ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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PART I
References in this document to “the Company,” “we,” “us,” or “our” refer to Zebra Technologies Corporation and its subsidiaries, unless the context specifically indicates otherwise.
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 the Company 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, the Company’s financial outlook for the first quarter and full year of 2018.2023. These forward-looking statements are based on current expectations, forecasts and assumptions, and are subject to the risks and uncertainties inherent in the Company’s industry, market conditions, general domestic and international economic conditions, and other factors. These factors include:
•Market acceptance of the Company’s products, services and solution offerings and competitors’ offerings and the potential effects of technologicalemerging technologies and changes in customer requirements,
•The effect of global market conditions, including the North America; Europe, Middle East, and Africa;EMEA; Latin America; and Asia-Pacific regions in which we do business,
•The impact of changes in foreign exchange rates, customs duties and trade policies due to the large percentage of our sales and operations being outside the United States (“U.S.”),
•Our ability to control manufacturing and operating costs,
•Risks related to the manufacturing of the Company’s products and conducting business operations in non-U.S. countries, including the risk of depending on key suppliers who are also in non-U.S. countries,
•The Company’s ability to purchase sufficient materials, parts, and components, our ability to provide services, software, and products 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,
•Our ability to attract, retain, develop, and motivate key personnel,
•Interest rate and financial market conditions,
•Access to cash and cash equivalents held outside the U.S.,
•The effect of natural disasters, man-made disasters, public health issues (including pandemics), and cybersecurity incidents on our business,
•The impact of changes in foreign and domestic governmental policies, laws, or regulations,
•The outcome of litigation in which the Company 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 this report for further discussion of issues that could affect the Company’s future results. We undertake 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.
Item 1.Business
The Company
We are a global leader providing Enterprise Asset Intelligence (“EAI”) solutions in the Automatic Identification and Data Capture (“AIDC”) market.industry. The AIDC market consists of mobile computing, data capture, radio frequency identification devices (“(“RFID”), barcode printing, and other workflow automation products and services. The Company’s solutions are proven to help our customers and end-users digitize and automate their workflows to achieve their mission critical strategic business objectives, including improved productivity and operational efficiency, optimized workflows, increased asset utilization,regulatory compliance, and better customer experiences.
We design, manufacture, and sell a broad range of AIDC products, including: mobile computers, barcode scanners and imagers, RFID readers, 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 related software utilities and applications. We also provide a full range of services, including maintenance, technical support, repair, managed and professional services, includingas well as cloud-based subscriptions.software subscriptions and robotics automation solutions. End-users of our products, solutions and services include those in the
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retail and e-commerce, manufacturing, transportation and logistics, manufacturing, health care, hospitality, warehousehealthcare, public sector, and distribution, energy and utilities, government, and education enterprises around the world.other industries. We provide our products, solutions and services globally through a direct sales force and extensive network of over 10,000 channel
Through innovative applicationcontinual innovation of our technologies, we are leading an evolution of the traditional AIDC market into Enterprise Asset Intelligence (“EAI”). Specifically, EAI, which encompasses solutions which “sense”that sense key operational information from enterprise assets, includingsuch as packages moving through a supply chain, equipment in a factory, workers and robots in a warehouse, and shoppers in a store. Operational datastore, and patients in a hospital. Data from enterprise assets, including status, condition, location, utilization, and preferences, is then analyzed to provide prioritized actionable insights. Finally, with the benefits of mobility,cloud computing and connectivity, these insights and directives can be delivered to the right user at the right time to drive more effective actions.the best next action. As a result, our solutions and technologies enable enterprises to “sense, analyze, and act” more effectively to improve operational effectiveness and achieve critical business objectives.throughout their workflows.
The evolution of the AIDC market toward a more strategically oriented EAI focusto transform workflows is being driven by strong underlying secular trends in technology. These trendstechnology, which include the internet of things (“IoT”), cloud-based data analytics, intelligent automation, mobility, computer vision, as well as artificial intelligence and mobility.machine learning. The IoT is enablingenables the real-time exchange of an increasingly broad set of information among a proliferation of smart, connected devices. EAI solutions, which include these smart, connected devices, capture a much broader range of information than is possible with traditional AIDC solutions and communicate this information in real-time. Cloud computing and expanded data analytics are allowing enterprises to make better business decisions through improved timeliness and increased visibility to information andinto workflows. While traditional AIDC solutions sporadically capture limited amounts of data and populate static enterprise systems, EAInewer solutions continuouslythat can leverage artificial intelligence through machine learning can analyze real-time data from many sources to generate actionable insights. Finally, theThe continued rapid growth of mobile devices and applicationsapplication software are also significantly expanding mobile computing use cases to levels of near ubiquity in the enterprise.throughout enterprises and supply chains. With thisthese expanded mobility,capabilities, end-users are able tocan consume orand act upon dynamic enterprise data and information anytime and anywhere. Additionally, computer and machine vision technology, which enables the automatic extraction and understanding of useful information from a digital image or video, provides a key element in many of our solutions.
Acquisitions
Matrox: On June 3, 2022, the Company acquired Matrox Electronic Systems Ltd. (“Matrox”) for $881 million in cash, net of Matrox’s cash on-hand. Matrox is a leading provider of advanced machine vision components and software serving multiple end-markets. Through its acquisition, the Company significantly expands machine vision products and software offerings. The broad availabilityoperating results of wirelessMatrox are included in the EVM segment.
Antuit: On October 7, 2021, the Company acquired Antuit Holdings Pte. Ltd. (“Antuit”) for $145 million in cash, net of cash acquired. Antuit is a provider of demand-sensing and internet connectivity also supportspricing optimization software solutions for retail and consumer products companies. Through this acquisition, the adoptionCompany expands its portfolio of software solution offerings to customers in these industries by combining Antuit’s platform with its existing software solutions and deploymentEVM products. The operating results of Antuit are included in the EVM segment.
Fetch: On August 9, 2021, the Company acquired Fetch Robotics, Inc. (“Fetch”) for $301 million, which consisted of $290 million in cash paid, net of cash acquired, and the fair value of the Company’s existing minority ownership interest in Fetch of $11 million, as remeasured upon acquisition. Fetch is a provider of autonomous mobile robot solutions for customers who operate in the manufacturing, distribution, and fulfillment industries, enabling customers to enable organizationsoptimize workflows through robotic automation. Through this acquisition, the Company intends to collect more data in real-time onexpand its automation solution offerings within these industries. The operating results of Fetch are included within the location, movement, and condition of their assets.EVM segment.
Reflexis: On September 1, 2020, the Company acquired Reflexis Systems, Inc. (“MSI”Reflexis”) for $3.45 billion$547 million in cash, (the “Acquisition”).
See Note 5, Business Acquisitions in the redemptionNotes to Consolidated Financial Statements for additional details.
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Operations and a lower cost of debt.
Our operations consist of two segments. In January 2018, the Company changed the names of the reportable segments that provide complementary offerings to better reflect business operations: (1)our customers: Asset Intelligence & Tracking (“AIT”), formerly Legacy Zebra, comprised ofwhich includes barcode and card printing, location solutions, supplies and services; and (2) Enterprise Visibility & Mobility (“EVM”), formerly Enterprise, comprised ofwhich includes mobile computing, data capture, RFID, fixed industrial scanning and services.machine vision, services and workflow optimization solutions including location solutions.
Asset Intelligence & Tracking
Barcode and Card Printing: We design, manufacture, and sell printers, which produce high-quality labels, wristbands, tickets, receipts, and plastic cards on demand. Our customers use our printers in a wide range of applications, including routing and tracking, patient safety, transaction processing, personal identification, and product authentication. These applications require
high levels of data accuracy, speed, and reliability. They also include specialty printing for receipts and tickets for improved customer service and productivity gains. Plastic cards
Our printers use thermal printing technology, which creates images by heating certain pixels of an electrical printhead to selectively image a ribbon or heat-sensitive substrate. Our printers integrate company-designed mechanisms, electrical systems, and firmware that supports serial, parallel, Ethernet, USB, Bluetooth, or 802.11 wireless communications with appropriate security protocols. Enclosures of metal or high-impact plastic help ensure durability of our printers. Printing instructions can be received as a proprietary language such as Zebra Programming Language II, as a print driver-provided image, or as user-defined Extensible Markup Language. These features make our printers easy to integrate into most computer systems.
We also provide dye-sublimination thermal card printers that produce high quality images and are used for secure, reliable personal identification (e.g. state identification cards, and drivers’ licenses, and healthcare IDs)identification cards), access control (e.g. employee or student building access), and financial cardstransactions (e.g. credit, debit and ATM cards) by financial institutions. Our. Additionally, we provide RFID printers/encoders are used to print andprinters that encode data into passive RFID labels.transponders embedded in a label or card. We offer a wide range of accessories and options for our printers, including carrying cases, vehicle mounts and battery chargers.
Supplies: We produce and sell stock and customized thermal labels, receipts, ribbons, plastic cards, and wristbandsRFID tags suitable for use with our printers, and alsoas well as wristbands which can be imagedfor use in most commercial laser printers. We support our printing products, resellers, and end-users with an extensive line of superior quality, high-performance supplies optimized to a particular end-user’s needs.needs, such as chemical or abrasion resistance, extreme temperature environments, exceptional image quality, or long life. We promote the use of genuine Zebra branded supplies with our printing equipment. WeOur supplies business also provide a family of self-laminating wristbands for useincludes temperature-monitoring labels primarily used in laser printers. These wristbands are marketed under the LaserBand® name. We operate supplies production facilities located in the United States and Western Europe. We supplement our in-house production capabilities with those of third-party manufacturersvaccine distribution, which incorporate chemical indicators designed to offer genuine Zebra supplies, principally in Asia.change color upon exceeding predefined time and/or temperature thresholds.
