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Business Combinations | 12 Months Ended
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Dec. 31, 2014
Business Combinations [Abstract] |
Business Combinations | Note 3 Business Combinations On October 27, 2014, Zebra completed its acquisition of the Enterprise Business with Motorola Solutions Inc. (“MSI”) for a purchase price of $3.45 billion. Zebra is a leading provider of solutions that deliver greater intelligence and insights into our customers’ enterprises and extended value chains. The Enterprise Business will generate significant value by driving further product innovation and deeper engagement with our customers and partners. It positions Zebra as a leading technology innovator, with the accelerating convergence of mobility, data analytics and cloud computing. This transaction will enable Zebra to further sharpen its strategic focus on providing mission-critical solutions for its customers. Certain assets and liabilities historically associated with the Enterprise Business have been retained by MSI, including MSI’s iDEN infrastructure business. The Acquisition was pursuant to the Master Acquisition Agreement dated April 14, 2014, as amended (the “Master Acquisition Agreement”) and was structured as a combination of stock and asset acquisitions and a merger of certain US entities, resulting in 100% ownership of Enterprise. Zebra financed the Acquisition through a combination of cash on hand and borrowings of $3.25 billion (the “Indebtedness”), including the sale of 7 1/4% senior notes due 2022 with an aggregate principal amount of $1.05 billion (the “Notes”) and a new credit agreement with various lenders that provided a term loan of $2.2 billion (the “Term Loan”) due 2021. See Note 14 Long Term Debt footnote. Consideration paid was in the form of cash paid to MSI, plus additional adjustments including expected working capital which totaled $3.5 billion. In connection with this acquisition, Zebra incurred related transaction expenses of approximately $126.7 million which have been recorded in acquisition and integration costs in the consolidated statements of earnings for the year ended December 31, 2014. As part of the Acquisition of Enterprise, Zebra issued stock-based awards with value equivalent to the unvested portion of Enterprise employees’ awards as of the date of close. The new awards issued were in the form of both stock options and RSUs. Based on the contractual terms of MSI’s legacy equity awards, in the event that an employee’s employment is terminated as a result of a divestiture of a portion of the MSI business, unvested awards vest based on a pro rata basis up until the divestiture date, and the remaining awards are forfeited. The original MSI awards vested up to the date of Acquisition and the remainder were forfeited. The new grants of awards by Zebra require future service to be rendered to the combined company, beginning on the issuance date. As a result, the fair value of the replacement awards will be recognized as compensation cost in the post-combination financial statements and there was no adjustment to purchase price. The allocations of the purchase price for the Acquisition have been prepared on a preliminary basis based on third-party valuations and changes to these allocations may occur as additional information becomes available. We are in the process of obtaining third-party valuations related to the fair value of our tangible and intangible assets, in addition to determining and recording the tax effects of the transaction to include all assets/liabilities since those are recorded at fair value. Acquired goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired. Zebra paid this premium for a number of reasons, including acquiring an experienced workforce and enhancing technology capabilities as further described above. The following table summarizes preliminary the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition (in thousands):
Cash and cash equivalents |  | $ | 102,163 |
Accounts receivable (2) |  |  | 424,355 |
Inventories |  |  | 270,755 |
Deferred income taxes, current |  |  | 113,745 |
Other current assets |  |  | 24,742 |
Property and equipment |  |  | 126,424 |
Deferred income taxes |  |  | 0 |
Intangible assets |  |  | 1,014,421 |
Other non-current assets |  |  | 47,567 |
Deferred revenue |  |  | 173,450 |
Tax liabilities |  |  | 11,394 |
Other current liabilities (1) |  |  | 421,700 |
Long-term deferred revenue |  |  | 102,424 |
Unrecognized tax benefits |  |  | 9,526 |
Other non-current liabilities |  |  | 24,742 |
Deferred income taxes |  |  | 216,169 |
Total identifiable net assets |  | $ | 1,164,767 |
(1) | – Other current liabilities include accounts payable, customer reserves, and employee compensation and related benefits
(2) | – Based on the preliminary purchase price allocations, accounts receivable estimated fair value is $424.4 million and gross contractual value of $445.2 million. The difference represents Zebra’s best estimate of the contractual cash flows that will not be collected.
