Zebra Technologies 10-Q/A 2016-07-02

10-Q/A 1 zbra-20160702x10qa.htm 10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

For the quarterly period ended July 2, 2016

OR

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

For the transition period from to

Commission File Number: 000-19406

Zebra Technologies Corporation

(Exact name of registrant as specified in its charter)

Delaware		36-2675536
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3 Overlook Point, Lincolnshire, IL 60069

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (847) 634-6700

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

As of November 8, 2016, there were 52,785,730 shares of Class A Common Stock, $.01 par value, outstanding.

EXPLANATORY NOTE

Zebra Technologies Corporation (the "Company") is filing this Amendment to its Quarterly Report on Form 10-Q ("Form 10-Q/A") for the quarter-ended July 2, 2016 which was filed with the Securities and Exchange Commission (SEC) on August 9, 2016 (the "Original Filing"). The Company is filing this Form 10-Q/A to reflect restatements of its Consolidated Balance Sheet at July 2, 2016, its Consolidated Statements of Operations, Comprehensive Loss and Cash Flows for the three and six months ended July 2, 2016, and the related notes thereto, as a result of the correction of these primarily related to the Company's underaccrual of certain 2015 estimates, most notably for its sales commissions plan, its accounting for income taxes and an error to the net realizable value of acquired trade receivables impacting goodwill and general and administrative expenses.

By restating our financial statements to correct the errors discussed above, we are making adjustments for previously identified accounting errors deemed immaterial in aggregate with respect to the year ended December 31, 2015, which were recorded in the Company's 2016 financial results. When these financial statements were originally issued, we assessed the impact of these unrecorded adjustments and concluded that they were not material individually or in the aggregate to our financial statements for the year ended December 31, 2015 or the three and six months ended July 2, 2016. In conjunction with the restatement, we have determined that it is appropriate within this Amendment to reflect these adjustments in the year ended December 31, 2015 Consolidated Financial Statements. Please refer to Note 2 - “Restatement” included in our audited consolidated financial statements and notes thereto in this Amendment for more information regarding the impact of these adjustments.

The following sections in the Original Filing are revised in this Form 10-Q/A, solely as a result of, and to reflect the restatement:

	Part I - Item 1 – Financial Statements
	Part I - Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Part I - Item 4 – Controls and Procedures
	Part II - Item 6 – Exhibits

Pursuant to the rules of the SEC, Part II, item 6 of the Original Filing has been amended for the currently-dated certifications from the Company's principal executive officer and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the principal executive officer and principal financial officer are included to this Form 10-Q/A as Exhibits 31.1 and 31.2.

For the convenience of the reader, this Form 10-Q/A sets forth the information in the Original Filing in its entirety, as such information is modified and superseded where necessary to reflect the restatement and related revisions. Except as provided above, this Amendment does not reflect events occurring after the filing of the Original Filing and does not amend or otherwise update any information in the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings with the SEC subsequent to filing of the Original Filing with the SEC on August 9, 2016.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

QUARTER ENDED JULY 2, 2016

INDEX

		PAGE
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of July 2, 2016 (unaudited) and December 31, 2015	4
	Consolidated Statements of Operations (unaudited) for the three and six months ended July 2, 2016 and July 4, 2015	5
	Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended July 2, 2016 and July 4, 2015	6
	Consolidated Statements of Cash Flows (unaudited) for the six months ended July 2, 2016 and July 4, 2015	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36
SIGNATURES		37

