Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section generally discusses fiscal 2020 and 2019 items and year-over-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 are not included herein. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for this discussion.

Overview

Zebra Technologies Corporation and its subsidiaries (“Zebra” or the “Company”) is a global leader respected for 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 and solutions, including cloud-based subscriptions, that capture and move data, including: mobile computers; barcode scanners and imagers; radio frequency identification device (“RFID”) readers; specialty printers for barcode labeling and personal identification; real-time location systems (“RTLS”); related accessories and supplies, such as self-adhesive labels and other consumables; and software applications. We also provide a full range of services, including maintenance, technical support, and repair, managed and professional services. End-users of our products, solutions and services include those in the retail and e-commerce, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, government, education, and banking enterprises around the world. We provide products, solutions, and services in approximately 180 countries, with 128 facilities and approximately 8,800 employees worldwide.

Our customers have traditionally benefited from proven solutions that increase productivity and improve asset efficiency and utilization. The Company is poised to drive, and capitalize on, the evolution of the data capture industry into the broader EAI industry, based on important technology trends like the Internet of Things (“IoT”), ubiquitous mobility, automation and cloud computing. EAI solutions offer additional benefits to our customers including real-time, data-driven insights that improve operational visibility and drive workflow optimization.

The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”).

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

• The EVM segment is an industry leader in automatic information and data capture solutions. Its major product lines include mobile computing, data capture, RFID, services, and workflow optimization solutions. Industries served include retail and e-commerce, transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America; EMEA; Asia-Pacific; and Latin America.

Beginning in the first quarter of 2021, we will move the retail solutions product line from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. We will begin reporting our results reflecting this change in the first quarter of 2021 and will present historical periods on a comparable basis. The impact of this change does not have an impact to the Consolidated Financial Statements and is immaterial to our current and historical reportable segment results.

Recent Developments

COVID-19 Outbreak

In 2020, the coronavirus (“COVID-19”) spread rapidly worldwide, resulting in a broad number of governmental and commercial efforts to contain it, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. These events have resulted in significant declines in global economic activity and significant volatility in financial market valuations, the duration and extent of which continues to be highly uncertain. The Company’s 2020 Net sales and profitability were negatively impacted by the direct and indirect effects of the pandemic which were most pronounced in the second quarter.

We serve a diverse mix of customers. Some of our customers have experienced significant declines or suspensions to their operations, whereas others have experienced increases in their business volume. While many of our supply chain partners in China temporarily suspended or modified their business operations in early 2020 as a consequence of COVID-19, we have

substantially mitigated the impact of these disruptions by taking exceptional actions, including alternative modes of product delivery and fulfillment, as well as providing protective equipment and hazard pay premiums for our front-line employees.

The federal, state, and local governments as well as foreign governments, to varying degrees, have imposed, and continue to impose, several protocols and regulations restricting the physical movement or other activities of individuals in an effort to limit the spread of COVID-19. We have implemented a number of measures in an effort to protect our employees’ health and well-being, including having the majority of office workers work remotely, limiting employee travel, and withdrawing from in-person industry events. In addition, as governments continue to ease their restrictions and we continue to allow our employees to come back to work in our offices in a controlled approach, we have modified our business practices, including implementing social distancing protocols, office capacity restrictions, health screening, provision of personal protective equipment, tracking and tracing protocols, and extensively and frequently disinfecting our workspaces. Throughout the pandemic, distribution centers and repair centers have remained open at varying capacity levels to ensure continued support to our customers, many of whom provide essential goods and services to communities.

During the past year, we considered the potential impacts of the global pandemic in qualitative impairment assessments of our long-lived assets, including goodwill and intangible assets, property, plant and equipment and right-of-use lease assets. We concluded that it is not more likely than not that any of our long-lived assets are impaired. Our analysis considered, among other factors:

• the nature of our products, solutions, and services as well as our position within our industry;

• our highly variable cost structure;

• the assumption that the negative impacts from COVID-19 will be temporary; and that

• the Company will continue generating strong positive operating cash flows over the long-term.