On a preliminary basis pending the receipt of final valuations, the purchase price was allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values resulting in goodwill of $2.336 billion. The intangible assets of $1.014 billion consist of the following (in millions):
|  | Amount |  |  | Weighted Average Amortization Period (in years)
Customer relationships |  | $ | 460 |  |  | 7.0 years
Unpatented technology |  |  | 280 |  |  | 3.9 years
Patented technology |  |  | 215 |  |  | 3.5 years
Trade names |  |  | 40 |  |  | 2 years
Backlog |  |  | 19 |  |  | 1 year
Acquired other intangibles |  | $ | 1,014 |  |  |
As of the acquisition date, there were $19.9 million of indemnification assets recorded to reflect MSI’s obligation to reimburse Zebra for pre-acquisition tax liabilities, statutory bonus accruals, and sales incentive plan accruals assumed. The amounts were recorded in relation to the Master Acquisition Agreement. Currently, the entire goodwill is assigned to the Enterprise segment. The final assignment of goodwill to reporting units has not been completed as of the date these financial statements are issued. The preliminary amount of tax deductible goodwill is $74.4 million. The amount of Enterprise revenue and net income (including integration costs of $10.5 million) included in Zebra’s Consolidated Statements of Earnings for 2014 was $476.0 million and $1.3 million, respectively. The following table presents certain unaudited pro forma information for illustrative purposes only, for 2014 and 2013 as if Enterprise had been acquired on January 1, 2013. The unaudited estimated pro forma information combines the historical results of Enterprise with Zebra’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2013 and does not include the impact of possible business model changes. Additionally, Zebra expects to achieve further operating cost savings and other business synergies, including revenue growth, as a result of the acquisition that are not reflected in the pro forma amounts that follow. As a result, actual results will differ from the unaudited pro forma information presented.
|  | For the year ended December 31, |
|  | 2014 |  |  | 2013 |
In thousands, except per share data: |  |  | (unaudited) |  |  |  | (unaudited) |
Total revenues |  | $ | 3,562,556 |  |  | $ | 3,498,571 |
Net loss |  |  | 43,064 |  |  |  | (77,044 | )
Basic earnings per share |  |  | 0.85 |  |  |  | (1.52 | )
Diluted earnings per share |  |  | 0.84 |  |  |  | (1.52 | )
The unaudited pro forma gives effect to actual operation results prior to the Acquisition and has been adjusted with respect to certain aspects of the Acquisition to reflect:
| • |  | the fair value adjustment to Enterprise’s inventory resulting in an increase in cost of sales in the 2013 pro forma year of $30.1 million;
| • |  | inclusion in the 2013 pro forma year of $48.1 million in transaction costs directly attributable to the Acquisition incurred by both Enterprise and Zebra through year end 2014;
| • |  | additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the Enterprise’s assets acquired, including intangibles and property and equipment; to eliminate the historical interest expense recorded in the results of Enterprise; and to reflect the estimated interest expense, amortization of original issue discount (“OID”), amortization of debt issuance cost and other recurring financing costs associated with the Indebtedness.
Concurrent with the closing of the transaction, we entered into a Transition Services Agreement (“TSA”) with MSI, whereby MSI is to provide various services; primarily information technology from the acquisition date through October 2016. Our costs under the TSA commenced in November 2014, for approximately $6 million per month. These costs are being reduced as we discontinue certain services and transition these services into our own processes. Monthly costs, under the TSA can also increase if services are extended beyond October 2015. We incurred $9.6 million under the TSA from October 28 th through December 31, 2014. Hart Systems In the fourth quarter 2013, Zebra acquired all of the outstanding membership interests in Hart Systems, LLC (a New York limited liability company) for approximately $95.7 million with $60.9 million of the purchase price allocated to goodwill. As of September 27, 2014 the purchase price allocation was finalized and the amount of goodwill was reduced to $58.6 million for adjustments related to deferred taxes. The Consolidated Statement of Earnings includes the impact of this acquisition subsequent to the December 18, 2013 acquisition date. Pro forma results have not been presented because the effect of the acquisition is not material to the company’s financial results.

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