contracts(1)	2				9				—				11
Liabilities related to the deferred compensation plan	15				—				—				15
Total Liabilities at fair value	$	17			$	27			$	—			$	44

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The Company’s financial assets and liabilities carried at fair value as of December 31, 2016, are classified below (in millions):

	Level 1				Level 2				Level 3				Total
Assets:
Foreign exchange contracts(1)	$	11			$	12			$	—			$	23
Money market investments related to the deferred compensation plan	11				—				—				11
Total Assets at fair value	$	22			$	12			$	—			$	34
Liabilities:
Forward interest rate swap contracts(2)	$	—			$	27			$	—			$	27
Liabilities related to the deferred compensation plan	11				—				—				11
Total Liabilities at fair value	$	11			$	27			$	—			$	38

(1)	The fair value of foreign exchange contracts is calculated as follows:

a.	Fair value of a collar or put option contract associated with forecasted sales hedges is calculated using bid and ask rates for similar contracts.

b.	Fair value of regular forward contracts associated with forecasted sales hedges is calculated using the period-end exchange rate adjusted for current forward points.

c.

Fair value of hedges against net assets is calculated at the period end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at period end (Level 2). If this is the case, the fair value is calculated at the rate at which the hedge is being settled (Level 1). As a result, transfers from Level 2 to Level 1 of the fair value hierarchy totaled $2 million and $11 million as of December 31, 2017 and 2016, respectively.

(2)	The fair value of forward interest rate swap contracts is based upon a valuation model that uses relevant observable market inputs at the quoted intervals, such as forward yield curves, and may be adjusted for the Company’s own credit risk and the interest rate swap terms. See gross balance reporting in Note 7, Derivative Instruments.

Note 7 Derivative Instruments

In the normal course of business, the Company is exposed to global market risks, including the effects of changes in foreign currency exchange rates and interest rates. The Company uses derivative instruments to manage its exposure to such risks and may elect to designate certain derivatives as hedging instruments under ASC 815, Derivatives and Hedging. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking the hedge transactions. The Company does not hold or issue derivatives for trading or speculative purposes.

In accordance with ASC 815, Derivative and Hedging, the Company recognizes derivative instruments as either assets or liabilities on the Consolidated Balance Sheets and measures them at fair value. The following table presents the fair value of its

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derivative instruments (in millions):

	Asset (Liability) Derivatives
	Consolidated Balance Sheets Classification		Fair Value
			December 31
			2017				2016
Derivative instruments designated as hedges:
Foreign exchange contracts	Prepaid expenses and other current assets		$	—			$	12
Foreign exchange contracts	Accrued liabilities		(9		)		—
Forward interest rate swaps	Accrued liabilities		(2		)		(3		)
Forward interest rate swaps	Other long-term liabilities		(8		)		(13		)
Total derivative instruments designated as hedges			$	(19	)		$	(4	)
Derivative instruments not designated as hedges:
Foreign exchange contracts	Prepaid expenses and other current assets		$	—			$	11
Foreign exchange contracts	Accrued liabilities		(2		)		—
Forward interest rate swaps	Accrued liabilities		(1		)		(1		)
Forward interest rate swaps	Other long-term liabilities		(7		)		(10		)
Total derivative instruments not designated as hedges			(10		)		—
Total Net Derivative Liability			$	(29	)		$	(4	)

The following table presents the net (losses) gains from changes in fair values of derivatives that are not designated as hedges (in millions):

	Net (Loss) Gain Recognized in Income
			Year Ended December 31,
	Consolidated Statements of Operations Classification		2017				2016				2015
Derivative instruments not designated as hedges:
Foreign exchange contracts	Foreign exchange (loss) gain		$	(24	)		$	5			$	11
Forward interest rate swaps	Interest expense and other, net		2				—				4
Total net (loss) gain from derivative instruments not designated as hedges			$	(22	)		$	5			$	15

Credit and Market Risk Management

Financial instruments, including derivatives, expose the Company to counterparty credit risk of nonperformance and to market risk related to currency exchange rate and interest rate fluctuations. The Company manages its exposure to counterparty credit risk by establishing minimum credit standards, diversifying its counterparties, and monitoring its concentrations of credit. The Company’s credit risk counterparties are commercial banks with expertise in derivative financial instruments. The Company evaluates the impact of market risk on the fair value and cash flows of its derivative and other financial instruments by considering reasonably possible changes in interest rates and currency exchange rates. The Company continually monitors the creditworthiness of the customers to which it grants credit terms in the normal course of business. The terms and conditions of the Company’s credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer.

Foreign Currency Exchange Risk Management

The Company conducts business on a multinational basis in a wide variety of foreign currencies. Exposure to market risk for changes in foreign currency exchange rates arises from euro denominated external revenues, cross-border financing activities

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between subsidiaries, and foreign currency denominated monetary assets and liabilities. The Company realizes its objective of preserving the economic value of non-functional currency denominated cash flows by initially hedging transaction exposures with natural offsets to the fullest extent possible and, once these opportunities have been exhausted, through foreign exchange forward and option contracts.

The Company manages the exchange rate risk of anticipated euro denominated sales by using put options, forward contracts, and participating forwards, all of which typically mature within twelve months of execution. The Company designates these derivative contracts as cash flow hedges. Unrealized gains and losses on these contracts are deferred in Accumulated other comprehensive loss on the Consolidated Balance Sheets until the contract is settled and the hedged sale is realized. The realized gain or loss is then recorded as an adjustment to Net sales on the Consolidated Statement of Operations. Realized (losses) or gains were $(8) million, $(7) million, and $14 million for the periods ending December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017 and 2016, the notional amounts of the Company’s foreign exchange cash flow hedges were €389 million and €341 million, respectively. The Company has reviewed its cash flow hedges for effectiveness and determined they are highly effective.

The Company uses forward contracts, which are not designated as hedging instruments, to manage its exposures related to its Brazilian real, British pound, Canadian dollar, Czech koruna, euro, Australian dollar, Swedish krona, Japanese yen and Singapore dollars denominated net assets. These forward contracts typically mature within three months after execution. Monetary gains and losses on these forward contracts are recorded in income each quarter and are generally offset by the foreign exchange gains and losses related to their net asset positions. The notional values of these outstanding contracts are as follows:

	December 31,
	2017				2016
Notional balance of outstanding contracts (in millions):
British Pound/US dollar	£	13			£	3
Euro/US dollar	€	108			€	148
British Pound/Euro	£	5			£	8
Canadian Dollar/US dollar	$	12			$	13
Czech Koruna/US dollar	Kč	361			Kč	147
Brazilian Real/US dollar	R$	34			R$	56
Malaysian Ringgit/US dollar	RM	—			RM	16
Australian Dollar/US dollar	$	55			$	50
Swedish Krona/US dollar	kr	13			kr	7
Japanese Yen/US dollar	¥	151			¥	48
Singapore Dollar/US dollar	S$	4			S$	15
Net fair value (liability) asset of outstanding contracts (in millions)	$	(2	)		$	11

Interest Rate Risk Management

On July 26, 2017, the Company entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”), which amended, modified and added provisions to the Company’s previous credit agreement, provided for an additional term loan of $687.5 million (“Term Loan A”) and increased the existing revolving credit facility (“Revolving Credit Facility”) from $250 million to $500 million. See Note 8, Long-Term Debt. Borrowings under the existing term loan (“Term Loan B”), the new Term Loan A, the Revolving Credit Facility and the receivables financing facility bear interest at a variable rate plus an applicable margin. As a result, the Company is exposed to market risk associated with the variable interest rate payments on both term loans.

