Acquisition

9 Months Ended

Sep. 26, 2020

On September 1, 2020, the Company acquired all of the equity interests in Reflexis Systems, Inc. (“Reflexis”), a provider of task and workforce management, execution, and communication solutions for customers in the retail, food service, hospitality, and banking industries. Through its acquisition of Reflexis, the Company intends to enhance its solution offerings to customers in those industries by combining Reflexis’ platform with its existing software solutions.

The Reflexis acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s cash purchase consideration was $548 million, net of Reflexis’ cash on-hand.

In connection with its acquisition of Reflexis, and in exchange for the cancellation of unvested Reflexis stock options, the Company granted replacement share-based compensation awards to certain Reflexis employees in the form of Zebra incentive stock options. A total of 38,228 replacement incentive stock options were granted, with a weighted average acquisition-date fair value per option of $230. The total fair value of approximately $9 million is primarily attributable to service to be rendered subsequent to acquisition and will be expensed over the remaining service period. As of the acquisition date, the weighted average future service period associated with the replacement options was 1.7 years, and the weighted average remaining contractual life was 7.7 years.

The Company incurred approximately $19 million of acquisition-related costs during the third quarter of 2020, which primarily consisted of payments to settle certain existing Reflexis share-based compensation awards whose vesting was accelerated at the discretion of Reflexis contemporaneously with the acquisition. Those payments, as well as $5 million of other acquisition-related costs primarily related to third-party transaction and advisory fees, are included within Acquisition and integration costs on the Consolidated Statements of Operations.

The acquisition of Reflexis was funded, in part, by the issuance of a new term loan (the “2020 Term Loan”) in the amount of $200 million. The acquisition of Reflexis was otherwise funded using the Company’s cash on hand and borrowing under the Company’s existing Revolving Credit Facility. See additional details related to the Company’s debt arrangements in Note 10, Long-Term Debt.

The Company utilized estimated fair values as of September 1, 2020 to allocate the total purchase consideration to the identifiable assets acquired and liabilities assumed. The fair value of the net assets acquired was based on a number of estimates and assumptions, as well as customary valuation procedures and techniques, primarily income-based methodologies such as the excess earnings method for technology and patent intangible assets, as well as exit cost methodologies for liabilities such as deferred revenues. While we believe these estimates provide a reasonable basis to record the net assets acquired, the purchase price allocation is considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date. The primary fair value estimates considered preliminary include intangible assets and income tax-related items.

The preliminary purchase price allocation to assets acquired and liabilities assumed was as follows (in millions):


Identifiable intangible assets	$	204
Accounts receivable	20
Property, plant and equipment	10


Other assets acquired	17
Deferred revenue	(16)
Deferred tax liabilities	(49)
Other liabilities assumed	(14)
Net assets acquired	$	172
Goodwill on acquisition	376
Total purchase consideration	$	548

The $376 million of goodwill, which will be non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned integration of Reflexis’ solution offerings with the Company’s existing solution offerings as well as the expansion in current and new markets and industries.