Services: We provide a full range of maintenance, technical support, and repair services. We also provide managed and professional services, including those which help customers manage theirdevices and related software applications. Our offerings include cloud-based subscriptions and multiple service levels. They are typically contracted through multi-year service agreements. We provide our services directly and through our global network of partners.
Enterprise Visibility & Mobility
Mobile Computing: We design, manufacture, and sell rugged and enterprise-grade mobile computing products and accessories in a variety of specialized form factors and designs to meet a wide array of enterprise applications. Purpose-built devices ensure reliable operations for targeted use cases, surviving years of rough handling and harsh environments. Industrial applications include inventory management in warehouses and distribution centers; field mobility applications include field service, post and parcel, and direct store delivery; and retail and customer facing applications include e-commerce, omnichannel, mobile point of sale, inventory look-up, staff collaboration, and analytics. Our mobile computing products primarily incorporate the Android™ operating system and support local-area and wide-area voice and data communications. Our products are also offered with software tools and services that enable secure data transmission while also supporting application development, device configuration, and field support to facilitate seamless, rapid deployment and maximum customer return on investment. Our products often incorporate barcode scanning, global position system and RFID features, and other sensory capabilities. Additionally, specialized features, such as advanced data capture technologies, data analytics technologies, voice and video collaboration tools, and advanced battery technologies, enable our customers to work more efficiently and better serve their own customers.
Data Capture, RFID, Fixed Industrial Scanning, and Machine Vision: We design, manufacture, and sell barcode scanners, RFID readers, industrial machine vision cameras, and fixed industrial scanners. Our portfolio of scanners includes laser scanning and imager products in a variety of form factors, including fixed, handheld, and embedded original equipment manufacturer (“OEM”) modules. Our scanners incorporate a range of technologies including area imagers, linear imagers, and lasers, as well as read linear and two-dimensional barcodes. They are used in a broad range of applications, ranging from
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supermarket checkouts to industrial warehouse optimization to patient management in hospitals. The design of these products reflects the diverse needs of these markets, with different ergonomics, multiple communication protocols, and varying levels of ruggedness. Our RFID products include fixed readers, RFID enabled mobile computers, and RFID sleds that utilize passive ultra-high frequency to provide high-speed, non-line of sight data capture from hundreds or thousands of RFID tags in near real-time. Using the Electronic Product Code (“EPC”) standard, end-users across multiple industries use our RFID technology to track high-value assets, monitor shipments, and drive increased retail sales through improved inventory accuracy. We also offer mobile computers that support high frequency near-field communications and low frequency radio technologies. In 2021 we introduced fixed industrial scanning and machine vision solutions, and in 2022, we significantly expanded our machine vision solutions through the acquisition of Matrox Imaging. Our fixed industrial scanning products automatically track and trace items that move from production through distribution. Our industrial machine vision platform-independent software, software development kits, smart cameras, vision controllers, frame grabbers, input/output cards, and 3D sensors capture, inspect, assess, and record data from industrial vision systems in factory automation, semiconductor inspection, pharmaceutical packaging, food & beverage, among other use cases. We also provide related software and accessories for these products.
Services: We provide a full range of maintenance, technical support, and repair services. We also provide managed and professional services that, among other things, help customers design, test, and deploy our solutions as well as manage their mobility devices, software applications and workflows. Our offerings include cloud-based subscriptions with multiple service levels, which are typically contracted through multi-year service agreements. We provide our services directly and through our global network of partners.
Workflow optimization solutions: We provide a portfolio of solutions that help our customers improve the agility and productivity of key operational workflows by analyzing and acting on data in real time. Our primary focus is on frontline workers in Zebra’s core customer segments, including retail, transportation and logistics, warehouse and distribution, and healthcare. Our workflow optimization solutions include:
•Software-based solutions, which include workforce management, workflow execution and task management, demand-sensing, price optimization, prescriptive analytics, as well as communication and collaboration-based solutions. These solutions are typically delivered through cloud-based software subscriptions and leverage big data, artificial intelligence, and mobile and web applications to provide customers with real-time visibility and actionable insights about their business. By analyzing labor, inventory, transactional and real-time situational data, these solutions are able to forecast demand, prescribe actions, schedule workers, and enhance collaboration. Our software-based solutions are available with multiple service levels, and are often contracted through multi-year service agreements;
•Retail solutions, which include a range of physical inventory management solutions, including solutions for full store physical inventories, cycle counts, and analytics; and
•Robotic automation solutions, which include software-powered autonomous robots that enable customers to orchestrate workflows alongside frontline workers, improving productivity and operational efficiency. Our robotic automation solutions are available in a variety of form factors to accommodate many use cases.
•Location Solutions: The Company offersSolutions, which include a range of RTLS and services whichthat generate precise, on-demand information about the physical location and status of high-valued assets, equipment, and people. These solutions incorporate active and passive RFID technologies, beacons, and other tracking technologies to enable users to locate, track, manage, and optimize the utilization of enterprise assets and personnel. We provide substantially all elements of the location solution, including tags, sensors, exciters, middleware software, and application software. Our location solutions are deployed primarily in manufacturing, aerospace, transportation and logistics, sports, and healthcare industries. Various sports teams utilize our MotionWorks® sports solution to track the location and movement of personnel and objects in real-time during sporting events, as well as in training and practice activities.
Our Competitive Strengths
The following are core competitive strengths that we believe enable us to differentiate ourselves from our competitors:
An industry leader focused solely on improving enterprise operationsworkflows
We are a market leader infocused on the key technologiestechnology solutions of Enterprise Asset Intelligence,EAI that drive improved enterprise workflows, including mobile computing, barcode and card printing, data capture, RFID, fixed industrial scanning, machine vision, and RFID readers. We also provideworkflow optimization solutions, along with related software, services, and accessories. Our leadership position enables us to work with and support customers globally, in a variety of industries, who are focused on implementing leading-edge solutions.
High barriers to entry and switching barriers
On a global basis, we have long-standing relationships with end customersend-users and with our extensive network of channel partners. We believe these customer relationships and our strong partner network are critical to our success and would be difficult for a new market entrant to replicate. We believe a significant portion of our products and solutions are deployed with specialized product performance and software application requirements, which could result in high switching costs.
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Commitment to innovation and deep industry-specific expertise
Highly diversified business mix
We are highly diversified across business segments, end markets, geographies, customers, and suppliers.customers. Additionally, we have strong recurring business in services, supplies, and suppliessoftware driven by an extensive global installed base of products.purpose-built products and solutions.
Global reach and brand
We sell to customers directly and through our network of channel partners around the world. This global presence gives us the capability to supply our customers with products, solutions, and services no matter the location of their operations. In addition, we believe we have strong brand recognition with a reputation in the industry as a trusted and strategic partner.partner, known for delivering high quality products that are reliable and durable.
Scale advantages
We believe the size and scope of our operations, including market leadership, product and solution development investment, portfolio breadth, and global distribution, give us advantages over our competitors. We believe we have the largest installed base of products compared withto other companies in our industry. These characteristics enable us to compete successfully, achieve economies of scale, and develop industry-leading solutions.
Our Business Strategies
Leverage our market leadership position and innovation to profitably grow our core business
We expect to drive revenue growth by continuing to outpace our competition in our core businesses, including mobile computing, data capture, barcode printing, and services. We expect to achieve this by leveraging our broad portfolio of solutions and product innovation and continuing to be a strategic partner to end customers. We also expect to drive growth by capitalizing on technology transitions occurring in the industry, including the transition to the Android™ operating system in mobile computing and transitions in data capture to newer technologies involving 2D and 3D imaging and RFID. This includes increased focus on market segments and geographies that offer share-gain opportunities. In addition, we plan to leverage our market-leading installed base to accelerate growth in attach-oriented products,offerings, including services, supplies, accessories, and accessories.software applications. Our global channel partner network is vital to helping us achieve these goals. As such, we will ensure that we provide the necessary value and support for our partners to be successful.
Our EAI vision is for every asset and front-line worker to be connected, visible, and fully optimized. We believe that secular technology trends, particularly in enterprise mobility,IoT, cloud computing, intelligent automation, and IoTmobility, advance our vision and are transforming our customers’ businesses and our industry, and provideproviding us with significant new opportunities to create value for our customers and for the Company. We expect to capitalize on these trends, and in particular the proliferation of smart connected sensors and devices in our core market segments, by providing end-to-end solutions that integrate these sensors and devices with cloud-based workflows and analytics applications. TheseWe plan to continue investing in the development of technologies that will enable intelligent automation solutions, will enableproviding increased visibility into the enterprise, real-time, actionable information, and improved customer experiences. Our solutions will also increasingly include commonadvanced features, functions, and user experiences to drive additional competitive differentiation.differentiation and elevate our role as a solutions provider.