We have also considered the adequacy of our capital resources, inclusive of available borrowing capacity and other financing facilities; the results of our most recent quantitative goodwill impairment assessment, which was last completed in the fourth quarter of 2020 and further discussed in Note 6, Goodwill and Other Intangibles in the Notes to Consolidated Financial Statements; and that our market capitalization has continued to far exceed total net assets. Finally, while we may experience a temporary increase in working capital levels, we do not anticipate a material impact to the realizability of current assets, such as accounts receivable or inventories, at this time.

The situation related to the pandemic continues to be complex and rapidly evolving. In late 2020, certain vaccines were authorized by major regulatory bodies to help fight the infection of COVID-19, and certain other vaccines are in the late stages of development to provide such treatment. At this time, however, the availability of authorized vaccines is highly limited, and the time required to make these vaccines available to all members of the public remains uncertain. If COVID-19 persists or worsens before a safe and effective vaccine or other treatment is made widely available, there may be further external developments, such as restrictions imposed by government authorities or guidance issued by public health authorities, that are beyond our control and may impact our operating plans. Parts of our business have experienced, and may continue to experience, operational disruption and customer demand impacts. Since the onset of the pandemic, we have taken certain cost reduction actions to mitigate the impact to profitability and cash flow. We cannot reasonably estimate the duration of the pandemic or fully ascertain its long-term impact to our business.

Acquisitions

Reflexis

On September 1, 2020, the Company acquired Reflexis Systems, Inc. (“Reflexis”), a provider of task and workforce management, execution, and communication solutions for customers in the retail, food service, hospitality, and banking industries. Through this acquisition, the Company intends to enhance its solution offerings to customers in these industries by

combining Reflexis’ platform with its existing software solutions and product offerings, further empowering front line workers to execute the next best action using real time data. The operating results of Reflexis are included within the EVM segment.

The Company’s total purchase consideration was $548 million, net of cash acquired. The Company incurred approximately $21 million of acquisition-related costs, which primarily consisted of payments to settle certain existing Reflexis share-based compensation awards, as well as third-party transaction and advisory fees, that are included within Acquisition and integration costs on the Consolidated Statements of Operations.

Additionally, in exchange for the cancellation of unvested Reflexis stock options, the Company granted replacement share-based compensation awards to certain Reflexis employees in the form of Zebra incentive stock options with a fair value of approximately $9 million. The stock options will be expensed over the weighted average future service period, which was 1.7

years as of the acquisition date. See Note 15, Share-Based Compensation in the Notes to Consolidated Financial Statements for further details of these replacement awards.

The acquisition of Reflexis was funded, in part, by the issuance of a new term loan (the “2020 Term Loan”) in the amount of $200 million. The acquisition of Reflexis was otherwise funded using the Company’s cash on hand and borrowing under the Company’s existing Revolving Credit Facility. See additional details related to the Company’s debt arrangements in Note 10, Long-Term Debt in the Notes to Consolidated Financial Statements*.*

Cortexica

On November 5, 2019, the Company acquired Cortexica Vision Systems Limited (“Cortexica”), for $7 million in cash. Cortexica is a provider of computer vision based artificial intelligence solutions primarily serving the retail industry. Additionally, we incurred approximately $2 million of acquisition-related costs in 2019, which primarily included third-party transaction and advisory fees, that are reflected within Acquisition and integration costs on the Consolidated Statements of Operations. The operating results of Cortexica are included within the EVM segment.

