Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Zebra is a global leader respected for innovative Enterprise Asset Intelligence (“EAI”) solutions in the automatic information and data capture solutions industry. We design, manufacture, and sell a broad range of products that capture and move data, including: mobile computers; barcode scanners and imagers; radio frequency identification devices ("RFID") readers; wireless LAN (“WLAN”) solutions and software; specialty printers for barcode labeling and personal identification; real-time location systems (“RTLS”); related accessories and supplies such as self-adhesive labels and other consumables; and utilities and application software. End-users of our products include those in the retail, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, and education industries around the world. Benefits of our solutions include improved efficiency and workflow management, increased productivity and asset utilization, real-time, actionable enterprise information, and better customer experiences. We provide our products and services globally through a direct sales force and extensive network of partners.

In October 2014, Zebra acquired the Enterprise business from Motorola Solutions, Inc. (“MSI”) for $3.45 billion in cash. Enterprise is an industry leader in mobile computing and advanced data capture technologies and services, which complement Zebra’s barcode printing and RFID products. Its products include rugged and enterprise-grade mobile computers; barcode scanners and imagers; RFID readers; WLAN solutions and software; and services that are associated with these products. Enterprise service revenues include sales arising from maintenance, repair, product support, system installation and integration services, and other services.

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

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

Segments

The Company’s operations consist of 2 reportable segments: Legacy Zebra and Enterprise.

Legacy Zebra

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

Enterprise

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

Geographic Information. For the three months ended April 2, 2016, the Company recorded $849 million of net sales in its consolidated statements of operations, of which approximately 48.9% were attributable to North America; approximately 32.3% were attributable to Europe, Middle East, and Africa ("EMEA"); and other foreign locations accounted for the remaining 18.8%.

Results of Operations: Three months ended April 2, 2016 versus three months ended April 4, 2015

All of the financial information presented in this Item 2 has been revised to reflect the restatement more fully described in Note 2 to the Consolidated Financial Statements.

Consolidated Results of Operations (in millions, except percentages):

	Three Months Ended
	April 2, 2016 Restated				April 4, 2015				$ Change				% Change
Net sales	$	849			$	893			$	(44	)		(4.9	)%
Gross profit	390				409				(19		)		(4.6	)%
Operating expenses	380				389				(9		)		(2.6	)%
Operating income	$	10			$	20			$	(10	)		(45.0	)%
Gross margin	45.9		%		45.8		%

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

	Three Months Ended
	April 2, 2016 Restated				April 4, 2015				$ Change				% Change
Hardware	$	646			$	688			$	(42	)		(6.1	)%
Supplies	70				67				3				4.5	%
Service and software	133				138				(5		)		(2.9	)%
Total Net sales	$	849			$	893			$	(44	)		(4.8	)%

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

	Three Months Ended
	April 2, 2016 Restated				April 4, 2015				$ Change				% Change
Geographic Region
Europe, Middle East and Africa	$	274			$	291			$	(17	)		(6.2	)%
Latin America	46				53				(7		)		(13.2	)%
Asia-Pacific	114				106				8				7.5	%
Total International	434				450				(16		)		(3.8	)%
North America	415				443				(28		)		(5.9	)%
Total Net sales	$	849			$	893			$	(44	)		(4.8	)%

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

	Three months ended
	April 2, 2016 Restated				April 4, 2015				$ Change			% Change
Selling and marketing	$	113			$	122			$	(9	)		(7.4	)%
Research and development	93				96				(3		)		(3.1	)%
General and administrative	74				66				8				12.1	%
Amortization of intangible assets	59				68				(9		)		(13.2	)%
Acquisition and integration costs	36				26				10				38.5	%
Exit and restructuring costs	5				11				(6		)		(54.5	)%
Total Operating expenses	$	380			$	389			$	(9	)		(2.3	)%

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

	Three months ended
	April 2, 2016 Restated				April 4, 2015				$ Change			% Change
Foreign exchange gain (loss)	$	2			$	(27	)		$	29			(107.4	)%
Interest expense and other, net	(51		)		(51		)		—				—	%
Total other expenses	$	(49	)		$	(78	)		$	29			(37.2	)%

Income Taxes (in millions, except percentages):

	Three months ended
	April 2, 2016 Restated				April 4, 2015				$ Change			% Change
Income tax (benefit) expense	$	(13	)		$	(33	)		$	20			(60.6	)%
Effective tax rate	33.3		%		56.5		%

First quarter 2016 compared to first quarter 2015

The decline in sales as compared to the prior year quarter was primarily a result of lower hardware sales in the North America, EMEA and Latin America regions, offset partially by higher hardware sales in Asia-Pacific. The decline in hardware sales was primarily due to lower sales volume of data capture and barcode printer products and location solutions. Sales in Latin America continue to be adversely impacted by a weak macro-economic environment. On a constant currency basis, net sales declined approximately 3% as compared to the prior year quarter driven by increases of approximately 1% and 10% in EMEA and Asia-Pacific, respectively, being more than offset by declines in Latin America and North America.