The Company manages its exposure to changes in interest rates by utilizing interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. The Company does not enter into derivative instruments for trading or speculative purposes.

In December 2017, the Company entered into an $800 million forward long-term interest rate swap agreement to lock into a fixed LIBOR interest rate base for debt facilities subject to monthly interest payments, including Term Loan A, the Revolving Credit Facility and receivables financing facility. Under the terms of the agreement, $800 million in variable-rate debt will be swapped for a fixed interest rate with net settlement terms due effective in December 2018. The changes in fair value of these

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swaps are not designated as hedges and are recognized immediately as Interest expense, net on the Consolidated Statement of Operations.

The Company has a floating-to-fixed interest rate swap, which was designated as a cash flow hedge. This swap was terminated and the hedge accounting treatment was discontinued in 2014. This swap has $4 million to be amortized through Accumulated other comprehensive loss on the Consolidated Balance Sheets and into Interest expense, net on the Consolidated Statements of Operations through June 2021, of which $2 million will be amortized during 2018.

The Company has three interest rate swaps previously entered into with the purpose of converting floating-to-fixed rate debt. The first swap was entered into with a syndicated group of commercial banks for the purpose of moving from floating-to-fixed rate debt. The second swap largely offsets the first swap, moving from fixed-to-floating rate debt. Both of these instruments are not designated as hedges and the changes in fair value are recognized in Interest expense, net on the Consolidated Statements of Operations. The third swap entered into was an interest rate swap converting floating-to-fixed rate debt which was designated as a cash flow hedge and receives hedge accounting treatment. All three swaps have a termination date in June 2021.

The changes in fair value of the active swap designated as a cash flow hedge are recognized in Accumulated other comprehensive loss on the Consolidated Balance Sheets, with any ineffectiveness immediately recognized in earnings. At December 31, 2017, the Company estimated that approximately $4 million in losses on the forward interest rate swap designated as a cash flow hedge will be reclassified from Accumulated other comprehensive loss on the Consolidated Balance Sheets into earnings during the next four quarters.

The Company’s master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. The following table presents the gross fair values and related offsetting counterparty fair values as well as the net fair value amounts for interest rates swaps at December 31, 2017 (in millions):

	Gross Fair Value				Offsetting Counterparty Fair Value				Net Fair Value in the Consolidated Balance Sheets
Counterparty A	$	8			$	4			$	4
Counterparty B	3				1				2
Counterparty C	3				1				2
Counterparty D	5				3				2
Counterparty E	3				1				2
Counterparty F	3				1				2
Counterparty G	4				—				4
Total	$	29			$	11			$	18

The notional amount of the designated interest rate swaps effective in each year of the cash flow hedge relationships does not exceed the principal amount of the Term Loan, which is hedged. The Company has reviewed its interest rate swap hedges for effectiveness and determined they are all 100% effective.

The interest rate swaps have the following notional amounts per year (in millions):

Year 2018	$	544
Year 2019	1,344
Year 2020	1,072
Year 2021	1,072
Remainder	800
Notional balance of outstanding contracts	$	4,832

Note 8 Long-Term Debt

The following table shows the carrying value of the Company’s debt (in millions):

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	December 31,
	2017				2016
Senior Notes	$	—			$	1,050
Term Loan B	1,160				1,653
Term Loan A	679				—
Revolving Credit Facility	275				—
Receivables Financing Facility	135				—
Total debt	2,249				2,703
Less: Debt issuance costs	(7		)		(22		)
Less: Unamortized discounts	(15		)		(33		)
Less: Current portion of long-term debt	(51		)		—
Total long-term debt	$	2,176			$	2,648

At December 31, 2017, the future maturities of long-term debt, excluding debt discounts and issuance costs, consisted of the following (in millions):

2018				$	51
2019				174
2020				56
2021				1,968
2022				—
Thereafter				—
Total future maturities of long-term debt				$	2,249

The estimated fair value of our long-term debt approximated $1.8 billion at December 31, 2017 and $2.8 billion at December 31, 2016. These fair value amounts exclude the Revolving Credit Facility and receivables financing facility as these facilities are stated at fair value. These fair value amounts represent the estimated value at which the Company’s lenders could trade its debt within the financial markets and does not represent the settlement value of these long-term debt liabilities to the Company. The fair value of the long-term debt will continue to vary each period based on fluctuations in market interest rates, as well as changes to the Company’s credit ratings. This methodology resulted in a Level 2 classification in the fair value hierarchy.

Credit Facilities

On July 26, 2017, the Company entered into the A&R Credit Agreement, which amended, modified and added provisions to the Company’s previous credit agreement. The A&R Credit Agreement provides for a Term Loan A of $688 million and increased the existing Revolving Credit Facility from $250 million to $500 million. The Company incurred and capitalized debt issuance costs of $5 million related to Term Loan A and the increased Revolving Credit Facility under the A&R Credit Agreement.

In addition, as part of the A&R Credit Agreement, the Company partially paid down and repriced its Term Loan B. The A&R Credit Agreement also lowered the index rate spread for LIBOR loan from LIBOR + 250 bp to LIBOR + 200 bp for its Term Loan B.

In accounting for the early termination and repricing of Term Loan B, the Company applied the provisions of ASC 470-50, Modifications and Extinguishments (“ASC 470-50”). The evaluation of the accounting under ASC 470-50 was done on a creditor by creditor basis in order to determine if the terms of the debt were substantially different and, as a result, whether to apply modification or extinguishment accounting. The Company determined that the terms of the debt were not substantially different for approximately 80.4% of the lenders, and applied modification accounting. For the remaining 19.6% of the lenders, extinguishment accounting was applied. Certain lenders elected not to participate in the debt repricing, which resulted in a debt principal prepayment of $75 million of the Company’s outstanding debt balance. The debt repricing transaction also resulted in one-time pre-tax charges including third-party fees for arranger, legal and other services and accelerated discount and amortization of debt issuance costs on the debt principal prepayment of approximately $6 million. These costs are reflected as non-operating expenses in Other, net on the Company’s Consolidated Statements of Operations.

As of December 31, 2017, the Term Loan A interest rate was 3.35%, and the Term Loan B interest rate was 3.37%. Borrowings under the Term Loan B, as amended, bear interest at a variable rate subject to a floor of 2.75%. The facility allows for interest

F-22

payments payable monthly or quarterly on Term Loan A and quarterly on Term Loan B. The Company has entered into interest rate swaps to manage interest rate risk on its long-term debt on Term Loan B. See Note 7, Derivative Instruments.

The A&R Credit Agreement also requires the Company to prepay certain amounts in the event of certain circumstances or transactions, as defined in the A&R Credit Agreement. The Company may make prepayments against the Term Loans, in whole or in part, without premium or penalty. Under Term Loan A, the Company made debt principal prepayments of $9 million during the year ended December 31, 2017. Under Term Loan B, the Company made debt principal prepayments of $493 million during the year ended December 31, 2017. The Term Loan A, unless amended, modified, or extended, will mature on July 27, 2021 (the “Term Loan A Maturity Date”). The Term Loan B, unless amended, modified, or extended, will mature on October 27, 2021 (the “Term Loan B Maturity Date”). To the extent not previously paid, the Term Loans are due and payable on, respectively, the Term Loan A Maturity Date and Term Loan B Maturity Date. At such time, the Company will be required to repay all outstanding principal, accrued and unpaid interest and other charges in accordance with the A&R Credit Agreement. Assuming the Company makes no further optional debt principal prepayments on Term Loan A, the outstanding principal as of the Term Loan A Maturity Date will be approximately $498 million. Assuming the Company makes no further optional debt principal prepayments on the Term Loan B, the outstanding principal as of the Term Loan B Maturity Date will be approximately $1.2 billion.