Increase our opportunity for growth through expansion in adjacent market segments
We plan to drive growth through expansion, organically and inorganically, in adjacent market segments that share similar technology needsare synergistic with our core markets. We will focus specifically on segments where our products and solutions, workflow expertise, and customer and industry relationships will enable us to provide significant value to end users.end-users.
Sustainable business model
Zebra’s foundational ESG priorities of human capital management, resource conservation, and climate align with our strategic focus and corporate values. Initiatives within these priorities are advanced by our cross-functional Sustainability Council, with executive sponsorship and board oversight. Our primary capital allocation priorityapproach helps to ensure that our business is achievementsustainable over the long term for the benefit of our target debt leverage ratio.primary stakeholder groups, including employees, customers, partners, and investors. We are driving a high-
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performance, inclusive and diverse culture, striving to consistently be the employer of choice in the communities where we work and live. We also focus on waste reduction, circular economy product innovation with certified refurbished devices, eco-packaging and sustainable product design. Additionally, we have science-based targets on carbon emission reductions in Zebra’s operations and throughout our value chain.
Competition
We operate in a highly competitive environment. The need for companies to improve productivity and implement their strategies, as well as the secular trends around IoT, cloud computing, intelligent automation, and mobility, are some of the factors that are creating growth opportunities for established and new competitors.
Key competitive factors include the design, breadth and quality of products, solutions and services, price, productas well as pricing, design, performance, durability, product and servicegeographic availability, warranty coverage, brand recognition, company relationships with customers and channel partners, company reputation, and company reputation.brand recognition. We believe we compete effectively with respect to these factors.
Mobile Computing: Competitors in mobile computing and related services include companies that have historically served enterprises with ruggedized devices. For some applications, we compete with companies that provide tablets and smart phones. Competitors include: Datalogic, Honeywell, and Panasonic.
Data Capture, RFID, Fixed Industrial Scanning, and RFIDMachine Vision: Competitors that provide a broad portfolio of barcode scanning products and related services that are suitable for the majority ofmost global market applications include Datalogic and Honeywell. In addition, weWe also compete against smaller companies that focus on limited product subsets or specific regions, including Fujian Newland and Impinj. Competitors in our fixed industrial scanning and machine vision business include Cognex, SICK, and Keyence.
Barcode and Card Printing: We consider our direct competition in printing to be producers of on-demand thermal transfer and direct thermal label fixed and mobile printing systems and RFID printer/encoders, and mobile printers.printers/encoders. We also compete with companies engaged in the design, manufacture, and marketing of printing systems that use technologies such as ink-jet, direct marking and laser printing, as well as card printers based on ink-jet, thermal transfer, embossing, film-based systems, encoders, laser engraving, and large-scale dye sublimation printers. In addition, service bureaus, which provide centralized services, compete for end-user business and provide an alternative to our card printing solutions. Competitors include: Fargo Electronics (a unit of HID Global), Honeywell, Sato, Toshiba TEC, TSC, Brother, and Toshiba TEC.Dymo.
Supplies: The supplies industry is highly fragmented with competition comprised of numerous companies of various sizes around the world.
Workflow optimization solutions: We compete with a diverse and varied group of companies across our solution offerings worldwide. Competitors range from providers of software-based solutions serving customers in the retail industry to providers of autonomous mobile robot solutions serving customers in the manufacturing, distribution, and fulfillment industries.
Customers
End-users of our products, solutions and services are diversified across a wide variety of industries, including retail and e-commerce, transportation and logistics, manufacturing, and healthcare industries. We have had three customers, who are distributors of the Company’s products and solutions, that eachindividually accounted for more than 10% or more of our Net sales overduring the past three years. All three of these customers are distributors and not end-usersNo other customer accounted for more than 10% of our products. No end-user has accounted for 10% or more of ourNet sales during these years. See Note 15, 20, Segment Information and& Geographic Data in the Notes to the Consolidated Financial Statements included in this Form 10-K for further information.
Our Net sales to significant customers as a percentage of the Company’s total Net sales were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Customer A | 20.7 | % | 22.3 | % | 20.7 | % | |||||||||||
| Customer B | 15.0 | % | 13.6 | % | 13.9 | % | |||||||||||
| Customer C | 12.8 | % | 12.6 | % | 17.7 | % | |||||||||||
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| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Customer A | 21.3 | % | 20.1 | % | 19.4 | % | ||
| Customer B | 14.2 | % | 13.2 | % | 12.7 | % | ||
| Customer C | 13.2 | % | 12.4 | % | 11.6 | % | ||
Sales and Marketing
Sales: We sell our products solutions, and services primarily through distributors (two-tier distribution), value added resellers (“VAR”VARs”), independent software vendors (“ISVs”), direct marketers, and OEMs.OEMs, and our software solutions primarily through our direct sales force. We also sell our products and services directly to a select number of customers through our direct sales force. Distributors purchase our products and sell to VARs, ISVs and others, thereby increasing the distribution of our products globally. VARs, ISVs, OEMs, and systems integrators provide customersend users with a variety of hardware, accessories, software applications, and services. VARs and ISVs typically customize solutions for specific end-user applications using their industry, systems, and applications expertise. Some OEMs resell the Zebra-manufactured products and solutions under their own brands as part of their own product offering.offerings. Because these sales channels provide specific software, configuration, installation, integration, and support services to end-users within various industry segments, these relationships are highly valued by end-users and allow our products to reach customersend users in a wide array of industries around the world. We believe that the breadth of our distributor and channel partner network is a competitive differentiator and enhances our ability to compete. Finally, we experience some seasonality in sales, depending upon the geographic region and industry served.
Marketing: Our marketing function aligns closely with sales and product management functions to market our products and to deliver and promote solutions that address the needs of our customers and partners. Our marketing organization includes global corporate marketing, strategic marketing, regional marketing, product marketing, global demand center, and channel marketing functions.teams that interface closely with customers, partners, and sellers. Our corporate marketing function manages our brand, public relations,organization also includes teams that support global strategies and other communications, activities. Strategicincluding portfolio marketing, includes vertical marketing, ISV strategy and business intelligence. Regional marketing encompasses field and channel marketing, demand generation, and sales enablement. Product marketing manages our product launches and lifecycle go-to-market strategy. Our global demand center leads content development and digital marketing, including our websitemarketing operations and social media. The global channel team developscommunications, and executes channel strategy and operations.strategic marketing functions.
Manufacturing and Outsourcing
Final assembly of our hardware products is performed by third-parties, including electronics manufacturing services companies (“EMS”EMSs”) and joint design manufacturers (“JDMs”). Our products are currently produced primarily in facilities primarily located in the Asia-Pacific region, including China, Taiwan, Vietnam, and Malaysia, as well as Mexico and Brazil. TheseThe EMSs and JDMs or manufacturers produce our products to our design specifications. We maintain control over portions of the supply chain, including supplier selection and price negotiations for key components. The manufacturers generally purchase all the components and subassemblies used in the production of our products. Our products are shipped to regional distribution centers, operated by 3rdthird party logistics providers (“3PL’s”) or the Company. A portion of products are reconfigured at the distribution centers through firmware downloads, packaging, and customer specific customization before they are shipped to customers. In addition, certain products are manufactured in accordance with procurement regulations and various international trade agreements and remain eligible for sale to the United StatesU.S. government.
Production facilities for our supplies products are located in the United StatesU.S. and Western Europe. We also supplement our in-house supplies production capabilities with those of third-party manufacturers, to offerprincipally located in Asia-Pacific.
Repair services for our supplies, principallyproducts are performed by either our own operations or through third-parties, with repair service hubs located in Asia.each of the regions in which we serve our customers.
Research and Development
The Company devotes significant resources to developing innovative solutions for our target markets and ensuring that our products, solutions, and services maintain high levels of reliability and provide value to end-users. Research and development expenditures for the years ended 2017, 2016,2022, 2021, and 20152020 were $389$570 million, $376$567 million, and $394$453 million, respectively, or 10.5%9.9%, 10.1% and 10.2% of netNet sales, for 2017respectively. Worldwide, we have employed approximately 3,100 engineers and 2016innovation and 10.8% of net sales in 2015. We have more than 1,500 engineers worldwidedesign experts, who along with contractors, are focused on strengthening and broadening our extensive portfolio of products and solutions.
Intellectual Property
We rely on a combination of trade secrets, patents, trademarks, copyrights, and contractual rights to establish and protect our innovations, and hold a large portfolio of intellectual property rights in the United StatesU.S. and other countries. As of December 31, 2017,2022, the Company owned approximately 1,6002,200 trademark registrations and trademark applications, and approximately 4,3006,500 patents and patent applications, worldwide. We continue to actively seek to obtain patents and trademarks, whenever possible and practical, to secure intellectual property rights in our innovations.
We believe that our intellectual property will continue to provide us with a competitive advantage in our core product areas as well as provide leverage for future technologies. We also believe that we are not dependent upon any single patent or select group of patents. Our success depends more upon our extensive know-how, deep understanding of end-user processes and workflows,work-flows, innovative culture, technical leadership and marketing and sales abilities. Although we do not rely only on patents or other intellectual property rights to protect or establish our market position, we will enforce our intellectual property rights when and where appropriate.
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Human Capital
The Company is committed to attracting, developing, and retaining talent to enable our strategic vision.This commitment directly shapes our approach to fostering a culture of inclusion and diversity and ensuring employees can reach their potential.