PART I - FINANCIAL INFORMATION

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	July 2, 2016 Restated				December 31, 2015 Restated
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	141			$	192
Accounts receivable, net of allowances for doubtful accounts of $6	631				671
Inventories, net	362				397
Prepaid expenses and other current assets	88				74
Total Current assets	1,222				1,334
Property and equipment, net	301				298
Goodwill	2,493				2,490
Other intangibles, net	640				757
Long-term deferred income taxes	71				70
Other long-term assets	78				91
Total Assets	$	4,805			$	5,040
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	347			$	289
Accrued liabilities	303				367
Deferred revenue	209				197
Income taxes payable	11				42
Total Current liabilities	870				895
Long-term debt	2,873				3,012
Long-term deferred revenue	118				124
Other long-term liabilities	127				116
Total Liabilities	3,988				4,147
Stockholders’ Equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued	—				—
Class A common stock, $.01 par value; authorized 150,000,000 shares; issued 72,151,857 shares	1				1
Additional paid-in capital	189				194
Treasury stock at cost, 19,375,649 and 19,990,006 shares at July 2, 2016 and December 31, 2015, respectively	(615		)		(631		)
Retained earnings	1,306				1,377
Accumulated other comprehensive loss	(64		)		(48		)
Total Stockholders’ Equity	817				893
Total Liabilities and Stockholders’ Equity	$	4,805			$	5,040

See accompanying Notes to Consolidated Financial Statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

(Unaudited)

	Three Months Ended								Six Months Ended
	July 2, 2016 Restated				July 4, 2015				July 2, 2016 Restated				July 4, 2015
Net sales:
Net sales of tangible products	$	753			$	762			$	1,469			$	1,517
Revenue from services and software	126				128				259				266
Total Net sales	879				890				1,728				1,783
Cost of sales:
Cost of sales of tangible products	387				407				762				793
Cost of services and software	86				90				170				188
Total Cost of sales	473				497				932				981
Gross profit	406				393				796				802
Operating expenses:
Selling and marketing	112				125				225				247
Research and development	95				100				188				196
General and administrative	77				70				151				136
Amortization of intangible assets	60				63				119				131
Acquisition and integration costs	34				31				70				57
Exit and restructuring costs	5				18				10				29
Total Operating expenses	383				407				763				796
Operating income (loss)	23				(14		)		33				6
Other (expenses) income:
Foreign exchange (loss) gain	(5		)		11				(3		)		(16		)
Interest expense and other, net	(51		)		(50		)		(102		)		(101		)
Total Other expenses	(56		)		(39		)		(105		)		(117		)
Loss before income taxes	(33		)		(53		)		(72		)		(111		)
Income tax expense (benefit)	12				24				(1		)		(9		)
Net loss	$	(45	)		$	(77	)		$	(71	)		$	(102	)
Basic loss per share	$	(0.88	)		$	(1.50	)		$	(1.38	)		$	(2.00	)
Diluted loss per share	$	(0.88	)		$	(1.50	)		$	(1.38	)		$	(2.00	)
Basic weighted average shares outstanding	51,533,236				50,917,161				51,405,373				50,798,238
Diluted weighted average and equivalent shares outstanding	51,533,236				50,917,161				51,405,373				50,798,238

See accompanying Notes to Consolidated Financial Statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In millions)

(Unaudited)

	Three Months Ended								Six Months Ended
	July 2, 2016 Restated				July 4, 2015				July 2, 2016 Restated				July 4, 2015
Net loss	$	(45	)		$	(77	)		$	(71	)		$	(102	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on anticipated sales hedging transactions	11				(5		)		(4		)		(3		)
Unrealized (loss) gain on forward interest rate swaps hedging transactions	(3		)		3				(10		)		(4		)
Foreign currency translation adjustment	(6		)		(8		)		(2		)		(10		)
Comprehensive loss	$	(43	)		$	(87	)		$	(87	)		$	(119	)

See accompanying Notes to Consolidated Financial Statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Six Months Ended
	July 2, 2016 Restated				July 4, 2015
Cash flows from operating activities:
Net loss	$	(71	)		$	(102	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	154				162
Amortization of debt issuance cost and discount	11				10
Share-based compensation	12				18
Excess tax benefit from equity-based compensation	(2		)		(11		)
Deferred income taxes	3				(25		)
Unrealized gain on forward interest rate swaps	(2		)		—
All other, net	4				1
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable	43				48
Inventories	35				(23		)
Other assets	21

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Zebra Technologies Corporation and its subsidiaries ("Zebra" or "Company") is a global leader respected for innovative solutions in the automatic information and data capture 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 device ("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 software and services that are associated with these products. 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.