Profitect

On May 31, 2019, the Company acquired Profitect, Inc. (“Profitect”), a provider of prescriptive analytics primarily serving the retail industry. The Company’s total purchase consideration was $79 million, which consisted of $75 million in cash, net of cash acquired, and the fair value of the Company’s existing minority ownership interest in Profitect of $4 million, as remeasured upon acquisition. Included within Other, net on the Consolidated Statements of Operations in 2019 is a $4 million gain resulting from the remeasurement of the Company’s previously held ownership interest in Profitect. Additionally, we incurred $13 million of acquisition-related costs in 2019, which primarily consisted of payments to settle certain Profitect employee stock option awards, as well as, third-party transaction and advisory fees, that are included within Acquisition and integration costs on the Consolidated Statements of Operations. The operating results of Profitect are included within the EVM segment.

Temptime

On February 21, 2019, the Company acquired Temptime Corporation (“Temptime”), a developer and manufacturer of temperature-monitoring labels and devices. In connection with this acquisition, the Company paid $180 million in cash, net of cash acquired. Additionally, we incurred $3 million of acquisition-related costs in 2019, which primarily included third-party transaction and advisory fees, that are included within Acquisition and integration costs on the Consolidated Statements of Operations. The operating results of Temptime are included within the AIT segment.

Product Sourcing Diversification Initiative

The Company commenced efforts in 2019 to diversify its product sourcing footprint to include sourcing products from Taiwan, Vietnam, and Malaysia, thereby reducing its reliance on Chinese-based manufacturing and the impacts of related customs duties (“tariffs”) on U.S imports from China. In conjunction with this initiative, the Company incurred total one-time costs of $23 million, including $18 million and $5 million during the years ended December 31, 2020 and December 31, 2019, respectively, which are primarily reflected within Operating expenses on the Consolidated Statements of Operations. The Company also made $8 million of incremental equipment purchases during the year ended December 31, 2020. The Company has completed this initiative and has begun sourcing products from these alternative locations. As of the end of 2020, these actions, along with certain U.S. pricing actions, have substantially mitigated the ongoing financial impacts of Chinese import tariffs.

Restructuring Programs

In the fourth quarter of 2019, the Company committed to certain organizational changes designed to generate operational efficiencies (collectively referred to as the “2019 Productivity Plan”). The organizational design changes under the 2019 Productivity Plan, which principally occurred within the North America and EMEA regions. The 2019 Productivity Plan was completed in the fourth quarter of 2020. Exit and restructuring charges, primarily related to employee severance and benefits, for the 2019 Productivity Plan were $11 million and $8 million during the years ended December 31, 2020 and 2019, respectively. See Note 9, Exit and Restructuring Costs in the Notes to Consolidated Financial Statements for further information related to the 2019 Productivity Plan.

Results of Operations: Year Ended 2020 versus 2019 and Year Ended 2019 versus 2018

Consolidated Results of Operations

(amounts in millions, except percentages)

			Year Ended December 31,																		Percent Change 2020 vs 2019						Percent Change 2019 vs 2018
			2020						2019						2018
Net sales:
Tangible products			$	3,813					$	3,907					$	3,685					(2.4)		%				6.0		%
Services and software			635						578						533						9.9		%				8.4		%
Total Net sales			4,448						4,485						4,218						(0.8)		%				6.3		%
Gross profit			2,003						2,100						1,981						(4.6)		%				6.0		%
Gross margin			45.0		%				46.8		%				47.0		%				(180) bps						(20) bps
Operating expenses			1,352						1,408						1,371						(4.0)		%				2.7		%
Operating income			$	651					$	692					$	610					(5.9)		%				13.4		%

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

			Year Ended December 31,																		Percent Change 2020 vs 2019						Percent Change 2019 vs 2018
			2020						2019						2018
North America			$	2,319					$	2,261					$	2,041					2.6		%				10.8		%
EMEA			1,495						1,462						1,409						2.3		%				3.8		%
Asia-Pacific			439						518						520						(15.3)		%				(0.4)		%
Latin America			195						244						248						(20.1)		%				(1.6)		%
Total Net sales			$	4,448					$	4,485					$	4,218					(0.8)		%				6.3		%