We believe that our strong Company culture is a key enabler of our success. The values of accountability, integrity, teamwork, agility, and innovation are central to our culture and how we operate and work together. We take proactive steps to ensure that this culture continues to permeate throughout our organization. Employee engagement within the Company is consistently high with the most recent measures scoring above relevant benchmarks for technology companies. We consider our relations with our employees to be very good. In addition, we believe our compensation structure aligns with our stockholders’ long-term interests by balancing profitability and growth, and reflects the Company’s commitment to pay for performance.
In response to employee survey feedback, this year the Company implemented well-being solutions including a speaker series on resilience, a manager toolkit, and a “Be You, Be Real, Be Well” campaign. In addition, the Company implemented zDay, a paid, company-wide day off for all eligible Zebra employees, and Focus Fridays to encourage meeting-free time on Friday afternoons.
As recognition of the Company’s strong culture and commitment to its employees, the Company ranked #42 on Newsweek’s list of America’s 100 Most Loved Workplaces, #42 on Fast Company’s list of the Best Workplaces for Innovators, #79 on Forbes’ list of America’s 500 Best Midsize Employers and was Great Place to Work-Certified™ in 2022.
As of December 31, 2017,2022, the Company employedhad approximately 7,000 persons.10,500employees globally, with a majority in sales and technical roles. Our employees work in 56countries with a majority of our employees located outside of the U.S. Some portions of our business, primarily in Europe, China, and China,India, are subject to labor laws that differ significantly from those in the United States.U.S. In Europe, for example, it is common for a works council to represent employees when discussing matters such as compensation, benefits, restructurings and layoffs.
Talent Development
We considerare a Company built on a community of changemakers, innovators, and doers who come together to deliver a performance edge to the front line of business. We believe that empowered team members enable us to advance our relationsstrategic priorities. As a result, we provide ample employee development opportunities, starting with our robust onboarding process. Our Zebra Education Network online learning platform offers a wide variety of learning and development resources such as formal learning courses, cross-functional development experiences, as well as tools for mentoring and career shadowing. We also offer annual training and certification programs. Additionally, on an annual basis, we conduct a comprehensive talent review to assess our leadership pipeline and align on the skills we need to proactively develop employees for the future. This annual exercise is complemented by quarterly sessions with management to be very good.ensure we make progress on our critical talent development efforts throughout the year.
Inclusion and Diversity
We are committed to leveraging a diverse workforce where employees can bring their best selves to work, to being an inclusive workplace where all employees are seen, heard, valued, and respected, and to being a recognized leader in the marketplace that values the diversity of its’ employees, customers, partners and suppliers. We have continued to expand our Inclusion & Diversity program, formalized in 2018, through the launch of our Inclusion & Diversity Advisory Council in 2020, the launch of our Inclusion Champions program in 2021, and the formalization of an internal I&D goals framework in 2022. This expansion has been enabled through our continued focus on a culture of inclusion (leveraged through our inclusion networks), embedding I&D as a component of a career at Zebra (including expanding the hiring, retention & career development of diverse talent with the support of our external outreach partnerships) and setting the foundations for wider outreach in the community (building multiple pathways for access to employment at Zebra), as well as deepening relationships with our customers through a shared vision to advance I&D.
•Culture: Our inclusion networks are employee-driven, executive sponsored communities which foster a more inclusive workplace by bringing together employees from across the business to empower, support and learn from each other. The inclusion networks promote collaboration and host productive dialogue to help all Zebras understand the unique needs of our diverse employee populations. Currently at Zebra, we have eight inclusion networks: Women’s Inclusion Network (WIN), Zebra Equality Alliance (ZEAL), Zebra Veteran’s Inclusion Network (VETZ), Zebras of African Descent (ZAD), Zebra Hispanic/Latinx Inclusion Network (UNIDOZ), Zebras of All Abilities (ZoAA) and Zebra’s Early Career Inclusion Network (EDGE). In 2022, we launched The Green Herd employee network to support grassroots sustainability efforts, inspire a conservation mindset at each Zebra site, and support and develop focus areas for active employee engagement across the globe.
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•Career: We have established talent acquisition partnerships with organizations such as Society of Women Engineers (SWE), National Society of Black Engineers (NSBE), Disability:IN, Hispanic Alliance for Career Enhancement (HACE), Hiring our Heroes (HOH), Out in STEM (oSTEM), as well as Hispanic Serving Institutions to enhance our recruitment efforts and deepen our partnerships with diverse talent. In addition to external outreach, we provide a variety of training including unconscious bias awareness for all employees, interviewing bias awareness training for hiring managers, and a mandatory Inclusive Leadership workshop for all people leaders. There are additional diversity and inclusion learning tools and resources available for all Zebras, including discussion forums and on-demand learning geared specifically on allyship focusing on the development of our diverse talent. Additionally, we have launched employee development programs with external coaching, partnered with CEO Action’s Executive Level Mentoring Initiative.
•Community: We focus on how the Company deepens the impact that we have on the local communities we serve through aligned philanthropic activity, as well as increasing access for learning and employment opportunities within our communities.
•Customers: The Company values the opportunity to engage on the journey of advancing a culture of Inclusion & Diversity in collaboration with our customers and partners together, recognizing that we may share many similar opportunities and challenges. Our inclusion networks have started collaborating with employee resource groups at external customers and partners to share best practices and innovate on initiatives to foster inclusive cultures, as well as hosting joint events to raise overall awareness and education.
Regulatory Matters
Wireless Regulatory Matters
Our business is subject to certain wireless regulatory matters.
The use of wireless voice, data, and video communications systems requires radio spectrum, which is regulated by government agencies throughout the world. In the U.S., the Federal Communications Commission (“FCC”) and the National Telecommunications and Information Administration (“NTIA”) regulate spectrum use by non-federal entities and federal entities, respectively. Similarly, countries around the world have one or more regulatory bodies that define and implement the rules for use of the radio spectrum, pursuant to their respective national laws and international coordination under the International Telecommunications Union. We manufacture and market products in spectrum bands already made available by regulatory bodies-bodies, these include voice and data infrastructure, mobile radios, and portable or hand-held devices. Consequently, our results of operations could be positively or negatively affected by the rules and regulations adopted from time-to-time by the FCC, NTIA, or regulatory agencies in other countries. Our products operate both on the licensed and unlicensed spectrum. The availability of additional radio spectrum may provide new business opportunities, and consequently, the loss of available radio spectrum may result in the loss of business opportunities. Regulatory changes in current spectrum bands may also provide opportunities or may require modifications to some products so they can continue to be manufactured and marketed.
Other Regulatory Matters
Some of our operations use substances regulated under various federal, state, local, and international laws governing the environment and worker health and safety, including those governing the discharge of pollutants into the ground, air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Certain products are subject to various federal, state, local, and international laws governing chemical substances in electronic products. During 2017,2022, compliance with U.S. federal, state and local, and foreign laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment did not have a material effect on our business or results of operations.
Available Information
Our website address is www.zebra.com. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the Securities and Exchange Commission (“SEC”). Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, are made available free of charge on the Investor Relations page of our website as soon as reasonably practicable after we electronically file them with or furnish them to the SEC.
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Item 1A.Risk Factors
Investors should carefully consider the risks, uncertainties, and other factors described below, as well as other disclosures in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, because they could have a material adverse effect on our business, financial condition, operating results, cash flows, and growth prospects. These risks are not the only risks we face. Our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial.
General Business and Industry Risks related to our business; and (2) Risks related to our Indebtedness.
The Company is vulnerable to the potential difficulties associated with the increase in the complexity of our business. We have grown rapidly over the last several years both organically and through the Acquisition and worldwide growth.acquisitions. This growth has caused increased complexities in the business. We believe our future success depends in part on our ability to manage our growth and increased complexities of our business. The following factors could present difficulties to us:
•Managing our distribution channel partners;partners and end-user customers;
•Managing our contract manufacturing and supply chain;
•Manufacturing an increased number of products;
•Managing parties to whom we have outsourced portions of our business operations;
•Managing administrative and operational burden;burdens;
•Managing stakeholder interests including customer, investor and employee social responsibility matters;
•Maintaining and improving information technology infrastructure to support growth;
•Managing logistical problems common to complex, expansive operations;
Inability to consummate future acquisitions at appropriate prices could negatively impact our growth rate and stock price. Our ability to expand revenues, earnings, and cash flow depends in part upon our ability to identify and successfully acquire and integrate businesses at appropriate prices and to realize anticipated synergies. Acquisitions can be difficult to identify and consummate due to competition among prospective buyers and the need to satisfy applicable closing conditions and obtain antitrust and other regulatory approval on acceptable terms. Macroeconomic factors, such as rising inflation and interest rates, capital market volatility, etc., could negatively influence our future acquisition opportunities.
The Company could encounter difficulties in any acquisition it undertakes, including unanticipated integration problems and business disruption. Acquisitions could also dilute stockholder value and adversely affect operating results. We may acquire or make investments in other businesses, technologies, services, products, or products.solutions. An acquisition may present business issues which are new to us. The process of integrating any acquired business, technology, service, product, or productsolution into our operations may result in unforeseen operating difficulties and expenditures. Integration of an acquired company also may consume considerable management time and attention, which could otherwise be available for ongoing operations and the further development of our existing business. These and other factors may result in benefits of an acquisition not being fully realized.