The Revolving Credit Facility is available for working capital and other general corporate purposes including letters of credit. The amount (including letters of credit) cannot exceed $500 million. As of December 31, 2017, the Company had letters of credit totaling $5 million, which reduced funds available for other borrowings under the Revolving Credit Facility to $495 million. The Revolving Credit Facility will mature and the related commitments will terminate on July 27, 2021.

Borrowings under the Revolving Credit Facility bear interest at a variable rate plus an applicable margin. As of December 31, 2017, the Revolving Credit Facility had an average interest rate of 3.39%. The facility allows for interest payments payable monthly or quarterly. As of December 31, 2017, the Company had borrowings of $275 million against the Revolving Credit Facility. There were no borrowings against the Revolving Credit Facility in the prior year comparable period.

Senior Notes

During fiscal 2017, the Company used proceeds from Term Loan A, the Revolving Credit Facility and the receivables financing facility to redeem $1.1 billion in outstanding principal of the 7.25% Senior Notes (the “Senior Notes”), maturing October 2022. In accounting for the early termination of Senior Notes, the Company applied the provisions of ASC 470-50, Modifications and Extinguishments (“ASC 470-50”). Based on the terms of the debt, the Company concluded extinguishment accounting was appropriate to apply. The Company recognized a $65 million make whole premium, which was recorded as Interest expense, net on the Company’s Consolidated Statements of Operations. The Company also recognized accelerated debt issuance costs of $16 million which were recorded as Interest expense, net on the Company’s Consolidated Statements of Operations.

Receivables Financing Facility

On December 1, 2017, a wholly-owned, bankruptcy-remote, special-purpose entity (“SPE”) of the Company entered into the Receivables Purchase Agreement, which provides for a receivables financing facility of up to $180 million. The SPE utilizes the receivables financing facility in the normal course of business as part of its management of cash flows. Under its committed receivables financing facility, a subsidiary of the Company sells its domestically originated accounts receivables at fair value, on a revolving basis, to the SPE which was formed for the sole purpose of buying the receivables. The SPE, in turn, pledges a valid and perfected first-priority security interest in the pool of purchased receivables to a financial institution for borrowing purposes. The subsidiary retains an ownership interest in the pool of receivables that are sold to the SPE and services those receivables. Accordingly, the Company has determined that these transactions do not qualify for sale accounting under ASC 860, Transfers and Servicing of Financial Assets, and has, therefore, accounted for the transactions as secured borrowings.

At December 31, 2017, the Company’s Consolidated Balance Sheets included $421 million of receivables that were pledged and $135 million of associated liabilities. The SPE borrowed $145 million on the receivables financing facility and repaid $10 million in 2017. In 2017, the Company recorded expenses related to its receivables financing facility of $1 million as Interest expense, net on the Company’s Consolidated Statements of Operations. The receivables financing facility will mature on November 29, 2019.

Borrowings under the receivables financing facility bear interest at a variable rate plus an applicable margin. As of December 31, 2017, the receivables financing facility had an average interest rate of 2.35% and requires monthly interest payments.

Both the Revolving Credit Facility and receivables financing facility include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels.

F-23

Summary of fiscal 2017 actions

The actions taken during fiscal 2017 resulted in net repayments of $454 million and included the following:

•	Term Loan A borrowings of $688 million,

•	Term Loan A debt principal payments of $9 million ,

•	Revolving Credit Facility borrowings of $275 million,

•	Senior Note debt principal prepayments of $1.1 billion,

•	Term Loan B debt principal prepayments of $493 million,

•	Receivables financing facility borrowings of $145 million, and

•	Receivables financing facility payments of $10 million.

The Company was in compliance with all covenants as of December 31, 2017 and is currently not aware of any events that would cause non-compliance with any covenants in the future.

From January 1, 2018 through February 22, 2018, the Company made principal debt repayments of $63 million.

Certain domestic subsidiaries of the Company (the “Guarantor Subsidiaries”) guarantee the Term Loans and the Revolving Credit Facility on a senior basis: For the period ended December 31, 2017, the non-Guarantor Subsidiaries would have (a) accounted for 57.3% of our total revenue and (b) held 86.9% or $4.3 billion of our total assets and approximately 87.6% or $3.0 billion of our total liabilities including trade payables but excluding intercompany liabilities.

Note 9 Lease Commitments

The Company leases certain manufacturing facilities, distribution centers, and sales offices under non-cancellable operating leases. Rent expense under these leases was $34 million, $39 million and $45 million at December 31, 2017, 2016 and 2015, respectively. Lease terms range from 1 to 15 years with break periods specified in the lease agreements.

The Company’s minimum future lease obligations under all non-cancellable operating leases as of December 31, 2017 are as follows (in millions):

	Future Minimum Payments
2018	$	32
2019	27
2020	20
2021	13
2022	10
2023 and thereafter	36
Total minimum future lease obligations	$	138

Note 10 Contingencies

The Company is subject to a variety of investigations, claims, suits, and other legal proceedings that arise from time to time in the ordinary course of business, including but not limited to, intellectual property, employment, tort, and breach of contract matters. The Company currently believes that the outcomes of such proceedings, individually and in the aggregate, will not have a material adverse impact on its business, cash flows, financial position, or results of operations. Any legal proceedings are subject to inherent uncertainties, and the Company’s view of these matters and its potential effects may change in the future.

In connection with the acquisition of the Enterprise business from Motorola Solutions, Inc., the Company acquired Symbol Technologies, Inc., a subsidiary of Motorola Solutions (“Symbol”). A putative federal class action lawsuit, Waring v. Symbol Technologies, Inc., et al., was filed on August 16, 2005 against Symbol Technologies, Inc. and two of its former officers in the United States District Court for the Eastern District of New York by Robert Waring. After the filing of the Waring action, several additional purported class actions were filed against Symbol and the same former officers making substantially similar allegations (collectively, the New Class Actions”). The Waring action and the New Class Actions were consolidated for all purposes and on April 26, 2006, the Court appointed the Iron Workers Local # 580 Pension Fund as lead plaintiff and approved its retention of lead counsel on behalf of the putative class. On August 30, 2006, the lead plaintiff filed a Consolidated Amended Class Action Complaint (the “Amended Complaint”), and named additional former officers and directors of Symbol as defendants. The lead plaintiff alleges that the defendants misrepresented the effectiveness of Symbol’s internal controls and forecasting processes, and that, as a result, all of the defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the individual defendants violated Section 20(a) of the Exchange Act. The lead plaintiff alleges that it

F-24

was damaged by the decline in the price of Symbol’s stock following certain purported corrective disclosures and seeks unspecified damages. The court has certified a class of investors that includes those that purchased Symbol common stock between March 12, 2004 and August 1, 2005. The parties have completed fact and expert discovery and they have agreed to a schedule for the filing of dispositive motions, which is subject to the Court’s approval. Although the Court has entered a scheduling order that currently requires the filing of a proposed joint pre-trial order by February 28, 2018, the parties are in the process of negotiating a proposed amendment to that order. The parties have scheduled a mediation for March 15, 2018. The current lead Directors and Officers (“D&O”) insurer previously maintained a position of not agreeing to reimburse defense costs incurred by the Company in connection with this matter. The current D&O insurer is now required to advance defense costs incurred by the Company in connection with this matter.