Our customers have traditionally benefited from proven solutions that increase productivity and improve efficiency and asset utilization. The Company is poised to drive and capitalize on the evolution of the data capture industry into the broader Enterprise Asset Intelligence ("EAI") industry, based on important technology trends like the Internet of Things ("IoT"), ubiquitous mobility 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.

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 six months ended July 2, 2016, the Company recorded $1,728 million of net sales in its consolidated statements of operations, of which approximately 48.0% were attributable to North America; approximately 32.2% were attributable to Europe, Middle East, and Africa ("EMEA"); and other foreign locations accounted for the remaining 19.8%.

Results of Operations

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):

The following tables present key statistics for the Company's operations for the three and six months ended July 2, 2016 and July 4, 2015, respectively

	Three Months Ended															Six Months Ended
	July 2, 2016 Restated				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Net sales	$	879			$	890			$	(11	)		(1.2	)%		$	1,728			$	1,783			$	(55	)		(3.1	)%
Gross profit	406				393				13				3.3	%		796				802				(6		)		(0.7	)%
Operating expenses	383				407				(24		)		(5.9	)%		763				796				(33		)		(4.1	)%
Operating income (loss)	$	23			$	(14	)		37				NM			$	33			$	6			27				NM
Gross margin	46.2		%		44.2		%									46.1		%		45.0		%

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

	Three Months Ended															Six Months Ended
	July 2, 2016				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Hardware	$	685			$	695			$	(10	)		(1.4	)%		$	1,331			$	1,383			$	(52	)		(3.8	)%
Supplies	68				67				1				1.5	%		138				134				4				3.0	%
Service and software	126				128				(2		)		(1.6	)%		259				266				(7		)		(2.6	)%
Total Net sales	$	879			$	890			$	(11	)		(1.2	)%		$	1,728			$	1,783			$	(55	)		(3.1	)%

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

	Three Months Ended															Six Months Ended
	July 2, 2016				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Geographic Region
Europe, Middle East and Africa	$	283			$	303			$	(20	)		(6.6	)%		$	557			$	594			$	(37	)		(6.2	)%
Latin America	53				55				(2		)		(3.6	)%		99				108				(9		)		(8.3	)%
Asia-Pacific	129				118				11				9.3	%		243				224				19				8.5	%
Total International	465				476				(11		)		(2.3	)%		899				926				(27		)		(2.9	)%
North America	414				414				—				—	%		829				857				(28		)		(3.3	)%
Total Net sales	$	879			$	890			$	(11	)		(1.2	)%		$	1,728			$	1,783			$	(55	)		(3.1	)%

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

	Three Months Ended															Six Months Ended
	July 2, 2016 Restated				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Selling and marketing	$	112			$	125			$	(13	)		(10.4	)%		$	225			$	247			$	(22	)		(8.9	)%
Research and development	95				100				(5		)		(5.0	)%		188				196				(8		)		(4.1	)%
General and administrative	77				70				7				10.0	%		151				136				15				11.0	%
Amortization of intangible assets	60				63				(3		)		(4.8	)%		119				131				(12		)		(9.2	)%
Acquisition and integration costs	34				31				3				9.7	%		70				57				13				22.8	%
Exit and restructuring costs	5				18				(13		)		(72.2	)%		10				29				(19		)		(65.5	)%
Total Operating expenses	$	383			$	407			$	(24	)		(5.9	)%		$	763			$	796			$	(33	)		(4.1	)%

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

	Three Months Ended															Six Months Ended
	July 2, 2016				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Foreign exchange (loss) gain	$	(5	)		$	11			$	(16	)		(145.5	)%		$	(3	)		$	(16	)		$	13			(81.3	)%
Interest expense and other, net	(51		)		(50		)		(1		)		2.0	%		(102		)		(101		)		(1		)		1.0	%
Total other expenses	$	(56	)		$	(39	)		$	(17	)		43.6	%		$	(105	)		$	(117	)		$	12			(10.3	)%