Gross margin was 45.9% in the first quarter of 2016, relatively flat to a year ago. This reflects an increase in the Legacy Zebra segment gross margin, due largely to improvements in direct costs of sales of supplies, and lower services cost, offset by a decline in the Enterprise segment gross margin, due primarily to changes in product mix, and the unfavorable impact of foreign currency changes.

Operating expenses for the quarter ended April 2, 2016 were $380 million, or 44.8% of net sales, compared to $389 million, or 43.6% of net sales, in the prior year. Acquisition and integration costs increased as compared to the prior year quarter resulting from the on-going implementation of the Company’s IT transition which includes sunsetting the transition services agreement with Motorola Solutions. The increase in general and administrative costs is primarily due to higher depreciation expense related to the Company’s investment in its IT infrastructure and higher legal costs. Amortization of intangibles declined due to the final adjustments made to the fair value of intangibles related to the Acquisition made in 2014. Selling and marketing expenses were lower in the current quarter as compared to the prior year due to the effects of staff reductions implemented in 2015. In addition, operating expenses in the current quarter reflected a lower provision for the Company's annual short-term incentive plan associated with the first quarter financial performance.

Operating income for the quarter ended April 2, 2016 decreased $10 million as compared to the prior year, driven by the drop in profit mainly due to the sales decline.

Since the end of the first quarter of 2015, the Company has expanded its balance sheet hedging program to incorporate non-US dollar assets and liabilities associated with the Enterprise segment. This is expected to result in less volatility in the Company’s operating results due to changes in foreign currency.

The change in the Company’s effective tax rates is due to restructuring of legal entities that led to a change in the foreign income mix year over year, new U.S. income inclusions, and unbenefited losses in foreign jurisdictions.

Results of Operations by Segment

The following commentary should be read in conjunction with the financial results of each operating business segment as detailed in Note 18 Segment Information in the Notes to the Consolidated Financial Statements. The segment results exclude purchase accounting adjustments, amortization, acquisition and integration costs, and exit and restructuring costs.

Legacy Zebra

(in millions as adjusted as described above, except percentages):

	Three Months Ended
	April 2, 2016 Restated				April 4, 2015				$ Change				% Change
Net sales	$	314			$	332			$	(18	)		(5.4	)%
Gross profit	165				171				(6		)		(3.5	)%
Operating expenses	94				94				—				—	%
Operating income	$	71			$	77			$	(6	)		(7.8	)%
Gross margin	52.5		%		51.5		%

The net sales decline compared to the prior year quarter on a constant currency basis was approximately 3%. This reflects a decline in net sales for the North America and Latin America regions offset partially by higher net sales in EMEA and Asia-Pacific. The overall sales decline was primarily due to lower sales volume of tabletop and desktop printers and location solutions. This was offset partially by a higher volume of sales of mobile printers, supplies, and services. Regionally, the decrease in net sales in North America was primarily due to lower volume of sales related to location solutions. Lower net sales in Latin America reflected lower volumes of tabletop and desktop printers.

The increase in gross margin was due primarily to the favorable impact of manufacturing cost improvements in supplies, lower services costs and lower hardware overhead costs offset partially by the unfavorable impact of foreign currency changes.

Operating income for the quarter ended April 2, 2016, decreased 7.8% primarily as a result of lower sales.

Enterprise

(in millions as adjusted as described above, except percentages):

	Three Months Ended
	April 2, 2016 Restated				April 4, 2015				$ Change				% Change
Net sales	$	538			$	567			$	(29	)		(5.1	)%
Gross profit	228				244				(16		)		(6.6	)%
Operating expenses	186				190				(4		)		(2.1	)%
Operating income	$	42			$	54			$	(12	)		(22.2	)%
Gross margin	42.4		%		43.0		%

The net sales decline compared to the prior year quarter on a constant currency basis was approximately 4%. This reflects a decline in net sales in the North America and Latin America regions offset partially by higher net sales in EMEA and Asia-Pacific. The overall sales decline was primarily driven by lower sales volume of data capture products, the majority of which is attributable to a large customer order fulfilled in the first quarter 2015 which did not recur in 2016 and the unfavorable impact of foreign currency changes. Regionally, the decrease in net sales in North America was primarily due to lower volume of sales of data capture products offset partially by higher mobile computing sales. Lower net sales in Latin America reflected lower volumes of sales of mobile computing products.