The Company establishes an accrued liability for loss contingencies related to legal matters when the loss is both probable and estimable. In addition, for some matters for which a loss is probable or reasonably possible, an estimate of the amount of loss or range of loss is not possible, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Currently, the Company is unable to reasonably estimate the amount of reasonably possible losses for the above-mentioned matter.

Unclaimed Property Voluntary Disclosure Agreement (“VDA”) and Audits: The Company is currently under audit by several states related to its reporting of unclaimed property liabilities. Additionally, in December 2017, the Company entered into a VDA with the State of Delaware. The Company has engaged an outside consultant to facilitate the assessment of the estimated liability that may result from these activities, but has not progressed sufficiently in its assessment to quantify and record a contingency reserve for any unreported unclaimed property liabilities.

Note 11 Share-Based Compensation

The Zebra Technologies Corporation Long-Term Incentive Plan (“2015 Plan”), provides for incentive compensation to the Company’s non-employee directors, officers and employees. The awards available under the 2015 Plan include Stock Appreciation Rights (“SARs”), Restricted Stock Awards (“RSAs”), Performance Share Awards (“PSAs”), Cash-settled Stock Appreciation Rights (“CSRs”), Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”). Non-qualified stock options were available under the 2006 Long-Term Incentive Plan (“2006 Plan”). Non-qualified stock options are no longer granted under the 2015 Plan. A total of 4.0 million shares became available for delivery under the 2015 Plan.

A summary of the equity awards authorized and available for future grants under the 2015 Plan is as follows:

Available for future grants at December 31, 2016	2,164,297
Newly authorized options	—
Granted	(726,862	)
Cancellation and forfeitures	—
Plan termination	—
Available for future grants at December 31, 2017	1,437,435

Pre-tax share-based compensation expense recognized in the Consolidated Statements of Operations was $38 million, $28 million and $33 million for the years ended December 31, 2017, 2016 and 2015, respectively. Tax related benefits of $11 million, $9 million and $11 million were also recognized for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, total unearned compensation costs related to the Company’s share-based compensation plans was $50 million, which will be amortized over the weighted average remaining service period of 2.2 years.

Stock Appreciation Rights (“SARs”)

F-25

A summary of the Company’s SARs outstanding under the 2015 Plan is as follows:

	2017							2016							2015
SARs	Shares			Weighted- Average Exercise Price				Shares			Weighted- Average Exercise Price				Shares			Weighted- Average Exercise Price
Outstanding at beginning of year	1,740,786			$	56.15			1,397,611			$	56.78			1,292,142			$	42.20
Granted	402,029			98.87				627,971			52.13				332,159			107.31
Exercised	(250,326	)		48.66				(160,946	)		35.37				(179,702	)		40.71
Forfeited	(66,550	)		75.38				(115,215	)		65.74				(45,441	)		75.26
Expired	(7,948	)		108.20				(8,635	)		88.65				(1,547	)		47.11
Outstanding at end of year	1,817,991			$	65.73			1,740,786			$	56.15			1,397,611			$	56.78
Exercisable at end of year	874,942			$	50.86			828,754			$	45.14			736,075			$	35.90

The fair value of share-based compensation is estimated on the date of grant using a binomial model. Volatility is based on an average of the implied volatility in the open market and the annualized volatility of the Company’s stock price over its entire stock history. Grants in the table below include SARs that will be settled in the Class A common stock or cash.

The following table shows the weighted-average assumptions used for grants of SARs, as well as the fair value of the grants based on those assumptions:

	2017		2016		2015
Expected dividend yield	0%		0%		0%
Forfeiture rate	9.37%		9.01%		10.24%
Volatility	35.49%		43.14%		33.98%
Risk free interest rate	1.77%		1.29%		1.53%
Range of interest rates	0.71%-2.41%		0.25%-1.75%		0.02% - 2.14%
Expected weighted-average life (in years)	4.13		5.33		5.32
Fair value of SARs granted	$12.01		$12.65		$11.63
Weighted-average grant date fair value of SARs granted (per underlying share)	$29.86		$20.18		$35.00

The following table summarizes information about SARs outstanding at December 31, 2017:

	Outstanding				Exercisable
Aggregate intrinsic value (in millions)	$	70			$	47
Weighted-average remaining contractual term (in years)	6.1				4.7

The intrinsic value for SARs exercised in fiscal 2017, 2016 and 2015 was $14 million, $6 million and $11 million, respectively. The total fair value of SARs vested in fiscal 2017, 2016 and 2015 was $8 million, $3 million and $8 million, respectively.

Cash received from the exercise of SARs in fiscal 2017 was $12 million compared to $6 million in the prior year. The related tax benefit realized was $3 million in fiscal 2017 compared to $1 million in the prior year.

The Company’s SARs are expensed over the vesting period of the related award, which is typically 4 years.

Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”)

The Company’s restricted stock grants consist of time-vested restricted stock awards (“RSAs”) and performance vested restricted stock awards (“PSAs”). The RSAs and PSAs hold voting rights and therefore are considered participating securities. The outstanding RSAs and PSAs are included as part of the Company’s Class A Common Stock outstanding. The RSAs and PSAs vest at each vesting date subject to restrictions such as continuous employment except in certain cases as set forth in each stock agreement. The Company’s restricted stock awards are expensed over the vesting period of the related award, which is typically 3 years. Some awards, including those granted annually to non-employee directors as an equity retainer fee, were vested upon grant. PSAs targets are set based on certain Company-wide financial metrics. Compensation cost is calculated as the market date fair value on grant date multiplied by the number of shares granted.

F-26

The Company also issues stock awards to nonemployee directors. Each director receives an equity grant of shares every year during the month of May. The number of shares granted to each director is determined by dividing the value of the annual grant by the price of a share of common stock. In fiscal 2017, there were 12,488 shares granted to nonemployee directors compared to 25,088 shares and 9,194 shares in fiscal 2016 and 2015, respectively. New directors in any fiscal year earned a prorated amount. The shares vest immediately upon the grant date.

A summary of information relative to the Company’s restricted stock awards is as follows:

		2017							2016							2015
Restricted Stock Awards		Shares			Weighted-Average Grant Date Fair Value				Shares			Weighted-Average Grant Date Fair Value				Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		622,814			$	70.19			566,447			$	77.68			691,621			$	60.06
Granted		199,629			98.90				389,193			51.93				185,782			107.17
Released		(165,846	)		75.90				(275,229	)		59.39				(253,801	)		51.95
Forfeited		(27,955	)		72.81				(57,597	)		70.50				(57,155	)		75.11
Outstanding at end of year		628,642			$	77.70			622,814			$	70.19			566,447			$	77.68

The fair value of each performance award granted includes assumptions around the Company’s performance goals. A summary of information relative to the Company’s performance awards is as follows:

		2017							2016							2015
Performance Share Awards		Shares			Weighted-Average Grant Date Fair Value				Shares			Weighted-Average Grant Date Fair Value				Shares			Weighted-Average Grant Date Fair Value
Outstanding at beginning of year		379,226			$	70.14			332,630			$	73.40			374,180			$	61.53
Granted		79,423			98.97				172,024			51.01				106,411			75.77
Released		(2,029	)		62.70				(111,325	)		46.58				(120,000	)		38.67
Forfeited		(190,873	)		73.09				(14,103	)		75.73				(27,961	)		73.45
Outstanding at end of year		265,747			$	77.04			379,226			$	70.14			332,630			$	73.40

Other Award Types

The Company also has cash-settled compensation awards including cash-settled Stock Appreciation Rights (“CSRs”), Restricted Stock Units (“RSUs”), and Performance Stock Units (“PSUs”) (the “Awards”) that are expensed over the vesting period of the related award, which is not more than 4 years. Compensation cost is calculated at the market date fair value on grant date multiplied by the number of share-equivalents granted and the fair value is remeasured at the end of each reporting period. Share-based liabilities paid for these awards was $1.5 million in 2017 compared to $0.8 million in 2016. Share-equivalents issued under these programs totaled 45,781, 95,210 and 11,618 in fiscal 2017, 2016 and 2015, respectively.