Income Taxes (in millions, except percentages):

	Three months ended															Six months ended
	July 2, 2016 Restated				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Income tax expense (benefit)	$	12			$	24			$	(12	)		(50.0	)%		$	(1	)		$	(9	)		$	8			(88.9	)%
Effective tax rate	36.4		%		(44.8		)%									1.4		%		8.4		%

Second quarter 2016 compared to second quarter 2015

The decline in sales in the second quarter compared to the prior year second quarter was primarily a result of lower hardware sales in EMEA and Latin America and the unfavorable impact of foreign currency changes in EMEA, partially offset by growth in hardware sales in Asia-Pacific. The overall decline in hardware sales was primarily due to lower sales volume of barcode printers, wireless LAN, and location solutions. This was partially offset by increased sales of mobile computing and data capture products. On a constant currency basis, overall net sales were comparable to the prior year quarter, reflecting growth of approximately 10% in Asia-Pacific, essentially flat sales in North America, and a decline of approximately 4% in both EMEA and Latin America.

The improvement in gross margin in the second quarter compared to the year ago period reflects an increase in the Enterprise segment gross margin due primarily to changes in product mix, improved margin on services and reductions in other costs, including prior year rebranding. The Legacy Zebra segment gross margin increased due primarily to improvements in manufacturing and overhead costs for supplies and hardware.

Operating expenses for the quarter ended July 2, 2016 were $383 million, or 43.6% of net sales, compared to $407 million, or 45.7% of net sales, in the prior year. 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 and lower promotional expenses. The decrease in research and development costs is primarily due to a reduction in headcount and shifting resources to lower cost engineering locations. The increase in general and administrative costs is primarily attributable to higher professional fees, legal expenses and IT expenses partially offset in part by lower employee benefits costs. Amortization of intangibles declined due to the final adjustments made in 2015 to the fair value of intangibles related to the Acquisition. Following its Acquisition, the Company has moved into the next phase of its IT integration plan wherein Acquisition and integration costs have risen as compared to the prior year quarter which includes winding down the transition services agreement with Motorola Solutions. Exit and restructuring costs were lower due to a reduced level of restructuring activity as the company progresses with its restructuring plan related to the Acquisition.

Operating income for the quarter ended July 2, 2016 increased $37 million as compared to the prior year, driven by higher gross margin and lower operating expenses, slightly offset by lower sales.

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 current year interest expense and other, net includes approximately $1.5 million of expense related to the loss incurred on the extinguishment of debt resulting from the Company’s refinancing of its Term Loan.

The change in the Company’s effective tax rate is due to the reduction of U.S. sourced income and the reduction of discrete expense items.

Year to date 2016 compared to year to date 2015

The decline in sales as compared to the prior year period was primarily a result of lower hardware sales in the North America, EMEA and Latin America and the unfavorable impact of foreign currency changes in EMEA, partially offset by higher hardware sales in Asia-Pacific. The overall decline in hardware sales was primarily due to lower sales volume of barcode printer, data capture, and wireless LAN products and location solutions. On a constant currency basis, overall net sales declined approximately 2% compared to the prior year, reflecting growth of approximately 10% in net sales in Asia-Pacific, and a decline of approximately 3%, 1% and 9% in North America, EMEA and Latin America, respectively.

The improvement in gross margin compared to the year ago period reflects an increase in the Enterprise segment gross margin, due primarily to changes in product mix, improved margin on services, and reductions in other costs, including prior year rebranding. Legacy Zebra segment gross margin increased due primarily to improvements in manufacturing and overhead costs for supplies and hardware.