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

			Year Ended December 31,																		As a Percentage of Net sales
			2020						2019						2018						2020						2019						2018
Selling and marketing			$	483					$	503					$	483					10.9		%				11.2		%				11.5		%
Research and development			453						447						444						10.2		%				10.0		%				10.5		%
General and administrative			304						323						328						6.8		%				7.2		%				7.8		%
Amortization of intangible assets			78						103						97						NM						NM						NM
Acquisition and integration costs			23						22						8						NM						NM						NM
Exit and restructuring costs			11						10						11						NM						NM						NM
Total Operating expenses			$	1,352					$	1,408					$	1,371					30.4		%				31.4		%				32.5		%

Consolidated Organic Net sales growth:

			Year Ended December 31,
			2020						2019
Reported GAAP Consolidated Net sales growth			(0.8)		%				6.3		%
Adjustments:
Impact of foreign currency translations (1)			0.6		%				1.1		%
Impact of acquisitions (2)			(0.7)		%				(1.9)		%
Consolidated Organic Net sales growth (3)			(0.9)		%				5.5		%

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2)For purposes of computing Organic Net sales growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisition dates.

(3)Consolidated Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

2020 compared to 2019

Total Net sales decreased $37 million or 0.8% compared with the prior year primarily due to customer demand declines resulting from the COVID-19 pandemic which had an overall negative effect on both of our segments and broadly across all regions. The negative effect of the pandemic was most pronounced within our AIT segment, particularly in the second quarter of 2020. AIT sales declines were partially offset by growth in our EVM segment, reflecting higher Services and software revenues, due in part from recent business acquisitions, as well as increased product purchases, particularly in the transportation and logistics and retail end markets, in response to the need to digitize and automate workflows in an increasingly on-demand economy. Excluding the effects of acquisitions and unfavorable currency changes, the decrease in Consolidated Organic Net sales was 0.9%.

Gross margin decreased to 45.0% for the current year compared to 46.8% in the prior year. Gross margins were lower in both the AIT and EVM segments, reflecting unfavorable business mix, including larger deal size, and premium freight costs. These declines were partially offset by productivity gains within our services offerings and a partial recovery of 2019 Chinese import tariffs in the fourth quarter of 2020.

Operating expenses for the years ended December 31, 2020 and 2019 were $1,352 million and $1,408 million, or 30.4% and 31.4% of Net sales, respectively. As a percentage of Net sales, operating costs continue to trend favorably. The decrease in Operating expenses over the prior year was primarily due to lower discretionary spending, employee incentive-based compensation, and intangible asset amortization expense. These reductions were partially offset by the inclusion of operating expenses associated with acquired businesses and costs associated with the diversification of the Company’s product sourcing footprint.

Operating income was $651 million for the current year compared to $692 million for the prior year. The decrease was primarily due to lower Net sales and Gross profit, partially offset by the benefit of lower Operating expenses.

Net income decreased 7.4% compared to the prior year due to lower operating income and higher income tax expense, which were partially offset by a decrease in Other expenses, net, detailed as follows:

• The Company’s effective tax rates for the years ended December 31, 2020 and December 31, 2019 were 10.0% and 9.0%, respectively. The Company’s effective tax rate was higher in the current year as compared to the prior year, primarily due to higher benefits of uncertain tax positions in the prior year, partially offset by higher income in foreign jurisdictions with lower tax rates in the current year.

• Other expenses, net was $91 million for the current year, compared to $94 million for the prior year. The increase in interest rate swap and foreign exchange losses in the current year were more than offset by the favorable impacts of lower interest rates and average outstanding debt levels. Additionally, the prior year included $7 million of debt refinancing costs.

Diluted earnings per share decreased to $9.35 as compared to $9.97 in the prior year primarily due to lower operating income and a higher effective income tax rate, which were partially offset by the benefit of lower weighted average shares outstanding.