Non-qualified Stock Options

A summary of the Company’s options outstanding under the 2006 Plan is as follows:

F-27

	2017							2016							2015
Non-qualified Options	Shares			Weighted- Average Exercise Price				Shares			Weighted- Average Exercise Price				Shares			Weighted- Average Exercise Price
Outstanding at beginning of year	154,551			$	35.96			204,434			$	36.66			415,960			$	40.19
Granted	—			—				—			—				—			—
Exercised	(132,905	)		36.86				(47,393	)		38.60				(209,976	)		43.53
Forfeited	—			—				—			—				—			—
Expired	(5,941	)		41.25				(2,490	)		43.35				(1,550	)		51.62
Outstanding at end of year	15,705			$	26.34			154,551			$	35.96			204,434			$	36.66
Exercisable at end of year	15,705			$	26.34			154,551			$	35.96			204,434			$	36.66

The following table summarizes information about non-qualified stock options outstanding at December 31, 2017:

	Outstanding				Exercisable
Aggregate intrinsic value (in millions)	$	1			$	1
Weighted-average remaining contractual term (in years)	0.70				0.70

There were no non-qualified stock options issued during the twelve months ended December 31, 2017.

The intrinsic value for non-qualified options exercised in fiscal 2017, 2016 and 2015 was $8 million, $2 million and $10 million, respectively. There were no non-qualified options vested in fiscal 2017, 2016 and 2015.

Cash received from the exercise of non-qualified options in fiscal 2017 was $5 million compared to $2 million in the prior year. The related tax benefit realized was less than $2 million in fiscal 2017 compared to $1 million in the prior year.

Employee Stock Purchase Plan

The Zebra Technologies Corporation 2011 Employee Stock Purchase Plan (“2011 Plan”), which became effective in fiscal 2011, permits eligible employees to purchase common stock at 95% of the fair market value at the date of purchase. Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under this plan is 1,500,000 shares. At December 31, 2017, 922,972 shares were available for future purchase.

Note 12 Income Taxes

The geographical sources of income (loss) before income taxes were as follows (in millions):

	Year Ended December 31,
	2017				2016				2015
United States	$	(152	)		$	(120	)		$	(288	)
Outside United States	240				(9		)		108
Total	$	88			$	(129	)		$	(180	)

F-28

Income tax expense (benefit) consisted of the following (in millions):

	Year Ended December 31,
	2017				2016				2015
Current:
Federal	$	10			$	14			$	84
State	8				6				4
Foreign	62				31				32
Total current	80				51				120
Deferred:
Federal	20				(31		)		(117		)
State	(10		)		(6		)		(24		)
Foreign	(19		)		(6		)		(1		)
Total deferred	(9		)		(43		)		(142		)
Total expense (benefit)	$	71			$	8			$	(22	)

The Company recognized tax expense of $71 million and $8 million for the years ended December 31, 2017 and 2016, respectively. The Company’s effective tax rates were 80.7% and (6.2)% as of December 31, 2017 and 2016, respectively. The Company’s effective tax rate was higher than the federal statutory rate of 35% primarily due to deferred income taxed on the outbound transfer of U.S. assets, an increase in uncertain tax benefits, increased valuation allowance for its foreign deferred tax assets, foreign non-deductible expenses, the one-time transition tax and remeasurement of its net U.S. deferred tax assets under U.S. tax reform. These increases were partially offset by the benefit of lower tax rates in foreign jurisdictions, recognition of deferred tax assets on intercompany asset transfers, the generation of tax credits in the current year, and deductions from vesting of equity compensation.

A reconciliation between the Provision computed at the statutory rate and the Provision for income taxes is provided below:

	Year Ended December 31,
	2017			2016			2015
Provision computed at statutory rate	35.0	%		35.0	%		35.0	%
U.S. Tax Reform - One-time transaction tax	41.8			0.0			0.0
Remeasurement of Deferred Taxes	(56.0	)		0.0			0.0
Change in valuation allowance	96.4			(1.0	)		(8.3	)
US impact of Enterprise acquisition	12.9			(14.1	)		(26.7	)
Change in contingent income tax reserves	14.0			(1.6	)		(3.3	)
Foreign earnings subject to U.S. taxation	2.0			(6.6	)		(3.9	)
Foreign rate differential	(29.1	)		(16.0	)		13.9
Intra-entity transactions	(18.8	)		0.0			0.0
State income tax, net of federal tax benefit	(5.3	)		(1.0	)		1.1
Tax credits	(5.7	)		9.5			6.1
Equity compensation deductions	(5.6	)		(0.4	)		0.0
Return to provision and other true ups	(3.2	)		(3.7	)		0.0
Other	2.3			(6.3	)		(1.7	)
Provision for income taxes	80.7	%		(6.2	)%		12.2	%

The Company earns a significant amount of our operating income outside of the U.S., primarily in the United Kingdom, Singapore, and Luxembourg, with statutory rates of 19%, 17%, and 27%, respectively. During 2017, the Company affirmed an incentivized tax rate of 10% with the Singapore Economic Development Board with the Company’s commitment to make increased investments in Singapore; this tax rate will expire on December 31, 2018, unless the Company applies for and is granted an extension.

The Company has recognized $12 million of deferred tax benefit related to the impact of a sale of intangible assets within the consolidated group where the tax basis of assets was stepped up to fair market value. With the Company’s adoption of ASU 2016-16, the tax impact of non-inventory intra-entity transfers of assets are recognized in the period in which the transfer occurs. See Note 2, Summary of Significant Accounting Policies for further explanation.

F-29

Tax effects of temporary differences that resulted in deferred tax assets and liabilities are as follows (in millions):

	December 31,
	2017				2016
Deferred tax assets:
Capitalized research expenditures	$	32			$	58
Deferred revenue	21				57
Tax credits	31				33
Net operating loss carryforwards	338				35
Other accruals	20				31
Inventory items	20				27
Capitalized software costs	14				25
Sales return/rebate reserve	33				27
Share-based compensation expense	12				15
Accrued bonus	1				11
Unrealized gains and losses on securities and investments	8				4
Valuation allowance	(134		)		(47		)
Total deferred tax assets	396				276
Deferred tax liabilities:
Depreciation and amortization	275				165
Undistributed earnings	2				1
Total deferred tax liabilities	$	277			$	166
Net deferred tax assets	$	119			$	110

At December 31, 2017, the Company has approximately $338 million (tax effected) of net operating losses (“NOLs”) and approximately $30 million of credit carryforwards. Approximately $45 million of NOLs will expire beginning in 2033 thru 2037, and $24 million of credits will expire beginning in 2023 thru 2032. $293 million of NOLs and $6 million of credits have no expiration date. The Company elected a fiscal unity regime for its Luxembourg group which allows the Company to offset losses against other group member income. As a result of this election, the Company has remeasured the value of its deferred tax assets and liabilities in Luxembourg at the statutory rate of 27%, giving rise to an increase of $290 million in its net operating loss carryforwards, an increase of $66 million in valuation allowances, and an increase of $224 million in its depreciation and amortization deferred tax liability.

