Zebra Technologies Corp 10-Q for FY2020 Q1

Zebra Technologies Corp (ZBRA)

10-Q 2020-04-28 For: 2020-03-28

Added on April 09, 2026

About this 10-Q

Zebra Technologies Corp filed this 10-Q on April 28, 2020, covering the quarter ended March 28, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 28, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.05B; down 1.3% from $1.07B a year earlier
Net income: $89M; down 22.6% from net income of $115M a year earlier
Diluted EPS: $1.65; down 22.2% from $2.12 a year earlier

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



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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



		PAGE
PART I - FINANCIAL INFORMATION		4
Item 1.	Consolidated Financial Statements	4
	Consolidated Balance Sheets as of March 28, 2020 (unaudited) and December 31, 2019	4
	Consolidated Statements of Operations (unaudited) for the three months ended March 28, 2020 and March 30, 2019	5
	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 28, 2020 and March 30, 2019	6
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 28, 2020 and March 30, 2019	7
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 28, 2020 and March 30, 2019	8
	Notes to Consolidated Financial Statements (unaudited)	9
	Note 1: Description of Business and Basis of Presentation	9
	Note 2: Significant Accounting Policies	9
	Note 3: Revenues	9
	Note 4: Inventories	10
	Note 5: Business Acquisitions	10
	Note 6: Exit and Restructuring Costs	11
	Note 7: Fair Value Measurements	11
	Note 8: Derivative Instruments	12
	Note 9: Long-Term Debt	14
	Note 10: Commitments and Contingencies	15
	Note 11: Income Taxes	16
	Note 12: Earnings Per Share	17
	Note 13: Accumulated Other Comprehensive Income (Loss)	17
	Note 14: Accounts Receivable Factoring	18
	Note 15: Segment Information & Geographic Data	18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Overview	20
	Results of Operations	21
	Results of Operations by Segment	23
	New Accounting Pronouncements	25
	Liquidity and Capital Resources	25
	Significant Customers	27
	Safe Harbor	27
	Non-GAAP Measures	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II - OTHER INFORMATION		30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	32
Signatures		33



	March 28, 2020			December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24		$	30
Accounts receivable, net of allowances for doubtful accounts of $2 million as of March 28, 2020 and December 31, 2019	500			613
Inventories, net	443			474
Income tax receivable	36			32
Prepaid expenses and other current assets	48			46
Total Current assets	1,051			1,195
Property, plant and equipment, net	257			259
Right-of-use lease assets	102			107
Goodwill	2,618			2,622
Other intangibles, net	258			275
Deferred income taxes	129			127
Other long-term assets	125			126
Total Assets	$	4,540		$	4,711
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	230		$	197
Accounts payable	447			552
Accrued liabilities	280			379
Deferred revenue	252			238
Income taxes payable	28			38
Total Current liabilities	1,237			1,404
Long-term debt	1,167			1,080
Long-term lease liabilities	95			100
Long-term deferred revenue	226			221
Other long-term liabilities	88			67
Total Liabilities	2,813			2,872
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	346			339
Treasury stock at cost, 19,086,234 and 18,148,925 shares as of March 28, 2020 and December 31, 2019, respectively	(890		)	(689		)
Retained earnings	2,321			2,232
Accumulated other comprehensive loss	(51		)	(44		)
Total Stockholders’ Equity	1,727			1,839
Total Liabilities and Stockholders’ Equity	$	4,540		$	4,711



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



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



	Three Months Ended
	March 28, 2020			March 30, 2019
Net sales:
Tangible products	$	901		$	924
Services and software	151			142
Total Net sales	1,052			1,066
Cost of sales:
Tangible products	486			471
Services and software	93			94
Total Cost of sales	579			565
Gross profit	473			501
Operating expenses:
Selling and marketing	122			122
Research and development	105			111
General and administrative	74			76
Amortization of intangible assets	16			28
Acquisition and integration costs	1			4
Exit and restructuring costs	4			1
Total Operating expenses	322			342
Operating income	151			159
Other expenses:
Foreign exchange loss	(3		)	(3		)
Interest expense, net	(45		)	(24		)
Other, net	—			(1		)
Total Other expenses, net	(48		)	(28		)
Income before income tax	103			131
Income tax expense	14			16
Net income	$	89		$	115
Basic earnings per share	$	1.66		$	2.14
Diluted earnings per share	$	1.65		$	2.12