Operating expenses for the six months ended July 2, 2016 were $763 million, or 44.2% of net sales, compared to $796 million, or 44.6% of net sales, in the prior year. Selling and marketing expenses were lower for the six months ended July 2, 2016 as compared to the prior year due to the effects of staff reductions implemented in 2015 and lower promotional expenses. The decrease in research and development costs is primarily due to a reduction in headcount and shifting resources to lower cost engineering locations. The increase in general and administrative costs is primarily due to higher legal expenses, professional fees and IT expenses offset in part by lower employee compensation costs. Amortization of intangibles declined due to the final adjustments made in 2015 to the fair value of intangibles related to the Acquisition. Following its Acquisition, the Company has moved into the next phase of its IT integration plan wherein Acquisition and integration costs have risen as compared to the prior year which includes winding down the transition services agreement with Motorola Solutions. Exit and restructuring costs were lower due a reduced level of restructuring activity as the company progresses with its restructuring plan related to the Acquisition.

Operating income for the six months ended July 2, 2016 increased $27 million as compared to the prior year, driven by the increase in gross margin and lower operating expenses being partially offset by the decline in sales.

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 current year interest expense and other, net includes approximately $1.5 million of expense related to the loss incurred on the extinguishment of debt resulting from the Company’s refinancing of its Term Loan.

The change in the Company’s effective tax rate is due to the reduction of U.S. sourced income and the reduction of discrete expense items.

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 17 Segment Information in the Notes to the Consolidated Financial Statements.

Legacy Zebra

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

	Three Months Ended															Six Months Ended
	July 2, 2016				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Net sales	$	305			$	320			$	(15	)		(4.7	)%		$	619			$	652			$	(33	)		(5.1	)%
Gross profit	153				160				(7		)		(4.4	)%		318				331				(13		)		(3.9	)%
Operating expenses	96				98				(2		)		(2.0	)%		190				192				(2		)		(1.0	)%
Operating income	$	57			$	62			(5		)		(8.1	)%		$	128			$	139			(11		)		(7.9	)%
Gross margin	50.2		%		50.0		%									51.4		%		50.8		%

Second quarter 2016 compared to second quarter 2015

The overall sales decline was primarily due to lower sales volume of barcode printers and location solutions as well as the unfavorable impact of foreign currency changes, most notably in EMEA. This was partially offset by a higher volume of supplies. North America, EMEA and Latin America all experienced declines in barcode printer sales. 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, EMEA and Latin America regions partially offset by growth in net sales in Asia-Pacific.

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

Operating income for the quarter ended July 2, 2016 decreased 8.1% due to lower sales, partially offset by lower operating expenses.

Year to date 2016 compared to year to date 2015

The overall sales decline was primarily due to lower sales volume of barcode printers and location solutions as well as the unfavorable impact of foreign currency changes, most notably in EMEA. This was partially offset by a higher volume of supplies. North America, EMEA and Latin America all experienced declines in barcode printer sales. The net sales decline compared to the prior year six months on a constant currency basis was approximately 3%. This reflects a decline in net sales for the North America, EMEA and Latin America regions partially offset by growth in net sales in Asia-Pacific.

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

Operating income for the six months ended July 2, 2016 decreased 7.9% primarily as a result of lower sales partially offset by lower operating expenses.

Enterprise

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

	Three Months Ended															Six Months Ended
	July 2, 2016 Restated				July 4, 2015				$ Change				% Change			July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Net sales	$	577			$	574			$	3			0.5	%		$	1,115			$	1,141			$	(26	)		(2.3	)%
Gross profit	257				239				18				7.5	%		485				483				2				0.4	%
Operating expenses	188				196				(8		)		(4.1	)%		374				386				(12		)		(3.1	)%
Operating income	$	69			$	43			$	26			60.5	%		$	111			$	97			$	14			14.4	%
Gross margin	44.5		%		41.6		%									43.5		%		42.3		%

Second quarter 2016 compared to second quarter 2015

The overall sales increase was driven by higher sales volume of mobile computing and data capture products offset by lower sales of wireless LAN products and the unfavorable impact of foreign currency changes, most notably in EMEA. On a constant currency basis, the net sales growth compared to the prior year quarter was approximately 1%. This reflects growth in net sales in the North America and Asia-Pacific regions partially offset by a decline in net sales in EMEA and Latin America.