Impact of U.S. Tax Reform

TCJA was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional amount of $72 million, which is included as a component of income tax expense.

Provisional amounts

Deferred tax assets and liabilities: We remeasured U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was $35 million.

Foreign Tax Effects

The one-time transition tax is based on our total post-1986 earnings and profits (“E&P”) that we previously deferred from U.S. income taxes. We recorded a provisional amount for our one-time transition tax liability, resulting in an increase in income tax expense of $37 million. We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries.

F-30

Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. We have reduced our deferred tax asset for income tax credits by $10 million which is available to offset the one-time transition tax, resulting in an estimated cash tax liability of $26 million which is to be remitted over the next eight years as follows:

	One-Time Transition Tax - Payments Due for Calendar Year Tax Returns
	2017				2018				2019				2020				2021				2022				2023				2024
Unremitted Earnings Payments	$	2			$	2			$	2			$	2			$	2			$	4			$	5			$	7

The Company earns a significant amount of our operating income outside of the U.S. As of year-ended December 31, 2017, the Company is indefinitely reinvested with respect to its U.S. directly-owned subsidiary earnings and therefore has not accrued any withholding taxes on those earnings. However, certain foreign affiliate parent companies are not indefinitely reinvested and the Company has recorded a deferred tax liability of $2 million for foreign withholding taxes on those earnings. The Company’s policy considers its U.S. investment in directly-owned foreign affiliates to be indefinitely reinvested. Under the Act, future unremitted foreign earnings will no longer be subject to tax when repatriated to its U.S. parent, but may be subject to withholding taxes of the payor affiliate country. Additionally, gains and losses on taxable dispositions of U.S.-owned foreign affiliates continue to be subject to U.S. tax. For the years ended December 31, 2017 and 2016, the Company has not recognized deferred tax liabilities in the U.S. with respect to foreign withholding taxes or its outside basis differences in its directly-owned foreign affiliates and quantification of the unrecognized deferred tax liability is not practical.

Performance-Based Executive Compensation

The Act amends the rules related to the exclusion of performance-based compensation under Internal Revenue Code 162(m). The Company will no longer be able to claim a deduction for compensation accrued after January 1, 2018 for a covered employee which exceeds $1 million, unless the compensation is earned in respect of a binding contract in existence on November 2, 2017 (“Grandfathered Contracts”). The Company has estimated the remeasurement of the Section 162(m) grandfathered deferred tax assets at 21% for its covered employees for equity award agreements issued and executed prior to November 2, 2017, assuming that its benefit plan documents will fall within the grandfathered contract rules; should guidance to the contrary be issued by U.S. Treasury, the Company would have to remeasure its grandfathered deferred tax assets at $0. Additionally, the Company has determined that its short-term bonus plan will not qualify for the grandfathered contract provisions, thus any deferred short-term bonus to be paid to covered employees in 2018 has been remeasured at a 0% rate.

The Company has not recorded an adjustment to its state and local current or deferred income tax provision as a result of the Act. Guidance from state tax authorities which do not fully conform with the U.S. Internal Revenue Code is not available to allow the Company to estimate the financial statement impact at this time.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):

	Year ended December 31,
	2017				2016
Balance at beginning of year	$	42			$	40
Additions for tax positions related to the current year	—				2
Additions for tax positions related to prior years	11				2
Reductions for tax positions related to prior years	(1		)		(2		)
Settlements for tax positions	(1		)		—
Balance at end of year	$	51			$	42

At December 31, 2017 and December 31, 2016, there are $47 million and $40 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The Company continues to believe its positions are supportable, however, the Company anticipates that $20 million of uncertain tax benefits may be paid within the next twelve months and, as such, is reflected as a current liability within the Company’s Consolidated Balance Sheets. The Company is currently undergoing audits of the 2013 through 2015 U.S. federal income tax returns. The Company is engaged in an inquiry from the UK Her Majesty’s Revenue and Customs (“HMRC”) for the years 2012 and 2014. The tax years 2004 through 2016 remain open to examination by multiple foreign and U.S. state taxing jurisdictions. Due to uncertainties in any tax audit outcome, the Company’s estimates of the ultimate settlement of uncertain tax positions may change and the actual tax benefits may differ significantly from the estimates.

F-31

The Company recognized $2 million of interest and/or penalties related to income tax matters as part of income tax expense for the year ended December 31, 2017. The Company accrued $6 million and $4 million of interest and penalties accrued in the Consolidated Balance Sheets as of December 31, 2017 and 2016.

Note 13 Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock method and in periods of income, reflects the additional shares that would be outstanding if dilutive stock options were exercised for common shares during the period.

Earnings (loss) per share were computed as follows (dollars in millions, except share data):

	Year Ended December 31,
	2017				2016				2015
Basic:
Net income (loss)	$	17			$	(137	)		$	(158	)
Weighted-average shares outstanding(1)	53,021,761				51,579,112				50,996,297
Basic earnings (loss) per share	$	0.33			$	(2.65	)		$	(3.10	)
Diluted:
Net income (loss)	$	17			$	(137	)		$	(158	)
Weighted-average shares outstanding(1)	53,021,761				51,579,112				50,996,297
Dilutive shares(2)	667,071				—				—
Diluted weighted-average shares outstanding	53,688,832				51,579,112				50,996,297
Diluted earnings (loss) per share	$	0.32			$	(2.65	)		$	(3.10	)
(1) In periods of net loss, restricted stock awards that are classified as participating securities are excluded from the weighted-average shares outstanding computation.
(2) In periods of net loss, options are anti-dilutive and therefore excluded from the earnings (loss) per share calculation.

There were 259,142 outstanding options to purchase common shares that were anti-dilutive and excluded from the earnings per share calculation as of December 31, 2017 compared to 1,391,567 and 1,421,506 excluded for the periods ended December 31, 2016 and 2015, respectively. Anti-dilutive securities consist primarily of stock appreciation rights (“SARs”) with an exercise price greater than the average market closing price of the Class A common stock.

Note 14 Accumulated Other Comprehensive Income (Loss)

Stockholders’ equity includes certain items classified as other comprehensive income (loss), including:

•	Unrealized (loss) gain on anticipated sales hedging transactions relate to derivative instruments used to hedge the exposure related to currency exchange rates for forecasted Euro sales. These hedges are designated as cash flow hedges, and the Company defers income statement recognition of gains and losses until the hedged transaction occurs. See Note 7, Derivative Instruments for more details.

•	Unrealized (loss) gain on forward interest rate swaps hedging transactions refer to the hedging of the interest rate risk exposure associated with the variable rate commitment entered into for the Acquisition. See Note 7, Derivative Instruments for more details.

•

Foreign currency translation adjustment relates to the Company’s non-U.S. subsidiary companies that have been designated a functional currency other than the U.S. dollar. The Company is required to translate the subsidiary functional currency financial statements to dollars using a combination of historical, period-end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of other comprehensive income (loss).