Acquisitions also may involve a number of risks, including:including, but not limited to:
•Difficulties and uncertainties in retaining the customers, distributors, vendors, or other business relationships from the acquired entities;
•The loss of key employees of acquired entities;
•Disruptions in our business due to difficulties integrating and reorganizing operations, products, technologies and personnel;
•The ability of acquired entities to fulfill their customers’ obligations;
•The inheritance of known, and the discovery of unanticipatedunknown, issues or liabilities;
•Pre-closing and post-closing acquisition-related earnings charges could adversely impact operating results and cash flows in any given period, and the impact may be substantially different from period to period;
•The failure of acquired entities to meet or exceed expected returnsoperating results or cash flows could result in impairment of goodwill or intangible assets acquired;
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•The acquired entities’ ability to implement internal controls and accounting systems necessary to be compliant with requirements applicable to public companies subject to SEC reporting, which could result in misstated financial reports; and
•Future acquisitions could result in changes such as potentially dilutive issuances of equity securities orand the incurrence of debt and contingent liabilities.
The Company may not be able to continue to develop products or solutions to address user needs effectively in an industry characterized by ongoing change. To be successful, we must adapt to rapidly changing technological and application needs by continually improving our products and solutions, as well as introducing new products, solutions, and services, to address user demands.
The Company’s industry is characterized by:
•Evolving industry standards;
•Frequent new product, solution, and service introductions;
•Evolving distribution channels;
•Increasing demand for customized product and software solutions;
•Changing customer demands; and
•Changing security protocols.
Future success will depend on our ability to effectively and economically adapt in this evolving environment. We could incur substantial costs if we must modify our business to adapt to these changes, and may even be unable to adapt to these changes.
The Company participates in a competitive industry, which may become more competitive. Competitors may be able to respond more quickly to new or emerging technology and changes in customer requirements. The markets that we serve are rapidly evolving and highly competitive. Some of our products, solutions and services are in direct competition with similar or alternative products, solutions and services provided by our competitors. In addition, we often compete with local competitors that may have a substantial advantage in attracting customers in their countries due to more established branding in that country, greater knowledge with respect to the tastes and preferences of customers residing in that country or their focus on a single market. Because of the potential for consolidation in any market, such competitors may become larger, and increased size could permit them to operate in wider geographic areas. To remain competitive, we believe we must continue to effectively and economically:
•Identify and evolve with customer needs, emerging technologies, and industry trends;
•Monitor disruptive technologies and business models;
•Innovate, develop and timely commercialize new technologies, solutions, and services;
•Competitively price our products, solutions and services;
•Offer superior customer service;
•Provide products and solutions of high quality and reliability;
•Provide dependable and efficient distribution networks; and
•Attract, retain and develop employees with technical expertise and an understanding of our industry and customer needs.
We cannot assure that we will be able to compete successfully against current or future competitors or technologies. Current or future competitors are likely to continue to develop and introduce new and enhanced products, solutions and services that could cause a decline in market acceptance of our products, solutions or services, or result in the loss of major customers. Increased competition in our industry may result in price reductions, lower gross profit margins, and loss of market share, and could require increased spending on research and development, sales and marketing, and customer support. In addition, we may not be able to effectively anticipate and react to new entrants in the marketplace competing with our products, solutions or services.
Further, as we expand into markets beyond our core products, we may face well established competitors, placing us at a disadvantage in a new competitive landscape. Some competitors may make strategic acquisitions or establish cooperative relationships with suppliers or companies that produce complementary products and solutions, which may create additional pressures on our competitive position in the marketplace. An inability to compete successfully could have an adverse effect on our business and results of operations.
Operational Risks
The Company has substantial operations and sells a significant portion of our products, solutions and services outside of the U.S. and purchases important components, including final products, from suppliers located outside the U.S., many of whom with operations concentrated in China. Shipments to non-U.S. customers are expected to continue to account for a material portion of Net sales. We also expect to continue the use of third-party contract manufacturing services with non-U.S. production and assembly operations for our products.
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Risks associated with operations, sales, and purchases outside the United States include:
•Fluctuating foreign currency rates could restrict sales, increase costs of purchasing, and affect collection of receivables outside of the U.S.;
•Volatility in foreign credit markets may affect the financial well-being of our customers and suppliers;
•Violations of anti-corruption laws, including the Foreign Corrupt Practices Act and the U.K. Bribery Act, could result in large fines and penalties;
•Adverse changes in, or uncertainty of, local business laws or practices, including the following:
•Imposition of burdensome tariffs, quotas, taxes, trade barriers, or capital flow restrictions;
•Restrictions on the export or import of technology may reduce or eliminate the ability to sell in, or purchase from, certain markets;
•Political and economic instability may reduce demand for our products or put our assets at risk;
•Limited intellectual property protection in certain countries may limit recourse against infringement on our products or may cause us to refrain from selling in certain geographic territories;
•Staffing may be difficult including higher than anticipated turnover;
•A government-controlled exchange rate and limitations on the convertibility of currencies, including the Chinese Yuan;
•Transportation delays and customs related delays may affect production and distribution of our products;
•Geopolitical uncertainty or turmoil could negatively affect our operations or those of our customers or suppliers;
•Difficulty in effectively managing and overseeing operations that are distant and remote from corporate headquarters; and
•Integration and enforcement of laws varies significantly among jurisdictions and may change over time.
The war between Russia and Ukraine and the global response to this war could have an adverse impact on our business and results of operations. On March 5, 2022, we suspended our business operations in Russia. While this suspension has not had, and is not expected to have, a material impact on our operating results, it is not possible to predict the broader or long-term consequences of the war between Russia and Ukraine, which may include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, cybersecurity conditions, currency exchange rates, financial markets and energy markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell and ship products, collect payments from and support customers in certain regions, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.
Third parties may allege that the Company or our suppliers on the proprietary rights of others could put us at a competitive disadvantage, and any related litigation could be time consuming and costly. Thirdinfringe upon their intellectual property rights. Periodically, third parties may claim that we or our suppliers violatedinfringe upon their intellectual property rights. To the extent of a violation of a third-party’s patent or other intellectual property right,As we may be prevented from operatingcontinue to expand our business as planned, and incorporate new technologies into our products and solutions, these types of claims may be required to pay damages, to obtain a license, if available, or to use a non-infringing method, if possible, to accomplish our objectives.increase. Any of these claims, with or without merit, could result in costly litigation and divert the attention of key personnel. If such claims are successful, they could result inTo the extent a violation of a third party’s patent or other intellectual property right is established, we may be prevented from operating our business as planned and we may be required to pay costly judgments or settlements. Also, as new technologies emerge the intellectual property rightssettlements, enter into costly licensing arrangements or use a non-infringing method to accomplish our business objectives, any of parties in such technologies can be uncertain. Aswhich could have a result,negative impact on our products involving such technologies may have higher risk of claims of infringement of the intellectual proprietary rights of third parties.operating margins. SeeItem 3, Legal Proceedings for additional information regarding current patent litigation.
The inability to protect intellectual property could harm our reputation, and our competitive position may be materially damaged. Our intellectual property is valuable and provides us with certain competitive advantages. We use copyrights, patents, trademarks, trade secrets, and contracts to protect these proprietary rights. Despite these precautions, third parties may be able to copy or reproduce aspects of our intellectual property and our products or, without authorization, to misappropriate and use information which we regard as trade secrets. Additionally, the intellectual property rights we obtain may not be sufficient to provide us with a competitive advantage and may be successfully challenged, invalidated, circumvented, or infringed. In any infringement litigation that the Company may undertake to protect our intellectual property, any award of monetary damages may be unlikely or very difficult to obtain, and any such award we may receive may not be commercially valuable. Furthermore, efforts to enforce or protect our proprietary rights may be ineffective and could result in the invalidation or narrowing of the scope of our intellectual property and incurringmay cause us to incur substantial litigation costs. Because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of the Company’s confidential information could be compromised by disclosure during this type of litigation. Some aspects of our business and services also rely on technologies, software, and content developed by or licensed from third parties, and we may not be able to maintain our relationships with such third parties or enter into similar relationships in the future on reasonable terms or at all.
We currently use third partythird-party and/or open source operating systems and associated application ecosystems in certain of our products.products and solutions. Such parties ceasing continued development of the operating systemsystems or restricting our access to such operating systemsystems could adversely impact our business and financial results. We are dependent on third-parties’ continued development of operating systems, software application ecosystem infrastructures, and such third-parties’ approval of our implementations of their operating systemsystems and associated applications. If such parties cease to continue development or support of such operating systems or restrict our access to such operating systems, we would be required to change our strategy
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for such devices. As a result, ourOur financial results could be negatively impacted becauseby a resulting shift away from the operating systems we currently use and the associated applications ecosystem could be costly and difficult. A strategy shift could increase the burden of development on the Company and potentially create a gap in our portfolio for a period of time, which could competitively disadvantage us. Some aspects of our business and services also rely on technologies, software, and content developed by or licensed from third parties, and we may not be able to maintain our relationships with such third parties or enter into similar relationships in the future on reasonable terms or at all.