	Three Months Ended March 28, 2020
	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, 2019	54,002,932		$	1	$	339	$	(689	)	$	2,232	$	(44	)	$	1,839
Issuances of treasury shares related to share based-compensation plans, net of forfeitures	15,792		—		—		—			—		—			—
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(4,361	)	—		—		(1		)	—		—			(1		)
Share-based compensation	—		—		7		—			—		—			7
Repurchases of common stock	(948,740	)	—		—		(200		)	—		—			(200		)
Net income	—		—		—		—			89		—			89
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—		—		—		—			—		2			2
Foreign currency translation adjustment	—		—		—		—			—		(9		)	(9		)
Balance at March 28, 2020	53,065,623		$	1	$	346	$	(890	)	$	2,321	$	(51	)	$	1,727



	Three Months Ended March 30, 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
Issuances of treasury shares related to share based-compensation plans, net of forfeitures	110,382		—		1		3			—		—			4
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(5,829	)	—		—		(1		)	—		—			(1		)
Share-based compensation	—		—		10		—			—		—			10
Net income	—		—		—		—			115		—			115
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—		—		—		—			—		4			4
Balance at March 30, 2019	53,975,737		$	1	$	305	$	(611	)	$	1,803	$	(31	)	$	1,467



	March 28, 2020						March 30, 2019
Segment	Tangible Products		Services and Software		Total		Tangible Products		Services and Software		Total
AIT	$	333	$	38	$	371	$	320	$	37	$	357
EVM	568		113		681		604		105		709
Total	$	901	$	151	$	1,052	$	924	$	142	$	1,066



	March 28, 2020		December 31, 2019
Raw material	$	122	$	128
Work in process	5		4
Finished goods	316		342
Total inventories, net	$	443	$	474


•	Level 1: Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs (e.g. U.S. Treasuries and money market funds).


•	Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.


•	Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.


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


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


b.	Fair value of hedges against net assets is calculated at the period-end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at period end (Level 2). If this is the case, the fair value is calculated at the rate at which the hedge is being settled (Level 1).


(2)	The fair value of forward interest rate swaps is based upon a valuation model that uses relevant observable market inputs at the quoted intervals, such as forward yield curves, and is adjusted for the Company’s credit risk and the interest rate swap terms.



	Level 1		Level 2		Level 3		Total
Assets:
Foreign exchange contracts⁽¹⁾	$	—	$	6	$	—	$	6
Money market investments related to the deferred compensation plan	21		—		—		21
Total Assets at fair value	$	21	$	6	$	—	$	27
Liabilities:
Foreign exchange contracts ⁽¹⁾	$	1	$	—	$	—	$	1
Forward interest rate swap contracts ⁽²⁾	—		48		—		48
Liabilities related to the deferred compensation plan	21		—		—		21
Total Liabilities at fair value	$	22	$	48	$	—	$	70



	Asset (Liability)
		Fair Values as of
	Balance Sheet Classification	March 28, 2020			December 31, 2019
Derivative instruments designated as hedges:
Foreign exchange contracts	Prepaid expenses and other current assets	$	6		$	3
Total derivative instruments designated as hedges		$	6		$	3

Derivative instruments not designated as hedges:
Foreign exchange contracts	Accrued liabilities	$	(1	)	$	—
Forward interest rate swaps	Accrued liabilities	(15		)	(5		)
Forward interest rate swaps	Other long-term liabilities	(33		)	(8		)
Total derivative instruments not designated as hedges		$	(49	)	$	(13	)
Total net derivative liability		$	(43	)	$	(10	)



	Losses Recognized in Income
		Three Months Ended
	Statements of Operations Classification	March 28, 2020			March 30, 2019
Derivative instruments not designated as hedges:
Foreign exchange contracts	Foreign exchange loss	$	(1	)	$	(2	)
Forward interest rate swaps	Interest expense, net	(35		)	(8		)
Total loss recognized in income		$	(36	)	$	(10	)



	March 28, 2020		December 31, 2019
Notional balance of outstanding contracts:
British Pound/U.S. Dollar	£	13	£	14
Euro/U.S. Dollar	€	53	€	36
Canadian Dollar/U.S. Dollar	C$	2	C$	1
Australian Dollar/U.S. Dollar	A$	9	A$	42
Japanese Yen/U.S. Dollar	¥	148	¥	264
Singapore Dollar/U.S. Dollar	S$	19	S$	19
Mexican Peso/U.S. Dollar	Mex$	107	Mex$	115
Chinese Yuan/U.S. Dollar	¥	43	¥
South African Rand/U.S. Dollar	R	38	R	42
Net fair value of liabilities of outstanding contracts	$	1	$	—