Results of Operations by Segment

The following commentary should be read in conjunction with the financial results of each operating business segment as detailed in Note 20, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements. To the extent applicable, segment results exclude purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, and product sourcing diversification costs.

Asset Intelligence & Tracking Segment (“AIT”)

(amounts in millions, except percentages)

			Year Ended December 31,																		Percent Change 2020 vs 2019						Percent Change 2019 vs 2018
			2020						2019						2018
Net sales:
Tangible products			$	1,298					$	1,347					$	1,298					(3.6)		%				3.8		%
Services and software			128						132						125						(3.0)		%				5.6		%
Total Net sales			1,426						1,479						1,423						(3.6)		%				3.9		%
Gross profit			674						736						710						(8.4)		%				3.7		%
Gross margin			47.3		%				49.8		%				49.9		%				(250) bps						(10) bps
Operating expenses			352						381						385						(7.6)		%				(1.0)		%
Operating income			$	322					$	355					$	325					(9.3)		%				9.2		%

AIT Organic Net sales growth:

			December 31,
			2020						2019
AIT Reported GAAP Net sales growth			(3.6)		%				3.9		%
Adjustments:
Impact of foreign currency translations (1)			0.4		%				1.0		%
Impact of acquisition (2)			(0.5)		%				(2.7)		%
AIT Organic Net sales growth (3)			(3.7)		%				2.2		%

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2)For purposes of computing AIT Organic Net sales growth, amounts directly attributable to the Temptime acquisition are excluded for twelve months following its acquisition date.

(3)AIT Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

2020 compared to 2019

Total Net sales for AIT decreased $53 million or 3.6% compared to the prior year primarily due to lower sales of printing products and supplies across most regions associated with COVID-19 induced customer demand declines, the impact of which was most pronounced in the second quarter of 2020, and unfavorable foreign currency changes. These declines were partially offset by growth associated with our Temptime acquisition. Excluding the impacts of the Temptime acquisition and foreign currency changes, AIT Organic Net Sales decline was 3.7%.

Gross margin decreased to 47.3% in the current year compared to 49.8% for the prior year primarily due to unfavorable product mix, lower sales volumes, and premium freight costs, which were partially offset by recoveries of certain 2019 Chinese import tariffs in the fourth quarter of 2020.

Operating income decreased 9.3% in the current year compared to the prior year. The decrease was due to lower Net sales and Gross profit, partially offset by the benefit of lower Operating expenses.

Enterprise Visibility & Mobility Segment (“EVM”)

(amounts in millions, except percentages)

			Year Ended December 31,																		Percent Change 2020 vs 2019						Percent Change 2019 vs 2018
			2020						2019						2018
Net sales:
Tangible products			$	2,515					$	2,560					$	2,387					(1.8)		%				7.2		%
Services and software			514						446						408						15.2		%				9.3		%
Total Net sales			3,029						3,006						2,795						0.8		%				7.5		%
Gross profit			1,342						1,371						1,274						(2.1)		%				7.6		%
Gross margin			44.3		%				45.6		%				45.6		%				(130) bps						0 bps
Operating expenses			876						888						870						(1.4)		%				2.1		%
Operating income			$	466					$	483					$	404					(3.5)		%				19.6		%

EVM Organic Net sales growth:

			December 31,
			2020						2019
EVM Reported GAAP Net sales growth			0.8		%				7.5		%
Adjustments:
Impact of foreign currency translations (1)			0.7		%				1.1		%
Impact of acquisitions (2)			(1.0)		%				(1.4)		%
EVM Organic Net sales growth (3)			0.5		%				7.2		%

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2)For purposes of computing Organic Net sales growth, amounts directly attributable to the Xplore Technologies Corporation (“Xplore”), Profitect, Cortexica and Reflexis acquisitions are excluded for twelve months following their respective acquisition dates.