F-32

The components of Accumulated other comprehensive income (loss) (“AOCI”) for each of the three years ended December 31 are as follows (in millions):

	Unrealized (loss) gain on sales hedging				Unrealized (loss) gain on forward interest rate swaps				Currency translation adjustments				Total
Balance at December 31, 2014	$	5			$	(8	)		$	(6	)		$	(9	)
Other comprehensive income (loss) before reclassifications	7				(12		)		(11		)		(16		)
Amounts reclassified from AOCI(1)	(15		)		1				(15		)		(29		)
Tax benefit	2				4				—				6
Other comprehensive loss	(6		)		(7		)		(26		)		(39		)
Balance at December 31, 2015	(1		)		(15		)		(32		)		(48		)
Other comprehensive income (loss) before reclassifications	1				(1		)		(4		)		(4		)
Amounts reclassified from AOCI(1)	7				2				—				9
Tax expense	(1		)		(1		)		—				(2		)
Other comprehensive income (loss)	7				—				(4		)		3
Balance at December 31, 2016	6				(15		)		(36		)		(45		)
Other comprehensive income (loss) before reclassifications	(26		)		1				2				(23		)
Amounts reclassified from AOCI(1)	8				8				—				16
Tax benefit (expense)	3				(3		)		—				—
Other comprehensive (loss) income	(15		)		6				2				(7		)
Balance at December 31, 2017	$	(9	)		$	(9	)		$	(34	)		$	(52	)

(1) See Note 7, Derivative Instruments regarding timing of reclassifications on forward interest rate swaps.

Note 15 Segment Information & Geographic Data

The segment information reflects the operating results of the Company’s business segments. In January 2018, The Company changed the names of the reportable segments to better reflect business operations. The Company has two reportable segments; Asset Intelligence & Tracking (“AIT”), formerly Legacy Zebra and Enterprise Visibility & Mobility (“EVM”), formerly Enterprise.

•	The AIT segment consists of barcode and card printing, location solutions, supplies, and services

•	The EVM segment consists of mobile computing, data capture, and RFID

The operating segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker) to assess segment performance and allocate resources between the Company’s segments. The chief operating decision maker uses adjusted operating income to evaluate segment profitability.

The accounting policies of the segments are in accordance with Note 2, Summary of Significant Accounting Policies. The chief operating decision maker does not use total assets by segment to make decisions regarding resources, therefore the total asset disclosure by segment has not been included.

F-33

Financial information by segment is presented as follows (in millions):

	Year Ended December 31,
	2017				2016				2015
Net sales:
AIT	$	1,311			$	1,247			$	1,286
EVM	2,414				2,337				2,380
Total segment net sales	3,725				3,584				3,666
Corporate, eliminations(1)	(3		)		(10		)		(16		)
Total net sales	$	3,722			$	3,574			$	3,650
Operating income:
AIT	$	260			$	240			$	258
EVM	315				286				236
Total segment operating income	575				526				494
Corporate, eliminations(2)	(253		)		(446		)		(457		)
Total operating income	$	322			$	80			$	37

(1)	Amounts included in Corporate, eliminations consist of purchase accounting adjustments related to the Acquisition.

(2)	Amounts included in Corporate, eliminations consist of purchase accounting adjustments not reported in segments; amortization of intangible assets, acquisition/integration costs, impairment of goodwill and other intangibles, and exit and restructuring costs.

Information regarding the Company’s operations by geographic area is contained in the following table. These amounts are reported in the geographic area of the destination of the final sale. We manage our business based on regions rather than by individual countries.

Geographic data for net sales is as follows (in millions):

	Year Ended December 31,
	2017				2016				2015
Europe, Middle East, and Africa	$	1,221			$	1,138			$	1,194
Latin America	235				214				219
Asia-Pacific	468				483				463
Total International	1,924				1,835				1,876
North America	1,798				1,739				1,774
Total net sales	$	3,722			$	3,574			$	3,650

Geographic data for long-lived assets, defined as property, plant and equipment is as follows (in millions):

	Year Ended December 31,
	2017				2016				2015
Europe, Middle East, and Africa	$	14			$	13			$	10
Latin America	3				3				3
Asia-Pacific	9				9				10
Total International	26				25				23
North America	238				267				275
Total long-lived assets	$	264			$	292			$	298

Net sales by country that are greater than 10% of total net sales are as follows (in millions):

F-34

	Year Ended December 31,
	2017				2016				2015
United States	$	1,984			$	1,950			$	2,045
United Kingdom	1,196				1,065				1,102
Singapore	454				362				175
Other	88				197				328
Total net sales	$	3,722			$	3,574			$	3,650

Net sales by country are determined by the country from where the products are invoiced when they leave the Company’s warehouses. Generally, our United States sales company serves North America and Latin America; United Kingdom sales company serves Europe, Middle East, and Africa; and our Singapore sales company serves Asia-Pacific.

Our net sales to significant customers as a percentage of the total Company’s net sales by segment were as follows:

	Year Ended December 31,
	2017							2016							2015
	AIT		EVM		Total			AIT		EVM		Total			AIT		EVM		Total
Customer A	6.3	%	15.0	%	21.3	%		5.9	%	14.2	%	20.1	%		5.5	%	13.9	%	19.4	%
Customer B	5.3	%	8.9	%	14.2	%		5.0	%	8.2	%	13.2	%		4.6	%	8.1	%	12.7	%
Customer C	6.2	%	7.0	%	13.2	%		5.3	%	7.1	%	12.4	%		5.2	%	6.4	%	11.6	%

All three of the above customers are distributors and not end-users. No other customer accounted for 10% or more of total net sales during the years presented.

There are three customers at December 31, 2017 and December 31, 2016 that each accounted for more than 10% of outstanding accounts receivable. In 2017, the three largest customers accounted for 19.5%, 14.0%, and 11.7%, respectively of accounts receivable while in 2016, the three largest customers accounted for 19.9%, 14.0% and 12.9%, respectively.

Note 16 Supplementary Financial Information

The components of Accounts receivable, net are as follows (in millions):

	December 31,
	2017				2016
Accounts receivable	$	482			$	628
Allowance for doubtful accounts	(3		)		(3		)
Accounts receivable, net	$	479			$	625

Prepaid expenses and other current assets consist of the following (in millions):

	December 31,
	2017				2016
Foreign Exchange Contracts	$	—			$	23
Other	24				41
Prepaid expenses and other current assets	$	24			$	64

F-35

The components of Accrued liabilities are as follows (in millions):

	December 31,
	2017				2016
Accrued incentive compensation	$	101			$	52
Customer reserves	41				50
Accrued payroll	50				51
Interest payable	15				20
Accrued other expenses	130				150
Accrued liabilities	$	337			$	323

Summary of Quarterly Results of Operations (unaudited)

(In millions):

	2017
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total Year
Total Net sales	$	865			$	896			$	935			$	1,026			$	3,722
Gross profit	401				411				429				469				1,710
Net income (loss)	8				17				(12		)		4				17
Net earnings per common share:
Basic earnings (loss) per share:	$	0.16			$	0.33			$	(0.23	)		$	0.07			$	0.33
Diluted earnings (loss) per share:	0.16				0.32				(0.23		)		0.07				0.32

	2016
	First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total Year
Total Net sales	$	849			$	879			$	904			$	942			$	3,574
Gross profit	390				406				414				432				1,642
Net (loss) income	(26		)		(45		)		(83		)		17				(137		)
Net earnings per common share:
Basic (loss) earnings per share:	$	(0.50	)		$	(0.88	)		$	(1.61	)		$	0.34			$	(2.65	)
Diluted (loss) earnings per share:	(0.50		)		(0.88		)		(1.61		)		0.34				(2.65		)

F-36

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

Schedule II

Valuation and Qualifying Accounts

(In millions)

Description	Balance at Beginning of Period				Charged to Costs and Expenses				Deductions				Balance at End of Period
Valuation account for accounts receivable:
Year ended December 31, 2017	$	3			$	1			$	1			$	3
Year ended December 31, 2016	6				—				3				3
Year ended December 31, 2015	1				5				—				6
Valuation account for deferred tax assets:
Year ended December 31, 2017	$	47			$	91			$	4			$	134
Year ended December 31, 2016	48				18				19				47
Year ended December 31, 2015	57				5				14				48

See accompanying report of independent registered public accounting firm.