The increase in gross margin was due primarily to changes in product mix and lower product costs, primarily in mobile computing, and increased margin on services sales, partially offset by the impact of foreign currency changes. In addition, the gross margin in the second quarter of 2015 was adversely impacted by product rebranding and certain other non-recurring costs.

Operating income for the quarter ended July 2, 2016, increased 60.5% primarily as a result of an improvement in gross margin and lower operating expenses.

Year to date 2016 compared to year to date 2015

The overall sales decline was primarily driven by lower sales volume of data capture and wireless LAN products and the unfavorable impact of foreign currency changes, most notably in EMEA, partially offset by higher sales volume of mobile computing. On a constant currency basis, the net sales decline compared to the prior year quarter was approximately 1%. This reflects a decline in net sales in North America, EMEA and Latin America regions partially offset by growth in net sales in Asia-Pacific.

The increase in gross margin was due primarily to changes in product mix and lower product costs, and increased margin on services, partially offset by the unfavorable impact of foreign currency changes. In addition, the gross margin in the second quarter of 2015 was adversely impacted by product rebranding costs and other non-recurring costs.

Operating income for the six months ended July 2, 2016, increased 14.4% primarily as a result of as a result of an improvement in gross margin and lower operating expenses, partially offset by lower sales.

Liquidity and Capital Resources

As of July 2, 2016, the Company had cash of $141 million and long-term debt totaling $2.9 billion and did not have any borrowings against its revolving credit facility with $246 million available ($250 million less $4 million of letters of credit). See Note 11 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, cash payments to vendors 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):

	Six Months Ended
	July 2, 2016 Restated				July 4, 2015				$ Change				% Change
Operating activities	$	122			$	20			$	102			NM
Investing activities	(36		)		(72		)		36				(50.0	)%
Financing activities	(144		)		(121		)		(23		)		19.0	%
Effect of exchange rates on cash	7				(16		)		23				(143.8	)%
Net decrease in cash	$	(51	)		$	(189	)		$	138			(73.0	)%

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

The increase in cash flows from operations as compared to the prior year was driven by improved inventory management, the extension of payment terms with vendors and lower net operating losses being partially offset by increased loan interest payments, creditor fees as part of the Refinancing Agreement, estimated income tax payments and employee incentive payments.

The decrease in cash used in investing activities is primarily due to the $49 million paid to MSI as part of the Acquisition, offset by $25 million in proceeds received from sales of investments and marketable securities during 2015 and the $14 million reduction in capital expenditures during 2016. This reduction is primarily due to investments made in IT infrastructure and software applications during 2016 versus the investments made in the Company's corporate office reported in 2015.

The increase in net cash used in financing activities of $23 million over the prior year consisted primarily of the increase in Term Loan repayments of $15 million as well as $8 million of stock activity related to the Company's share-based compensation program.

The following table shows the Company’s level of long-term debt and other information as of July 2, 2016 (in millions):

Senior Notes	$	1,050
Term Loan	1,890
Revolving Credit Facility	—
Less Debt Issuance Costs	(24		)
Less Unamortized Discounts	(43		)
Total Long-Term Debt	$	2,873

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”). On June 2, 2016 (the "Closing Date"), the Company entered into the first amendment to the credit agreement (the "Refinancing Amendment"). The Refinancing Amendment lowered the index rate spread for LIBOR loans from LIBOR + 400 bp to LIBOR + 325 bp. In accounting for the Refinancing Amendment, the Company applied the provisions of ASC Subtopic 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. It was determined that the terms of the debt were not substantially different for approximately 96.6% of the lenders, and applied modification accounting. For the remaining 3.4% of the lenders, extinguishment accounting was applied. During the three months ended July 2, 2016, the Company recorded a one-time $2.7 million loss to Interest Expense & Other, net, primarily related to costs incurred with third parties for arranger, legal and other services and the loss incurred on the extinguished debt. Additionally, the Company paid $4.9 million to the creditors in exchange for the modification and reported it as debt discount which is being amortizing over the life of the modified debt using the interest method. Borrowings under the modified Term Loan bear interest at a variable rate plus an applicable margin, subject to an all-in floor of 4.00%. As of July 2, 2016, the Term Loan interest rate was 4.00%. Interest payments are payable quarterly. The Company has entered into interest rate swaps to manage interest rate risk on its long-term debt.