(3)EVM Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

2020 compared to 2019

Total Net sales for EVM increased $23 million or 0.8% compared to the prior year primarily due to higher sales of support services, mobile computing products, and our recent acquisitions. These increases were partially offset by lower sales of data capture products in most regions associated with continued COVID-19 induced customer demand declines, the impact of which was most pronounced in the second quarter of 2020, and unfavorable currency changes. Excluding the impacts of acquisitions and foreign currency changes, EVM Organic Net Sales growth was 0.5%.

Gross margin decreased to 44.3% in the current year compared to 45.6% in the prior year, primarily due to unfavorable business mix, including larger deal size, and premium freight costs. These declines were partially offset by productivity gains within our support service offerings, recoveries of certain 2019 Chinese import tariffs in the fourth quarter of 2020, and the contributions from our higher margin acquisitions.

Operating income for the current year decreased 3.5% due to lower Gross profit despite higher Net sales, partially offset by the benefit of lower Operating expenses.

Liquidity and Capital Resources

The primary factors that influence our liquidity include the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, repatriation of foreign cash, acquisitions, and share repurchases. Management believes that our existing capital resources, inclusive of available borrowing capacity on debt and other financing facilities and funds generated from operations, are sufficient to meet anticipated capital requirements and service our indebtedness. The following table summarizes our cash flow activities for the years indicated (in millions):

			Year Ended December 31,																		$ Change 2020 vs 2019						$ Change 2019 vs 2018
			2020						2019						2018
Cash flow provided by (used in):
Operating activities			$	962					$	685					$	785					$	277					$	(100)
Investing activities			(641)						(335)						(137)						(306)						(198)
Financing activities			(157)						(365)						(661)						208						296
Effect of exchange rates on cash balances			(2)						1						(5)						(3)						6
Net increase (decrease) in cash and cash equivalents, including restricted cash			$	162					$	(14)					$	(18)					$	176					$	4

2020 vs. 2019

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

• The increase in cash provided by operating activities was primarily due to the favorable timing of collections from customers, favorable timing of vendor payments, as well as lower cash payments for employee incentive compensation, income taxes and interest. These benefits were partially offset by higher inventory levels.

• Net cash used in investing activities included the Company’s acquisition of Reflexis in the current year, which consisted of $548 million cash paid, net of cash acquired, as well as $32 million in cash paid for additional long-term investments. The prior year’s cash used in investing activities included cash paid for the acquisitions of Temptime, Profitect and Cortexica totaling $262 million, as well as $22 million in cash paid for long-term investments.

• Net cash used in financing activities during the current year included common stock repurchases of $200 million, net debt repayments of $40 million and net payments related to share-based compensation plans of $25 million, partially offset by the favorable timing of unremitted cash collections from the servicing of factored receivables of $109 million. Net cash used in financing activities during the prior year included to net debt repayments of $312 million, net payments related to share-based compensation plans of $32 million and common stock repurchases of $47 million.

Company Debt

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

			December 31,
			2020						2019
Term Loan A			$	917					$	917
2020 Term Loan			100						—
Revolving Credit Facility			—						103
Receivables Financing Facilities			235						266
Total debt			$	1,252					$	1,286
Less: Debt issuance costs			(5)						(6)
Less: Unamortized discounts			(2)						(3)
Less: Current portion of debt			(364)						(197)
Total long-term debt			$	881					$	1,080

Term Loan A

The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in June 2021 and the majority due upon the August 9, 2024 maturity date. The Company may make prepayments, in whole or in part, without premium or penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of December 31, 2020, the Term Loan A interest rate was 1.41%. Interest payments are made monthly and are subject to variable rates plus an applicable margin.