Cybersecurity incidents could disrupt business operations. We rely on information technology systems throughout the Company to keep financial records, process orders, manage inventory, coordinate shipments to distributors and customers, maintain confidential and proprietary information, and other technical activities, and operate other critical functions such as internet connectivity, network communications, and email. The Company stores confidential and proprietary information through cloud-based services that are hosted by third parties where we have less influence over security protocols. In addition, our customers may use certain of our products and solutions to transmit and/or process personal data and other sensitive information. Like many companies, we continually strive to meet industry information security standards relevant to our business. We periodically perform vulnerability assessments, remediate vulnerabilities, review log/access, perform system maintenance, manage network perimeter protection, implement and manage disaster recovery testing, and provide periodic educational sessions to our employees to foster awareness of schemes to access sensitive information. Despite our implementation of a variety of security controls and measures, as well as those of our third-party vendors, there is no assurance that such actions will be sufficient to prevent a cybersecurity incident. Further, as cybercrime and threats continue to rapidly evolve and become increasingly more difficult to detect and defend against, our current security controls and measures may not be effective in preventing cybersecurity incidents and we may not have the capabilities to detect certain vulnerabilities. A cybersecurity incident could include an attempt to gain unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. “Phishing”Phishing and other types of attempts to obtain unauthorized information or access are often sophisticated and difficult to detect or defeat.
Cybersecurity incidents can take a variety of forms including, unintentional events as well as deliberate attacks by individuals, groups and sophisticated organizations, such as state sponsored organizations or nation-state actors. Further, certain of our third party vendors have limited access to our employee and customer data and may use this data in unauthorized ways. Any such cybersecurity incident including deliberate attacks and unintentional events,or misuse of our employees’ or customers’ data may lead to a material disruption of our core business systems, the loss or corruption of confidential business information, and/or the disclosure of personal data that in each case could result in an adverse business impact as well as possible damage to our brand. This could also lead to a public disclosure or theft of private intellectual property and a possible loss of customer confidence.
While we have experienced and expect to continue to experience these types of threats and incidents, there have been no material incidents incurred to-date at the Company. If our core business operations, or that of one of our third-party service providers, were to be breached, this could affect the confidentiality, integrity, and availability of our systems and data. Any failure on the part of us or our third-party service providers to maintain the security of data we are required to protect, including via the penetration of our network security and the misappropriation of confidential and proprietary information, could result in: business disruption; damage to our reputation; financial obligations to third parties; fines, penalties, regulatory proceedings; private litigation with potentially large costs; deterioration in our suppliers’, distributors’, and customers’ confidence in us; as well as other competitive disadvantages. Such failures to maintain the security of data could have a material adverse effect on our business, financial condition, and results of operations. While we continue to perform security due diligence, there is always the possibility of a significant breach affecting the confidentiality, integrity, and availability ofbreach.
Any threats or security breaches to our systems and/or data.
may negatively impact our customers. Our products and solutions that are deployed in customer environments also have the possibility of being breached, which could result in damage todisclosure of a customer’s confidentiality, integrity, andconfidential information, or disrupt the availability of the customer’s data and systems. Further, our customers may fail to adopt adequate security controls and measures, or may fail to timely update their products and solutions to install or enable security patches, which may result in a security breach. The market perception of the effectiveness of our products and our reputation could also be harmed as a result of any actual or perceived security breach that occurs in our network or in the network of a customer of our products, regardless of whether the breach is attributable to our products, the systems of other vendors or to actions of malicious parties. It is possible that such a breach, or a perceived breach, could result in delays in, or loss of market acceptance of, our products, andsolutions or services; diversion of our resources; injury to our reputation; theft or misuse of our intellectual property or other assets; increased service and warranty expenses; and payment of damages. To date, we have had no material incidents related to the security on our products.
We may incur liabilities as a result of product failures due to actual or apparent design or manufacturing defects.defects. We may behave been subject to product liability claims, which could includeand may continue to be subject to such claims, including claims for property or economic damagedamages or personal injury, in the eventwhere damages arose, and may continue to arise, from our products presentas a result of actual or apparent design or manufacturing defects. SuchIn addition, such design or manufacturing defects may occur not only in our own
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designed products, but also in components provided by third partythird-party suppliers. We generally have insurance protection against property damage and personal injury liabilities and also seek to limit such risk through insurance protection as well as product design, manufacturing quality control processes, product testing and contractual indemnification from suppliers. However,Although there have been no material claims to-date at the Company, due to the large and growing size of the Company’s installed product base aand growing number of applications in which our products can be used, an actual or alleged design or manufacturing defect involving this large installed product base could result in product recalls, orinjury to our reputation, and customer service costs or legal costs that could have material adverse effects on our financial results.
Defects or errors in the Company’s software products could harm our reputation, result in significant cost to us, and impair our ability to market such products. Our software may contain undetected errors, defects, or bugs. Although we have not suffered significant harm from any errors, defects, or bugs to date, we may discover significant errors, defects, or bugs in the future that we may not be able to correct or correct in a timely manner. It is possible thatAny future errors, defects, or bugs will be found in our existing or future software products and related services with the possible results ofmay result in delays in, or loss of market acceptance of, our products, and services,solutions or services; diversion of our resources,resources; injury to our reputation,reputation; increased service and warranty expenses,expenses; and payment of damages.damages; which could have a material adverse effect on our financial results.
Our business success depends on the ongoing services of our senior management and the ability to attract, retain, develop and retainmotivate key personnel. Our business and results of operations could be adversely affected by increased competition for highly skilled employees, higher employee turnover, or increased compensation and benefit costs. The future success of the Company is substantially dependent on the continued services and continuing contributions of key personnel, including senior management and other key personnel.highly skilled employees. The experience, industry knowledge, and skill sets of our employees materially benefit our operations and performance, and the ability to attract, retain, develop, and motivate highly skilled employees is important to our long-term success. CompetitionSkilled employees in our industry are in high demand and competition for their experience and skill sets in certain functions within our industry is intense,intense. The incentives and benefits we have available to attract, retain, and motivate employees may become less effective as employees seek new or different opportunities based on factors such as compensation, benefits, mobility, and flexibility that are different from what we offer. Although we strive to be an employer of choice, we may not be unableable to continue to successfully attract, retain, develop, or motivate key employees or attract, assimilate, or retain other highly qualified employeespersonnel in the future. Any disruption in the services of senior management or our ability to attract and retain key personnel may have a material adverse effect on our business and results of operations.
The effects of the COVID-19 pandemic have and may continue to adversely affect our business, financial results, and results of operations. The coronavirus (“COVID-19”) pandemic has been, and continues to be, complex and rapidly evolving, and has impacted our business, with prior impacts primarily related to supply chain disruption (including higher fulfillment costs and component shortages) and labor constraints. The duration and extent of the impact of the COVID-19 pandemic on our business, operations and financial results depends on factors that occurred incannot be accurately predicted at this time, such as the United States on September 11, 2001 caused major instability inseverity and transmission rate of COVID-19, the U.S.emergence of new variants of the virus, the length of the pandemic, and the impact of these and other financial markets. Since then,factors on our stakeholders.
The U.S. federal, state, and local governments as well as non-U.S. governments, to varying degrees, have imposed, and may again impose, several protocols and regulations restricting activities of individuals in an effort to limit the spread of COVID-19. Over the course of the pandemic we have implemented a number of measures in an effort to protect the health and well-being of our employees, customers and suppliers, including having the majority of office workers work remotely during the height of the pandemic and gradually returning to offices as restrictions are lifted, limiting employee travel where appropriate, and implementing more strenuous health and safety measures for hosting and attending in-person industry events. We continue to allow our employees to come back to work in our offices in a controlled approach, with modified business practices and increased health and safety protocols, consistent with government regulations and guidelines. However, there is no guarantee that such protocols will be successful in preventing the spread of COVID-19 amongst our employees, and even as employees return to our offices, we may be prevented from conducting business activities at full capacity for an indefinite period of time. The extent and duration of future workplace restrictions and limitations, particularly in sites with significant actsheadcount, could adversely impact our operations and our ability to execute on strategic imperatives for our business. The potential negative
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effects to our operations, including reductions in production levels, research and development activities, and increased efforts to mitigate the impact of COVID-19, may adversely affect our ability to deliver our products, solutions and services.
Further, the conditions caused by COVID-19 have occurred,affected, and war continuesmay continue to affect, the overall demand environment for our products, solutions and services. The level of demand for certain product components has resulted in, and may continue to result in, lengthened lead times and higher input costs, including freight. This has impacted, and may continue to impact, our ability to meet customer demand as well as profitability. An inability to meet customer demand may also adversely affect our customers’ ability or willingness to purchase our products, solutions or services. Additionally, our financial results may be adversely impacted by challenges in the Middle East, allmacroeconomic environment, including market inflation, as a result of whichglobal supply chain shortages.
If COVID-19 or its variants become more prevalent in the locations where our customers, suppliers, or we conduct business, we may contributeexperience more pronounced disruptions in our operations. If we are not able to instabilityrespond to and manage the impact of such events effectively, our business and results of operations in future periods may be adversely affected. Moreover, the impacts of the COVID-19 pandemic may exacerbate other pre-existing risks, such as global economic conditions, political, regulatory, social, financial, markets. Additional actsoperational and cybersecurity as well as similar risks relating to our suppliers and customers, any of terrorism and current and future war riskswhich could have a similar impact. Anymaterial adverse effect on our business.
