QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
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, IL60069
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (847) 634-6700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Class A Common Stock, par value $.01 per share
ZBRA
The NASDAQ Stock Market, LLC
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☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ¨
Cumulative effect of change in accounting principle
—
—
—
—
—
—
—
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations
44,215
—
(2
)
1
—
—
(1
)
Shares withheld related to net share settlement
(3,864
)
—
—
(1
)
—
—
(1
)
Share-based compensation
—
—
12
—
—
—
12
Repurchase of common stock
(101,062
)
—
—
(20
)
—
—
(20
)
Net income
—
—
—
—
136
—
136
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)
—
—
—
—
—
15
15
Changes in unrealized gains and losses on forward interest rate swaps hedging transactions (net of income taxes)
—
—
—
—
—
(1
)
(1
)
Foreign currency translation adjustment
—
—
—
—
—
(5
)
(5
)
Balance at September 28, 2019
54,047,118
$
1
$
324
$
(663
)
$
2,063
$
(31
)
$
1,694
Nine Months Ended September 28, 2019
Class A Common Stock Shares
Class A Common Stock Value
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Loss
Total
Balance at December 31, 2018
53,871,184
$
1
$
294
$
(613
)
$
1,688
$
(35
)
$
1,335
Cumulative effect of change in accounting principle
—
—
—
—
—
—
—
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations
499,664
—
(6
)
13
—
—
7
Shares withheld related to net share settlement
(222,668
)
—
—
(43
)
—
—
(43
)
Share-based compensation
—
—
36
—
—
—
36
Repurchase of common stock
(101,062
)
—
—
(20
)
—
—
(20
)
Net income
—
—
—
—
375
—
375
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)
—
—
—
—
—
7
7
Changes in unrealized gains and losses on forward interest rate swaps hedging transactions (net of income taxes)
Cumulative effect of change in accounting principle
—
—
—
—
—
—
—
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations
112,778
—
(1
)
3
—
—
2
Shares withheld related to net share settlement
(2,114
)
—
—
—
—
—
—
Share-based compensation
—
—
10
—
—
—
10
Repurchase of common stock
—
—
—
—
—
—
—
Net income
—
—
—
—
127
—
127
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)
—
—
—
—
—
—
—
Changes in unrealized gains and losses on forward interest rate swaps hedging transactions (net of income taxes)
—
—
—
—
—
1
1
Foreign currency translation adjustment
—
—
—
—
—
—
—
Balance at September 29, 2018
53,802,642
$
1
$
282
$
(614
)
$
1,573
$
(29
)
$
1,213
Nine Months Ended September 29, 2018
Class A Common Stock Shares
Class A Common Stock Value
Additional Paid-in Capital
Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Loss
Total
Balance at December 31, 2017
53,236,095
$
1
$
257
$
(620
)
$
1,248
$
(52
)
$
834
Cumulative effect of change in accounting principle
—
—
—
—
19
—
19
Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations
634,363
—
(9
)
16
—
—
7
Shares withheld related to net share settlement
(67,816
)
—
—
(10
)
—
—
(10
)
Share-based compensation
—
—
34
—
—
—
34
Repurchase of common stock
—
—
—
—
—
—
—
Net income
—
—
—
—
306
—
306
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)
—
—
—
—
—
22
22
Changes in unrealized gains and losses on forward interest rate swaps hedging transactions (net of income taxes)
—
—
—
—
—
8
8
Foreign currency translation adjustment
—
—
—
—
—
(7
)
(7
)
Balance at September 29, 2018
53,802,642
$
1
$
282
$
(614
)
$
1,573
$
(29
)
$
1,213
See accompanying Notes to Consolidated Financial Statements.
Note 1Description of Business and Basis of Presentation
Zebra Technologies Corporation and its subsidiaries (“Zebra” or the “Company”) is a global leader providing innovative Enterprise Asset Intelligence (“EAI”) solutions in the automatic identification and data capture solutions industry. We design, manufacture, and sell a broad range of products that capture and move data. We also provide a full range of services, including maintenance, technical support, repair, and managed services, including cloud-based subscriptions. End-users of our products and services include those in retail and e-commerce, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, and education industries around the world. We provide our products and services globally through a direct sales force and an extensive network of channel partners.
Management prepared these unaudited interim consolidated financial statements according to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information and notes. As permitted under Article 10 of Regulation S-X and the instructions of Form 10-Q, these consolidated financial statements do not include all the information and notes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements, although management believes that the disclosures made are adequate to make the information not misleading. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
In the opinion of the Company, these interim financial statements include all adjustments (of a normal, recurring nature) necessary to fairly present its Consolidated Balance Sheet as of September 28, 2019, the Consolidated Statements of Operations, Comprehensive Income, and Stockholders’ Equity for the three and nine months ended September 28, 2019 and September 29, 2018, and the Consolidated Statements of Cash Flows for the nine months ended September 28, 2019 and September 29, 2018. These results, however, are not necessarily indicative of the results expected for the full fiscal year ending December 31, 2019.