F-37

Table of Contents

Index to Exhibits

3.1(i)	(3	)			Restated Certificate of Incorporation of the Company.
3.1(ii)	(13	)			Amended and Restated By-laws of Zebra Technologies Corporation, as amended as of January 7, 2013.
4.1					Specimen stock certificate representing Class A Common Stock.
10.1	(5	)			Employment Agreement between the Company and Hugh Gagnier dated December 12, 2007. +
10.2	(4	)			Amendment No. 1 to Employment Agreement between the Company and Hugh Gagnier dated December 30, 2008. +
10.3	(18	)			Employment Agreement between Olivier Leonetti and the Company dated October 31, 2016. +
10.4	(4	)			Form of Amendment No. 1 to Employment Agreement by and between the Company and certain executive officers dated December 30, 2008.+
10.5	(18	)			Form of indemnification agreement between Zebra Technologies Corporation and each director and executive officer.
10.6	(11	)			Form of Director Stock Option Agreement (1-Year Vesting) under the 2006 Incentive Compensation Plan for awards granted to directors on or after May 22, 2008 and prior to December 2, 2008. +
10.7	(12	)			Amendment to outstanding Stock Option Agreements under the 2006 Incentive Compensation Plan, dated December 2, 2008. +
10.8	(8	)			2006 Incentive Compensation Plan. +
10.9	(12	)			Amendment to the 2006 Incentive Compensation Plan dated December 2, 2008. +
10.10	(15	)			2011 Long-Term Incentive Plan (Amended and Restated as of May 15, 2014). +
10.11					2015 Long-Term Incentive Plan. *+
10.12					2015 Short-Term Incentive Plan. *+
10.13	(10	)			2005 Executive Deferred Compensation Plan, as amended. +
10.14	(7	)			Form of Amendment to Employment Agreement between Zebra Technologies Corporation and executive officers. +
10.15	(9	)			Amended and Restated Employment Agreement between Zebra Technologies Corporation and Anders Gustafsson dated as of May 6, 2010. +
10.16	(9	)			Letter Agreement between Zebra Technologies Corporation and Anders Gustafsson dated as of May 6, 2010. +
10.17	(9	)			Form of 2010-2011 time-vested stock appreciation rights agreement for employees other than CEO. +
10.18	(6	)			Form of 2012 time-vested stock appreciation rights agreement for employees other than CEO. +
10.19	(16	)			Form of 2013-16 time-vested stock appreciation rights agreement for employees other than CEO. +
10.20	(19	)			Form of 2017 time-vested stock appreciation rights agreement for employees other than CEO. +
10.21	(9	)			Form of 2010 time-vested stock appreciation rights agreement for CEO. +
10.22	(6	)			Form of 2011-12 time-vested stock appreciation rights agreement for CEO. +
10.23	(16	)			Form of 2013-16 time-vested stock appreciation rights agreement for CEO. +
10.24	(19	)			Form of 2017 time-vested stock appreciation rights agreement for CEO. +
10.25	(9	)			Form of 2009 time-vested stock appreciation rights agreement for non-employee directors. +
10.26	(9	)			Form of 2010 time-vested stock appreciation rights agreement for non-employee directors. +
10.27	(1	)			Form of 2011 time-vested stock appreciation rights agreement for non-employee directors. +
10.28	(6	)			Form of 2012 time-vested stock appreciation rights agreement for non-employee directors. +
10.29	(2	)			Form of 2015-2017 time-vested restricted stock agreement for employees other than CEO. +
10.30	(14	)			Form of 2015-2017 performance-vested equity agreement for employees other than CEO. +
10.31	(16	)			Form of 2015-17 time-vested restricted stock agreement for CEO. +
10.32	(14	)			Form of 2015-2017 performance-vested equity agreement for CEO. +
10.33	(17	)			Amended and Restated Credit Agreement, dated July 26, 2017 (originally dated as of October 27, 2014), by and among Zebra, the lenders and issuing banks party thereto, JPMorgan Chase Bank, N.A., and Morgan Stanley Senior Funding, Inc.

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10.34					Office Lease dated November 14, 2013 between Griffin Capital Corporation (as assignee from Northwestern Mutual Life Insurance Company) and Zebra Technologies Corporation*
10.35					First Amendment to Lease dated June 6, 2014 between Griffin Capital Corporation (as assignee from Northwestern Mutual Life Insurance Company) and Zebra Technologies Corporation*
10.36					Receivables Purchase Agreement dated as of December 1, 2017 among Zebra Technologies International, LLC, as the Originator, and Zebra Technologies RSC, LLC, as Buyer*
10.37					Receivables Financing Agreement, dated as of December 1, 2017, by and among Zebra Technologies RSC, LLC, the lenders from time to time party thereto, PNC Bank, National Association, Zebra Technologies, LLC, and PNC Capital Markets, LLC*
21.1					Subsidiaries of the Company. *
23.1					Consent of Ernst & Young LLP, independent registered public accounting firm. *
31.1					Certification pursuant to Rule 13a-14(a)/15d-14(a). *
31.2					Certification pursuant to Rule 13a-14(a)/15d-14(a). *
32.1					Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2					Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101					The following financial information from Zebra Technologies Corporation Annual Report on Form 10-K/A, for the year ended December 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the consolidated balance sheets; (ii) the consolidated statements of earnings (loss); (iii) the consolidated statements of comprehensive income (loss); (iv) the consolidated statements of stockholders equity; (v) the consolidated statements of cash flows; and (vi) notes to consolidated financial statements.

(1)	Incorporated by reference from Current Report on Form 8-K dated May 19, 2011.
(2)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 29, 2014.
(3)	Incorporated by reference from Current Report on Form 8-K dated August 1, 2012.
(4)	Incorporated by reference from Current Report on Form 8-K dated January 5, 2009.
(5)	Incorporated by reference from Current Report on Form 8-K filed on December 17, 2007.
(6)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
(7)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended October 2, 2010.
(8)	Incorporated by reference from Current Report on Form 8-K filed on May 15, 2006.
(9)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended April 3, 2010.
(10)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 29, 2008.
(11)	Incorporated by reference from Current Report on Form 8-K filed on May 29, 2008.
(12)	Incorporated by reference from Current Report on Form 8-K filed on December 8, 2008.
(13)	Incorporated by reference from Current Report on Form 8-K dated January 7, 2013.
(14)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended July 4, 2015.
(15)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended June 28, 2014.
(16)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 30, 2013.
(17)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended July 1, 2017
(18)	Incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 2016
(19)	Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended April 1, 2017
+	Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.
*	Included with this Annual Report on this Form 10-K.

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