The decline in gross margin was due primarily to changes in product mix, including the impact of lower sales of data capture products and the unfavorable impact of foreign currency changes, offset partially by increased margin on services sales.

Operating income for the quarter ended April 2, 2016, decreased 22.2% primarily as a result of lower sales.

Liquidity and Capital Resources

As of April 2, 2016, the Company had cash of $194 million and long-term debt totaling $2.9 billion and did not have any borrowings against its revolving credit facility with $247 million available ($250 million less $3 million of letters of credit). See Note 12 Long-Term Debt in the Notes to the Consolidated Financial Statements for further details. The primary factors that influence liquidity include, but are not limited to, the amount and timing of revenues, cash collections from customers and capital expenditures. The Company believes that existing capital resources and funds generated from operations are sufficient to meet anticipated capital requirements and to service its indebtedness. The following table summarizes the Company’s cash flow activities for the periods indicated (in millions, except for percentages):

	Three Months Ended
	April 2, 2016 Restated				April 4, 2015				$ Change				% Change
Operating activities	$	96			$	36			$	60			166.7	%
Investing activities	(20		)		(49		)		$	29			(59.2	)%
Financing activities	(77		)		(40		)		$	(37	)		92.5	%
Effect of exchange rates on cash	3				(11		)		$	14			(136.4	)%
Net increase/ (decrease) in cash	$	2			$	(64	)		$	66			(103.1	)%

The change in the Company’s cash and cash equivalents balance as of April 2, 2016 is reflective of the following:

The increase in cash flows from operations consisted of an increase in cash inflows related to accounts receivable, inventory, other assets and accounts payable of $136 million due to lower sales, working capital requirements and a change in payment terms with some of the Company's suppliers. Offsetting the increase was a $83 million increase in cash outflows primarily a result of reduced accrued liabilities related to employee compensation and customer reserves, and higher levels of estimated income tax payments made in 2016.

Net cash used in investing activities during 2016 included capital expenditures of $19 million in 2016 compared to $26 million in 2015. The $7 million variance year over year is primarily due to investments in IT infrastructure, software applications and tooling equipment in 2016 versus the investments made in the Company's corporate office in 2015. Net cash used for investing activities during the first quarter of 2015 also included $49 million paid to MSI, offset in part by proceeds from sales of marketable securities and investments of $25 million and $2 million, respectively.

Net cash used in financing activities during 2016 consisted primarily of principal repayments of $80 million under the Term Loan compared to $50 million during the first quarter of 2015. These were offset by proceeds from the exercise of stock options and stock purchase plan purchases and excess tax benefits from share-based compensation of $3 million during 2016 compared to $10 million during the first quarter of 2015.

Effect of exchange rates on cash

Certain assets and liabilities on the consolidated balance sheet are denominated in foreign currency and, as such, include the effects of foreign currency translation.

The following table shows the Company’s level of indebtedness and other information as of April 2, 2016 (in millions):

Senior Notes	$	1,050
Term Loan	1,955
Less Debt Issuance Costs	(25		)
Less Unamortized Discounts	(43		)
Total Indebtedness	$	2,937

Private Offering

On October 15, 2014, the Company completed a private offering of $1.05 billion aggregate principal of 7.25% Senior Notes due October 15, 2022 (the “Senior Notes”). The Senior Notes yielded an effective interest rate of 7.61% at issuance. The Senior Notes are governed by the terms of an indenture, dated as of October 15, 2014, by and among the Company and U.S. Bank National Association, as Trustee. Interest on the Senior Notes is payable in cash on April 15 and October 15 of each year.

The Indenture covering the Senior Notes contains certain restrictive and affirmative covenants. In addition, the Senior Notes are guaranteed jointly and severally, on a senior and unsecured basis, by the Company’s direct and indirect wholly-owned existing and future domestic restricted subsidiaries, subject to certain exceptions.