	March 28, 2020			December 31, 2019
Term Loan A	$	917		$	917
Revolving Credit Facility	258			103
Receivables Financing Facilities	230			266
Total debt	$	1,405		$	1,286
Less: Debt issuance costs	(5		)	(6		)
Less: Unamortized discounts	(3		)	(3		)
Less: Current portion of debt	(230		)	(197		)
Total long-term debt	$	1,167		$	1,080



2020	$	100
2021	160
2022	56
2023	81
2024	1,008
Total future debt maturities	$	1,405


•	Unrealized gain on anticipated sales hedging transactions relates to derivative instruments used to hedge the exposure related to currency exchange rates for forecasted Euro sales. These hedges are designated as cash flow hedges, and the Company defers income statement recognition of gains and losses until the hedged transaction occurs. See Note 8, Derivative Instruments for more details.



	Unrealized gain on sales hedging			Foreign currency translation adjustments			Total
Balance at December 31, 2018	$	12		$	(47	)	$	(35	)
Other comprehensive income before reclassifications	16			—			16
Amounts reclassified from AOCI⁽¹⁾	(11		)	—			(11		)
Tax effect	(1		)	—			(1		)
Other comprehensive income, net of tax	4			—			4
Balance at March 30, 2019	$	16		$	(47	)	$	(31	)

Balance at December 31, 2019	$	2		$	(46	)	$	(44	)
Other comprehensive income (loss) before reclassifications	11			(9		)	2
Amounts reclassified from AOCI⁽¹⁾	(8		)	—			(8		)
Tax effect	(1		)	—			(1		)
Other comprehensive income (loss), net of tax	2			(9		)	(7		)
Balance at March 28, 2020	$	4		$	(55	)	$	(51	)


(1)	AIT and EVM segment operating income includes depreciation and share-based compensation expense. The amounts of depreciation and share-based compensation expense attributable to AIT and EVM are proportionate to each segment’s Net sales.


(2)	To the extent applicable, amounts included in Corporate, eliminations consist of purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, and product sourcing diversification costs.


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


•	the assumption that the impact of the virus will be temporary, and the Company will continue generating positive operating cash flows over the long-term.



	Three Months Ended
	March 28, 2020
Reported GAAP Consolidated Net sales growth	(1.3	)%
Adjustments:
Impact of foreign currency translation⁽¹⁾	1.4	%
Impact of acquisitions⁽²⁾	(0.9	)%
Consolidated Organic Net sales growth	(0.8	)%


(1)	Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S.


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



	Three Months Ended
	March 28, 2020
AIT Reported GAAP Net sales growth	3.9	%
Adjustments:
Impact of foreign currency translation⁽¹⁾	1.2	%
Impact of acquisition⁽²⁾	(1.9	)%
AIT Organic Net sales growth	3.2	%


(2)	For purposes of computing AIT Organic Net sales growth, amounts directly attributable to the acquisition of Temptime Corporation (“Temptime”) are excluded for twelve months following the February 21, 2019 acquisition date.



	Three Months Ended
	March 28, 2020
EVM Reported GAAP Net sales growth	(3.9	)%
Adjustments:
Impact of foreign currency translation ⁽¹⁾	1.5	%
Impact of acquisitions ⁽²⁾	(0.5	)%
EVM Organic Net sales growth	(2.9	)%


(2)	For purposes of computing EVM Organic Net sales growth, amounts directly attributable to the acquisitions of Profitect, Inc. and Cortexica Vision Systems Limited are excluded for twelve months following their respective acquisition dates of May 31, 2019 and November 5, 2019.



	Three Months Ended
Cash flows provided by (used in) from:	March 28, 2020			March 30, 2019			$ Change			% Change
Operating activities	$	108		$	42		$	66		157.1	%
Investing activities	(15		)	(184		)	169			NM
Financing activities	(98		)	161			(259		)	NM
Effect of exchange rates on cash	(1		)	(2		)	1			NM
Net (decrease) increase in cash and cash equivalents	$	(6	)	$	17		$	(23	)	NM