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 $145 million in 2016. Unless satisfied by further optional prepayments, the Company is required to make a final scheduled principal payment of $1.89 billion due on October 27, 2021.

Borrowings under the Revolving Credit Facility bear interest at a variable rate plus an applicable margin. As of July 2, 2016, the Revolving Credit Facility interest rate was 3.25%. Interest payments are payable quarterly. As of July 2, 2016 and December 31, 2015, the Company did not have any borrowings against the Revolving Credit Facility however, the Company had established letters of credit amounting to $4 million and $3 million, respectively, which reduced funds available for other borrowings under the agreement to $246 million and $247 million, respectively.

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 July 2, 2016.

The Company had $116 million as of July 2, 2016, and $156 million as of July 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:

	Six Months Ended
	July 2, 2016									July 4, 2015
	Zebra			Enterprise			Total			Zebra			Enterprise			Total
Customer A	5.9	%		14.2	%		20.1	%		5.7	%		13.6	%		19.3	%
Customer B	5.0	%		8.3	%		13.3	%		4.7	%		8.4	%		13.1	%
Customer C	5.5	%		6.5	%		12.0	%		4.7	%		5.7	%		10.4	%

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 July 2, 2016 that each accounted for more than 10% of outstanding accounts receivable. The largest customers accounted for 22.2%, 12.9%, and 12.8% 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.

There were no material changes in the Company’s market risk during the quarter ended July 2, 2016. For additional information on market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of the Form 10-K/A for the year ended December 31, 2015.

In the normal course of business, portions of the Company’s operations are subject to fluctuations in currency values. The Company manages these risks using derivative financial instruments. See Note 9 Derivative Instruments to the Consolidated Financial Statements included in this report for further discussion of derivative instruments.

Zebra could be adversely impacted by the United Kingdom’s referendum on withdrawal from the European Union. Zebra maintains its European regional headquarters and a label converting facility in the U.K. and has significant operations and sales throughout Europe. Because the terms of the U.K.’s withdrawal are uncertain, we are unable at this time to determine the impact on Zebra’s operations and business in the U.K. and Europe. The U.K.’s referendum has resulted, and is expected to continue to result, in market volatility, including fluctuations in the British Pound, that could adversely impact Zebra’s operating costs in the U.K. Such market volatility could also cause customers to alter or delay buying decisions that would adversely impact Zebra’s sales in the U.K. and throughout Europe. A significant portion of our business involves cross border transactions throughout the region. Future trade agreements between the U.K. and the European Union could adversely impact Zebra’s operations in the region by increasing costs on or importation requirements on shipments between our distribution center in the Netherlands and customers in the U.K. or between our facility in the U.K. and customers in the European Union.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management assessed the effectiveness of our internal controls over financial reporting as of July 2, 2016. Based on this assessment, our management believes that, as of July 2, 2016, our internal controls over financial reporting were not effective, due to the identification of a material weakness.

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

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

This material weakness has in part resulted in a restatement of the annual financial statements for the year ended December 31, 2015 and the quarterly financial statements for the three and six months ended July 2, 2016.

Remediation Plan

Management and the Board of Directors are committed to the continued improvement of the Company’s overall system of internal controls over financial reporting. With the identification of the material weakness associated with the preparation and review process of our quarterly and annual tax provision in 2015, we began implementing a remediation plan to address these issues. This plan includes the implementation of improved and documented processes and procedures, as well as hiring additional accounting and tax professionals. Since identifying this material weakness, the Company has made substantial progress in executing the remediation plan, including hiring a Vice President of Tax. We believe our actions will be effective in remediating the material weakness, but only after the applicable processes and procedures have been in place for a sufficient period of time is management able to conclude through testing that these controls are effective. Because some of the controls

are executed only at year-end, we cannot evaluate them for effectiveness until the related processes and procedures are completed and tested.