2020 Term Loan

In September 2020, the Company entered into a new $200 million term loan (“2020 Term Loan”), with the proceeds used to partly fund the acquisition of Reflexis. The Company repaid $100 million of principal during the fourth quarter of 2020, with the remaining principal due upon the August 31, 2021 maturity date. The Company may make additional prepayments, in whole or in part, without premium or penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of December 31, 2020, the 2020 Term Loan interest rate was 2.25%. Interest payments are made monthly and are subject to a variable rate plus an applicable margin. Costs associated with issuing the 2020 Term Loan were approximately $1 million, which were capitalized and are being amortized over the term of the loan.

Revolving Credit Facility

The Revolving Credit Facility is available for working capital and other general business purposes, including letters of credit. As of December 31, 2020, the Company had letters of credit totaling $5 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1 billion to $995 million. No borrowings were outstanding under the Revolving Credit Facility as of December 31, 2020. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility matures on August 9, 2024.

Receivables Financing Facilities

The Company has two Receivables Financing Facilities with financial institutions that have a combined total borrowing limit of up to $280 million. As collateral, the Company pledges perfected first-priority security interests in its U.S. domestically originated accounts receivable. The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings. The Company’s first Receivables Financing Facility, which was originally entered into in December 2017 and was amended in May 2019, allows for borrowings of up to $180 million and will mature on March 29, 2021. The Company’s second Receivable Financing Facility, which was entered into in May 2019 and was amended in May 2020, allows for borrowings of up to $100 million and will mature on May 17, 2021.

As of December 31, 2020, the Company’s Consolidated Balance Sheets included $441 million of receivables that were pledged under the two Receivables Financing Facilities. As of December 31, 2020, $235 million had been borrowed, all of which was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of December 31, 2020, the Receivables Financing Facilities had an average interest rate of 1.04%. Interest is paid on these borrowings on a monthly basis.

Uncommitted Short-Term Credit Facility

The Company also entered into an uncommitted short-term credit facility (“Uncommitted Facility”) in August 2020. The Uncommitted Facility matures on August 26, 2021 and allows for borrowings of up to $20 million. Each borrowing must be repaid within 90 days, or earlier if the facility matures beforehand, and bears interest at a variable rate plus an applicable margin. Along with the Company’s Revolving Credit Facility, the Uncommitted Facility is available for working capital and other general business purposes. As of December 31, 2020, the Company had no outstanding borrowings under the Uncommitted Facility.

See Note 12, Long-Term Debt in the Notes to Consolidated Financial Statements for further details.

Receivables Factoring

The Company has multiple Receivables Factoring arrangements, pursuant to which certain receivables are sold to banks without recourse in exchange for cash. Transactions under the Receivables Factoring arrangements are accounted for as sales under Accounting Standards Codifications 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under these Receivables Factoring arrangements, the Company does not maintain any beneficial interest in the receivables sold. The banks’ purchase of eligible receivables is subject to a maximum amount of uncollected receivables. The Company services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Net cash provided by operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Net cash used in financing activities on the Consolidated Statements of Cash Flows.

In 2020, the Company entered into a new Receivables Factoring arrangement with a bank, which allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions. This arrangement expands upon the Company’s existing Receivables Factoring arrangements, which allow for the factoring of up to $125 million of uncollected receivables originated from the EMEA region.

As of December 31, 2020 and 2019 there were a total of $70 million and $60 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.

As servicer of sold receivables, the Company had $142 million and $33 million of obligations that were not yet remitted to banks as of December 31, 2020 and 2019, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash used in financing activities on the Consolidated Statements of Cash Flows.

See Note 19, Accounts Receivable Factoring in the Notes to Consolidated Financial Statements for further details.

Share Repurchases

On July 30, 2019, the Company announced that its Board of Directors authorized a share repurchase program for up to an aggregate amount of $1 billion of its outstanding shares of common stock. The share repurchase program does not have a stated expiration date. The level of the Company’s repurchases depends on a number of factors, including its financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors its management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. Repurchases may be effected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. During the year ended December 31, 2020 the Company repurchased 948,740 shares of common stock for $200 million. During the year ended December 31, 2019, the Company repurchased 237,886 shares of common stock for $47 million. As of December 31, 2020, approximately $753 million of common stock remained authorized for repurchase under the program.