Credit Facilities

On October 27, 2014, the Company entered into a new credit agreement which provides for a term loan of $2.2 billion (“Term Loan”) and a revolving credit facility of $250.0 million (“Revolving Credit Facility”). Borrowings under the Term Loan bear interest at a variable rate plus an applicable margin, subject to an all-in floor of 4.75%. As of April 2, 2016, the Term Loan interest rate was 4.75%. Interest payments are payable quarterly. The Company has entered into interest rate swaps to manage interest rate risk on its long-term debt. See Note 10 Derivative Instruments.

The credit agreement requires the Company to prepay the Term Loan and Revolving Credit Facility, under certain circumstances or transactions defined in the credit agreement. Also, the Company may make optional prepayments of the Term Loan, in whole or in part, without premium or penalty. The Company made such optional principal prepayments of $235 million in 2016. Unless satisfied by further optional prepayments, the Company is required to make a final scheduled principal payment of $1.96 billion due on October 27, 2021.

Borrowings under the Revolving Credit Facility bear interest at a variable rate plus an applicable margin. As of April 2, 2016, the Revolving Credit Facility interest rate was 3.25%. Interest payments are payable quarterly. As of April 2, 2016 and December 31, 2015, the Company did not have any borrowings against the Revolving Credit Facility.

The Revolving Credit Facility contains various restrictive and affirmative covenants and is collateralized by a security interest in substantially all of the Company’s assets as defined in the security agreement and guaranteed by its direct and indirect wholly-owned existing and future domestic restricted subsidiaries, subject to certain exceptions. The Company is in compliance with the covenants as of April 2, 2016.

Certain domestic subsidiaries of the Company (the “Guarantor Subsidiaries”) guarantee the Senior Notes, the Term Loan and the Revolving Credit Facility on a senior basis. For the 3 months ended April 2, 2016, the non-Guarantor Subsidiaries would have (a) accounted for approximately 44% of the Company’s total revenue and (b) held approximately 25% or $1.3 billion of its total assets and approximately 12%, or $476 million of its total liabilities including trade payables but excluding intercompany liabilities.

The Company had $143 million as of April 2, 2016, and $220 million as of April 4, 2015 of foreign cash and investments.

Significant Customers

The net sales to significant customers as a percentage of total net sales were as follows:

	Three months ended April 2, 2016									Three months ended April 4, 2015
	Zebra			Enterprise			Total			Zebra			Enterprise			Total
Customer A	5.9	%		11.8	%		17.7	%		5.9	%		11.0	%		16.9	%
Customer B	5.6	%		5.6	%		11.2	%		4.9	%		3.8	%		8.7	%
Customer C	4.3	%		5.5	%		9.8	%		4.5	%		5.2	%		9.7	%

No other customer accounted for 10% or more of total net sales during these periods. The customers disclosed above are distributors (i.e. not end users) of the Company’s products.

There are three customers at April 2, 2016 that each accounted for more than 10% of outstanding accounts receivable. The largest customers accounted for 24.3%, 13.5%, and 11.9% of outstanding accounts receivable.

Safe Harbor

Forward-looking statements contained in this filing are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and are highly dependent upon a variety of important factors, which could cause actual results to differ materially from those expressed or implied in such forward-looking statements. When used in this document and documents referenced, the words “anticipate,” “believe,” “intend,” “estimate,” “will” and “expect” and similar expressions as they relate to Zebra or its management are intended to identify such forward-looking statements, but are not the exclusive means of identifying these statements. The forward-looking statements include, but are not limited to, Zebra’s financial outlook for the full year of 2016. These forward-looking statements are based on current expectations, forecasts and assumptions and are subject to the risks and uncertainties inherent in Zebra’s industry, market conditions, general domestic and international economic conditions, and other factors. These factors include:

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

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

•	Our ability to control manufacturing and operating costs,

•	Risks related to the manufacturing of Zebra’s products and conducting business operations in countries outside the U.S., including the risk of depending on key suppliers who are also in countries outside the U.S.,

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

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

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

•	Interest rate and financial market conditions,

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

•	The effect of natural disasters on our business,

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

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

•	The outcome of litigation in which Zebra may be involved, particularly litigation or claims related to infringement of third-party intellectual property rights, and

•	The outcome of any future tax matters or tax law changes.

We encourage readers of this report to review Item 1A, “Risk Factors,” in the Annual Report on Form 10-K/A for the year ended December 31, 2015, for further discussion of issues that could affect Zebra’s future results. Zebra undertakes no

obligation, other than as may be required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason after the date of this report.