Changes in Internal Controls over Financial Reporting

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

As of May 1, 2016, we completed the first of two phases of integration of our Enterprise Resource Planning systems for the Asia and Pacific region ("APAC"), migrating many of the region’s Enterprise processes and controls onto the Legacy Zebra instance of Oracle. This systems integration focused on our hardware business and included customer order entry and invoicing, inventory procurement and management, accounts payable activity, fixed assets and accounting processes, among other operational processes and related systems. In addition, we have completed the integration of our APAC warehousing, migrating inventory from Penang into our Singapore facility. As part of the systems and warehousing integration, we changed many of the related internal controls primarily by migrating the Enterprise internal controls into the Legacy Zebra internal control structure.

Inherent Limitations on the Effectiveness of Controls

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 12 Contingencies to the Consolidated Financial Statements included in this report.

In addition to the other information included in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K/A for the year ended December 31, 2015 and the factors identified under "Safe Harbor" at the end of Item 2 of Part I of the Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, cash flows or results of operations. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently considers immaterial also may materially adversely affect its business, financial condition, and/or operating results. There have been no material changes to the risk factors included in our Annual Report for the year ended December 31, 2015, other than the risk entitled “Zebra could be adversely impacted by the United Kingdom’s referendum on withdrawal from the European Union” which is described below.

Zebra could be adversely impacted by the United Kingdom’s referendum on withdrawal from the European Union. Zebra maintains its European regional headquarters and a label converting facility in the U.K. and has significant operations and sales throughout Europe. Because the terms of the U.K.’s withdrawal are uncertain, we are unable at this time to determine the impact on Zebra’s operations and business in the U.K. and Europe. The U.K.’s referendum has resulted, and is expected to continue to result, in market volatility, including fluctuations in the British Pound, that could adversely impact Zebra’s operating costs in the U.K. Such market volatility could also cause customers to alter or delay buying decisions that would adversely impact Zebra’s sales in the U.K. and throughout Europe. A significant portion of our business involves cross border transactions throughout the region. Future trade agreements between the U.K. and the European Union could adversely impact Zebra’s operations in the region by increasing costs on or importation requirements on shipments between our distribution center in the Netherlands and customers in the U.K. or between our facility in the U.K. and customers in the European Union.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Treasury Shares

The Company did not purchase shares of its Class A Common Stock during the second quarter of 2016.

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

During the second quarter of 2016, the Company acquired 73,147 shares of its Class A Common Stock through the withholding of shares necessary to satisfy tax withholding obligations upon the vesting of restricted stock awards. These shares were acquired at an average price of $58.83 per share.

10.1	Refinancing Amendment dated as of June 2, 2016 to the Credit Agreement dated as of October 27, 2014 among Zebra Technologies Corporation, the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Revolving Facility Administrative Agent, and Morgan Stanley Senior Funding, Inc. as Term Loan Administrative Agent and Collateral Agent. (1)
31.1	Rule 13a-14(a)/15d-14(a) Certification
31.2	Rule 13a-14(a)/15d-14(a) Certification
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 Quarterly Report on Form 10-Q/A, for the quarter ended July 2, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the consolidated balance sheets; (ii) the consolidated statements of operations; (iii) the consolidated statements of comprehensive loss; (iv) the consolidated statements of cash flows; and (v) notes to consolidated financial statements.

(1) Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended July 2, 2016.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ZEBRA TECHNOLOGIES CORPORATION
Date: November 14, 2016	By:		/s/ Anders Gustafsson
			Anders Gustafsson
			Chief Executive Officer
Date: November 14, 2016	By:		/s/ Michael C. Smiley
			Michael C. Smiley
			Chief Financial Officer