Note 2Significant Accounting Policies
Recently Adopted Accounting Pronouncements
On January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases (“ASC 842”), which increases the transparency and comparability of organizations by recognizing Right-of-Use (“ROU”) assets and lease liabilities on the Consolidated Balance Sheets and disclosing key quantitative and qualitative information about leasing arrangements. The principal difference from previous guidance is that the ROU assets and lease liabilities arising from operating leases were not previously recognized on the Consolidated Balance Sheet. Results for reporting periods beginning after January 1, 2019 are reported under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840, Leases (“ASC 840”). In transition, we elected a number of practical expedients, including the election to not reassess existing or expired contracts to determine if they contain a lease or if the lease classification would differ, as well as the election to not separate lease and non-lease components for arrangements where the Company is a lessee.
The impact of the adoption of ASC 842 to the Company’s Consolidated Balance Sheet as of January 1, 2019 was as follows (in millions):
As Reported December 31, 2018
Adjustment
As Adjusted January 1, 2019
Assets:
Prepaid expenses and other current assets(1)
$
54
$
(1
)
$
53
Right-of-use assets
—
110
110
Liabilities:
Accrued liabilities(2)
322
28
350
Long-term lease liabilities
—
103
103
Other long-term liabilities(1)
89
(22
)
67
(1) Reflects an adjustment related to prepaid and accrued rent balances, which are included in the measurement of ROU assets.
(2) Reflects the current portion of the lease liabilities.
As a result of the transition, there was no impact to the Company’s Consolidated Statements of Operations or Cash Flows for the nine months ended September 28, 2019, compared to what would have been reported in accordance with ASC 840.
The Company recognizes ROU assets and lease liabilities for its lease commitments with terms greater than one year. Contractual options to extend or terminate lease agreements are reflected in the lease term when they are reasonably certain to be exercised.
Subsequent to transition, the initial measurements of new ROU assets and lease liabilities are based on the present value of future lease payments over the lease term as of the commencement date. As the Company’s leases normally do not provide an implicit interest rate, we apply the Company’s incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. Relevant information used in determining the Company’s incremental borrowing rate includes the duration of the lease, transaction currency of the lease, and the Company’s credit risk relative to risk-free market rates.
The ROU assets also include any initial direct costs incurred and exclude lease incentives. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
All leases of the Company are classified as operating leases, with lease expense being recognized on a straight-line basis.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU clarifies existing guidance related to implementation costs incurred in cloud computing arrangements, including the recognition, subsequent measurement, and financial statement presentation of such costs. The standard was early adopted prospectively by the Company during the second quarter of 2019 and did not have a material impact to the Company’s consolidated financial statements or disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. With respect to the Company’s financial instruments, a cumulative effect transition approach will be applied. The standard will be effective for the Company in the first quarter of 2020. Management has assessed the impact of adoption of the new standard and determined, based on current operations, that there will be no material impacts to the Company's consolidated financial statements or disclosures.
Note 3Revenues
The Company recognizes revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
Disaggregation of Revenue
The following table presents our Net sales disaggregated by product category for each of our segments, Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”), for the three and nine months ended September 28, 2019 and September 29, 2018 (in millions):
In addition, refer to Note 15, Segment Information & Geographic Data for Net sales to customers by geographic region.
We recognize revenue arising from performance obligations outlined in contracts with our customers that are satisfied at a point in time and over time. Substantially all revenue for tangible products is recognized at a point in time, whereby revenue for services and software is predominantly recognized over time.
Performance Obligations
The Company’s remaining obligations that are greater than one year in duration relate primarily to repair and support services. The aggregated transaction price allocated to remaining performance obligations for these types of service arrangements, inclusive of deferred revenue, was $665 million and $489 million as of September 28, 2019 and December 31, 2018, respectively. These remaining performance obligations as of September 28, 2019 and December 31, 2018 are expected to be recognized over a period of approximately two years.
Contract Balances
Progress on satisfying performance obligations under contracts with customers is recorded on the Consolidated Balance Sheets in Accounts receivable, net and Prepaid expenses and other current assets for billed and unbilled revenues, respectively. The contract asset balances for unbilled revenues were $9 million and $5 million as of September 28, 2019 and December 31, 2018, respectively. These contract assets result from timing differences between the billing and delivery schedules of products, services and software, as well as the impact from the allocation of the transaction price among performance obligations for contracts that include multiple performance obligations.
Deferred revenue on the Consolidated Balance Sheets consist of payments and billings in advance of our performance. The combined short-term and long-term deferred revenue balances were $432 million and $382 million as of September 28, 2019 and December 31, 2018, respectively. During the three and nine months ended September 28, 2019 the Company recognized $41 million and $168 million in revenue, respectively, which was previously included in the beginning balance of deferred revenue as of December 31, 2018. During the three and nine months ended September 29, 2018 the Company recognized $32 million and $152 million in revenue, respectively, which was previously included in the beginning balance of deferred revenue as of December 31, 2017.
Note 4Inventories
The components of Inventories, net are as follows (in millions):