Cash and Cash Equivalents

Included in the Company’s Cash and cash equivalents are amounts held by foreign subsidiaries. The Company had $37 million and $26 million of foreign cash and cash equivalents included in the Company’s total cash positions of $168 million and $30 million as of December 31, 2020 and 2019, respectively.

Contractual Obligations

Zebra’s contractual obligations as of December 31, 2020 were as follows (in millions):

			Payments due by period
			Total						Less than 1 year						1-3 years						3-5 years						More than 5 years
Operating lease obligations(1)			$	186					$	38					$	62					$	42					$	44
Deferred compensation liability(2)			30						1						2						2						25
Debt principal payments			1,252						364						138						750						—
Interest payments(3)			105						34						54						17						—
Purchase obligations(4)			416						416						—						—						—
Total			$	1,989					$	853					$	256					$	811					$	69

(1)Includes leases of manufacturing facilities, distribution centers, sales and administrative offices, equipment and vehicles that are classified as operating leases. The contractual obligations above include future minimum payments, including payments for those periods where renewal options are reasonably certain to be exercised.

(2)Includes payments related to obligations under our deferred compensation plan. The deferred compensation plan allows certain members of management and other highly-compensated employees to defer receipt of a portion of their compensation. The amount in “More than 5 Years” includes the obligations under the deferred compensation plan to be paid to participants who have not terminated employment, since we cannot estimate the timings of those terminations and withdrawals.

(3)Includes payments related to interest on the Company’s debt, as well as related settlements of interest rate swap agreements. These payments are estimated based on applicable interest rates and margins along with the balance of outstanding debt as of December 31, 2020. Future interest payments may increase or decrease based upon fluctuations in market rates and/or the Company’s borrowing levels.

(4)Purchase obligations are for purchases made in the normal course of business to meet operational requirements, primarily raw materials and finished goods. Purchase obligations included in the table above are based on quarterly forecasted component and manufacturing requirements and typically provide for fulfillment within agreed upon lead-times and/or commercially standard lead-times for products. The Company does not have contractual obligations related to take-or-pay arrangements.

Uncertain tax positions of $8 million have been excluded from the table above because we cannot reliably estimate the period of cash settlement, if any, with the respective taxing authorities. See Note 16, Income Taxes in the Notes to Consolidated Financial Statements for further information.

Critical Accounting Policies and Estimates

Management prepared the consolidated financial statements of the Company under accounting principles generally accepted in the U.S. The application of these principles requires the use of estimates, judgments, and assumptions which affect the amounts reported in our consolidated financial statements. We believe that our estimates, judgments, and assumptions are reasonable based upon available information. Our more significant estimates and assumptions include those related to the recognition and measurement of income tax assets and liabilities, development of fair value estimates when measuring the identifiable intangible assets acquired and liabilities assumed in business combinations, development of reporting unit fair values as part of our annual goodwill impairment testing, and measurement of variable consideration and allocation of transaction price to performance obligations in revenue transactions. See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements for additional discussion of these items as well as other accounting policies.

New Accounting Pronouncements

On January 1, 2020, the Company adopted Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which did not have a significant impact to the Company’s consolidated financial statements. See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements for further information related to the Company’s adoption of this new accounting pronouncement.

Non-GAAP Measures

The Company has provided reconciliations of the supplemental non-GAAP financial measures, as defined under the rules of the Securities and Exchange Commission, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP.

These supplemental non-GAAP financial measures – Consolidated Organic Net sales growth, AIT Organic Net sales growth, and EVM Organic Net sales growth – are presented because our management evaluates our financial results both including and excluding the effects of business acquisitions and foreign currency translation, as applicable. Management believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of our business from period to period and trends in our historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with the GAAP financial measures presented.