We are exposed to risks under large, multi-year system and solutions and services contracts that may negatively impact our business. We enter into large, multi-year system and solutions and services contracts with our customers that expose us to risks, including among others: (i) technological risks, especially when contracts involve new technology; (ii) financial risks, including the accuracy of estimates inherent in projecting costs associated with large, long-term contracts and the related impact on operating results; and (iii) cybersecurity risks, especially in solutions or managed services contracts with customers that process personal data. Recovery of front-loaded costs incurred on long-term managed services and software-based solutions contracts with customers is dependent on the continued viability of such attackscustomers. The insolvency of customers could amongresult in a loss of anticipated future revenue attributable to that program or product, which could have an adverse impact on our profitability.
We enter into fixed-price contracts that could subject us to losses in the event we fail to properly estimate our costs. If our initial cost estimates are incorrect, we can lose money on these contracts. Because many of these contracts involve new technologies and applications and require the Company to engage subcontractors and can last multiple years, unforeseen events, such as technological difficulties, fluctuations in the price of raw materials, problems with our subcontractors or suppliers, and other things, causecost overruns, can result in the contract pricing becoming less favorable or even unprofitable to us and have an adverse impact on our financial results. In addition, a significant increase in inflation rates could have an adverse impact on the profitability of longer-term contracts.
We utilize the services of subcontractors to perform under many of our contracts, and the inability of our subcontractors to perform in a timely and compliant manner could negatively impact our performance obligations as the prime contractor. We engage subcontractors on many of our contracts and our use of subcontractors has and may continue to increase as we expand our global solutions and services business. Our subcontractors may further instabilitysubcontract performance and may supply third-party products and software. We may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by a subcontractor and the functionality, warranty and indemnities of products, software, and services supplied by a subcontractor. We are not always successful in financial marketspassing along customer requirements to our subcontractors, and thus in some cases may be required to absorb contractual risks from our customers without corresponding back-to-back coverage from our subcontractors. Our subcontractors may not be able to acquire or maintain the quality of the materials, components, subsystems, and services they supply, or secure preferred warranty and indemnity coverage from their suppliers, which might result in greater product returns, service problems, warranty claims and costs, and regulatory compliance issues and could harm our business, financial condition, and results of operations.
We have outsourced portions of certain business operations such as repair, distribution, engineering services, and information technology services and may outsource additional business operations, which limits our control over these business operations and exposes us to additional risk as a result of the actions of our outsource partners. We are not able to directly control certain business operations that we outsource. Our outsource partners may not prioritize our business over that of their other customers and they may not meet our desired level of service, cost reductions, or indirectly through reduced demand,other metrics. In some cases, our outsource partners’ actions may result in our being found to be in violation of laws or regulations, such as import or export regulations. As many of our outsource partners operate outside of the U.S., our outsourcing activity exposes us to information security vulnerabilities and increases our global risks. In addition, we are exposed to the financial viability of our outsource partners. Once a business activity is outsourced, we may be contractually prohibited from, or may not practically be able to, bring such activity back within the Company or move it to another outsource partner. The actions of our outsource partners could result in reputational damage to us and could negatively impact our financial results. Further, we have from time-to-time, and in certain instances will continue to, transition our outsourced operations to new service providers and/or to different geographies. Such transition activities between new or existing outsource partners or across different geographies, as well as insourcing activities, could
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result in additional cost, time and management attention in order to effectively manage the transition, which could negatively impact our financial results.
Failure of our suppliers, subcontractors, distributors, resellers, and representatives to use acceptable legal or ethical business practices could negatively impact our business. It is our policy to require suppliers, subcontractors, distributors, resellers, and third-party sales representatives (“TPSRs”) to operate in compliance with applicable laws, rules, and regulations, including those regarding working conditions, employment practices, environmental compliance, anti-corruption, and trademark and copyright licensing. However, we do not control their labor and other business practices. If one of our suppliers, subcontractors, distributors, resellers, or TPSRs violates labor or other laws or implements labor or other business practices that are regarded as unethical, the shipment of finished products to us could be interrupted, orders could be canceled, relationships could be terminated, and our reputation could be damaged. If one of our suppliers or subcontractors fails to procure necessary license rights to trademarks, copyrights, or patents, legal action could be taken against us that could impact the salability of the Company’s products and solutions, and expose us to financial obligations to a third-party. Any of these events could have a negative impact on our sales and results of operations.
We rely on third-party dealers, distributors, and resellers to sell many of our products, services and solutions, and their failure to effectively bring our products, services and solutions to market may negatively affect our facilitiesresults of operation and operationsfinancial results. In addition to our own sales force, we offer our products, services and solutions through a variety of third-party dealers, distributors, and resellers who may also market other products, services and solutions that compete with ours. Failure of one or thosemore of our customersthird-party dealers, distributors, or suppliers.resellers to effectively promote our offerings could affect our ability to bring products, services and solutions to market and have a negative impact on our results of operations. Any changes to our channel program may cause some of our third-party dealers, distributors, or resellers to exit the program due to modifications to the program structure, which may reduce our ability to bring products and solutions to market and could have a negative impact on our results of operations.
Some of these third-parties are smaller and more likely to be impacted by a significant decrease in available credit that could result from a weakness in the financial markets. If credit pressures or other financial difficulties result in insolvency for third-party dealers, distributors, or resellers and we are unable to successfully transition end-customers to purchase our products and solutions from other third-parties or from us directly, it may cause, and in some cases, has caused, a negative impact on our financial results.
Final assembly of certain of our products is performed by third-party electronics manufacturers. We may be dependent on these third-party electronics manufacturers as a sole-source of supply for the manufacture of such products. A failure by such manufacturers to provide manufacturing services to us as we require, or any disruption in such manufacturing services up to and including a catastrophic shut-down, may adversely affect our business results. Because we rely on these third-party electronics manufacturers to manufacture our products, we may incur increased business continuity risks. We are not able to exercise direct control over the assembly or related operations of certain of our products. If these third-party manufacturers experience business difficulties or fail to meet our manufacturing needs, then we may be unable to satisfy customer product demands, lose sales, and be unable to maintain customer relationships. Longer production lead times may result in shortages of certain products and inadequate inventories during periods of unanticipated higher demand. Without such third parties continuing to manufacture our products, we may have no other means of final assembly of certain of our products until we are able to secure the manufacturing capability at another facility or develop an alternative manufacturing facility. This transition could be costly and time consuming. We have taken actions to diversify, and may take additional actions to diversify in the future, our product sourcing footprint. Such actions have, and may again, result in additional costs.
Our future operating results depend on our ability to purchase a sufficient amount of materials, parts, and components, as well as services and software to meet the demands of customers. We source some of our components from sole source suppliers. Any disruption to our suppliers or significant increase in the price of supplies, inclusive of transportation costs, could have a negative impact on our results of operations. Our ability to meet customers’ demands depends, in part, on our ability to obtain in a timely manner an adequate delivery of quality materials, parts, and components, as well as services and software from our suppliers, and our ability to deliver products, services and software to our customers. In addition, certain supplies are available only from a single source or limited sources and we may not be able to diversify sources in a timely manner. If demand for our products, solutions or services increases from our current expectations or if suppliers are unable or unwilling to meet our demand for other reasons, including as a result of natural disasters, public health issues, severe weather conditions, or financial issues, we could experience an interruption in supplies or a significant increase in the price of supplies that could have a negative impact on our business. We have experienced shortages in the past that have negatively impacted our results of operations and may experience such shortages in the future. At times we have and may continue to execute multi-year purchase commitments with suppliers that contain minimum spend thresholds, which we are obligated to fulfill even if customer demand declines, and may require that we purchase inventory that exceeds our forecasted demand. In addition, volatility in customer demand, product availability, and costs to transport products, may result in increased operating input costs. Also, credit constraints at our suppliers could cause us to accelerate payment of accounts payable by us, impacting our cash flow.
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In addition, our current contracts with certain suppliers may be canceled or not extended by such suppliers and, therefore, not afford us with sufficient protection against a reduction or interruption in supplies. Moreover, in the event any of these suppliers breach their contracts with us, our legal remedies associated with such a breach may be insufficient to compensate us for any damages it may suffer.
Financial and Market Risks
The impact of potential changes in customs duties and trade policies in the United States and the potential corresponding actions by other countries in which the Company does business could adversely affect our financial performance. The U.S. government has made proposals that are intended to address trade imbalances, which include encouraging increased production in the United States. These proposals could result in increased customs duties and the renegotiation of some U.S. trade agreements. The Company currently imports a significant percentage of our products into the United States,U.S., and an increase in customs duties with respect to these imports could negatively impact the Company’s financial performance. If such customs duties are implemented, it also may cause the U.S.’ trading partners to take actions with respect to U.S. imports or U.S. investment activities in their respective countries. Any potential changes in trade policies in the United States and the potential corresponding actions by other countries in whichAlthough the Company does business could adversely affecthas taken actions todiversify its product sourcing footprint, these efforts may not be sufficient to mitigate negative impacts on the Company’s financial performance. Given the level of uncertainty over which provisions will be enacted, the Company cannot predict with certainty the impact of the proposals.performance resulting from an increase in customs duties.
Taxing authority challenges may lead to tax payments exceeding current reserves. We are subject to, and may become subject to, ongoing tax examinations in various jurisdictions. As a result, we may record incremental tax expense based on expected outcomes of such matters. In addition, we may adjust previously reported tax reserves based on expected results of these examinations. Such adjustments could result in an increase or decrease to the Company’s effective tax rate and cash flows. Future changes in tax law in various jurisdictions around the world and income tax holidays could have a material impact on our effective tax rate, foreign rate differential, future income tax expense, and cash flows.
Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual tax rates. Forecasts of our income tax position and effective tax rate are complex, subject to uncertainty and periodic updates because our income tax position for each year combines the effects of a mix of profits earned and losses incurred by us in various tax jurisdictions with a broad range of income tax rates, as well as changes in the valuation of deferred tax assets and liabilities, the impact of various accounting rules and changes to these rules, and tax laws, the results of examinations by various tax authorities, and the impact of any acquisition, business combination, disposition or other reorganization, or financing transaction.
As a multinational corporation, we conduct our business in many countries and are subject to taxation in many jurisdictions. The taxation of our business is subject to the application of multiple, and sometimes conflicting, tax laws and regulations, as well as multinational tax conventions. Many countries have recently adopted, or are adoptingconsidering the adoption of, revisions to their respective tax laws based on the on-going reports issued by the Organization for Economic Co-operation and Development (“OECD”)/G20 Base Erosion and Profit Shifting (“BEPS”) Project, which if enacted, could materially impact our tax liability due to our organizational structure and significant operations outside of the U.S. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses resulting from our structure and operating model, the tax regulations and tax holidays in each geographic region, and the availability of tax credits and carry-forwards. The application of tax laws and regulations is subject to legal and factual interpretation, judgment, and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against us that could materially impact our tax liability and/or our effective income tax rate.
Economic conditions and financial market disruptions may adversely affect our business and results of operations. Adverse economic conditions or reduced information technology spending may adverselynegatively impact our business. General disruption of financial markets and a related general economic downturn could adversely affect our business and financial condition through a reduction in demand for our products, solutions or services by our customers. If a slowdown were severe enough, it could require further impairment testing and write-downs of goodwill and other intangible assets. Cost reduction actions may be necessary and might lead to restructuring charges. A tightening of financial credit could adversely affect our customers, suppliers, outsourced manufacturers, and channel partners (e.g., distributors and resellers) from obtaining adequate credit for the financing of significant purchases. An economic downturn could also result in a decrease in or cancellation of orders for our products, solutions and services; negatively impacting the ability to collect accounts receivable on a timely basis; result in additional reserves for uncollectible accounts receivable; and require additional reserves for inventory obsolescence. Higher volatility and fluctuations in foreign exchange rates for the U.S. dollarDollar against currencies such as the euro, theEuro, British pound, the Chinese yuan,Pound Sterling and the Brazilian realCzech Koruna could negatively impact product sales, margins, and cash flows.
It is important that we are able to obtain many different types of insurance, and if we are not able to obtain insurance or exhaust our coverage, we may be forced to retain the risk.We have many types of insurance coverage and are also self-insured for some risks and obligations. WhileOur third-party insurance coverage varies from time to time in both type and amount depending on availability, cost and our decisions with respect to risk retention. Economic conditions and uncertainties in global markets may adversely affect the cost and availabilityother terms upon which we are able to obtain third-party insurance. In addition, our third-party insurance policies are subject to deductibles, policy limits, and exclusions that result in our retention of mosta level of risk on a self-insurance basis.Further, certain types of coverages may be difficult or expensive to obtain. We self-insure against certain
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business risks and expenses where we believe we can adequately self-insure against the anticipated exposure and risk or where insurance is stable, there are still certain types and levels of insurance that remain difficult to obtain, such as professional liability insurance, whicheither not deemed cost-effective or is expensive to obtain for the amount of coverage often requested by certain customers. As we grow our global solutions and services business, we are being asked to obtain higher amounts of professional liability insurance, which could result in higher costs to do business. Natural disasters and certain risks arising from securities claims, professional liability, and public liability are potential self-insured events that could negatively impact our financial results. In addition, while we maintain insurance for certain risks,not available. If the amount of our third-party insurance coverage mayis not beavailable or adequate to cover all claims or liabilities, andor to the extent we have elected to self-insure, we may be forced to bear substantial costs from an accident, incident, or claim.
could adversely affect our futurefinancial condition and results of operations and financial condition. We may discover areas ofoperations.
Our indebtedness could adversely affect our internal controls that need improvement. We cannot be certain that any remedial measures we take will ensure appropriate implementation and maintenance of adequate internal controls over the financial reporting processes and reporting in the future. We may incur significant additional costs in order to ensure we adequately remediate any weaknesses identified in our internal control environment, which, in turn, would reduce our earnings. Implementing any remedial measures may be complicated by the limited timeframe in which to implement such measures, and the possibility that implementation of such measures may require a substantial amount of work and time by our personnel.
•We may experience difficulty in satisfying our obligations with respect to our existing indebtedness or future indebtedness;
•Our ability to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes may be impaired;
•We may be at a competitive disadvantage with reduced flexibility in planning for, or responding to, changing conditions in the industry, including increased competition; and
•We may be more vulnerable to economic downturns and adverse developments in the business.
We expect to fund our expenses and to pay the principal and interest on our indebtedness from cash flow from operations. Our ability to meet our expenses and to pay principal and interest on our indebtedness when due depends on our future performance and ability to collect cash from our customers, which will be affected by financial, business, economic, and other factors. We will not be able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors.
If our business does not generate sufficient cash flows from operations or if future borrowings are not available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments, or seek to raise additional capital, any of which could have a material adverse effect on our operations. In addition, we may not be able to affect
effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital and debt markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict business operations. The terms of anticipated or future debt instruments may limit or prevent us from taking any of these actions. In addition, any failure to make scheduled payments of interest and/or principal on outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability to access additional capital on commercially reasonable terms or at all. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations, as well as on our ability to satisfy the obligations in respect of our indebtedness.
Our use of derivative financial instruments to reduce interest rate risk may result in added volatility in our operating results. We do not hold or issue derivative financial instruments for trading purposes. However, we do utilize derivative financial instruments to reduce interest rate risk associated with our indebtedness. To manage variable interest rate risk, we entered into forward interest rate swap agreements, which will effectively convert a portion of our indebtedness into a fixed rate loan. Under generally accepted accounting principles, changes in the fair values of the swap contracts are reflected in our Consolidated Statements of Operations as a component of “Interest expense, net” if not hedged. The associated impact on our quarterly operating results is directly related to changes in prevailing interest rates. If interest rates increase, we would have a non-cash gain on the swaps, and vice versa in the event of a decrease in interest rates. Consequently, these swaps may introduce additional volatility to our operating results.
Legal and Regulatory Risks
We could be adversely impacted by changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters. Generally accepted accounting principles and related accounting pronouncements, implementation guidelines, and interpretations with regard to a wide range of matters that are relevant to our businesses, including, but not limited to, revenue recognition, business acquisition purchase price allocations, impairment of goodwill and other intangible assets, inventories, tax matters, and litigation and other contingent liabilities are highly complex and involve many subjective assumptions, estimates, and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported or expected financial performance or financial condition. New accounting guidance may also require systems and other changes that could increase our operating costs and/or change our financial statements.
Laws and regulations relating to the handling of personal data may result in increased costs, legal claims, or fines against the Company. As part of our operations, the Company collects, uses, stores, and transfers personal data of third parties, employees and limited customer data in and across various jurisdictions. Laws and regulations relating to the handling of such personal
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data may result in increased costs, legal claims, or fines against the Company. Existing laws and emerging regulations may be inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government officials, regulators and privacy advocates are increasingly scrutinizing how companies collect, process, use, store, share and transmit personal data, which may result in new interpretations of existing laws that impact our business. Compliance with these laws may require us to, among other things, make changes in services, business practices, or internal systems that may result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms.Further, there is no assurance that we will be able to meet additional requirements that may be imposed on the transfer of personal data without incurring expenses. We may experience reluctance or refusal by customers to purchase or continue to use our services due to concerns regarding their data protection obligations. Our actual or perceived failure to comply with applicable laws and regulations or other obligations to which we may be subject, or to protect personal data from unauthorized access, use, or other processing, may subject the Company to enforcement actions and regulatory investigations, claims, legal proceedings or other actions, reputational harm and loss of goodwill, any of which could have a material adverse effect on our operations, financial performance, and business.
The unfavorable outcome of any pending or future litigation, arbitration, or administrative action could have a material adverse effect on our financial condition or results of operations. From time to time we are a party to litigation, arbitration, or administrative actions. Our financial results and reputation could be negatively impacted by unfavorable outcomes to any pending or future litigation or administrative actions, including those related to the Foreign Corrupt Practices Act, the U.K. Bribery Act, or other anti-corruption laws. There can be no assurances as to the favorable outcome of any litigation or administrative proceedings. In addition, it can be very costly to defend litigation or administrative proceedings and these costs could negatively impact our financial results.
We are subject to a wide range of product regulatory and safety, consumer, worker safety, and environmental laws. Our operations and the products we manufacture and/or sell are subject to a wide range of product regulatory and safety, consumer, worker safety, and environmental laws and regulations. Compliance with such existing or future laws and regulations could subject us to future costs or liabilities, impact our production capabilities, constrict our ability to sell, expand or acquire facilities, restrict what products, solutions and services we can offer, and generally impact our financial performance. Some of these laws are environmental and relate to the use, disposal, remediation, emission and discharge of, and exposure to hazardous substances. These laws often impose liability and can require parties to fund remedial studies or actions regardless of fault. We continue to incur disposal costs and have ongoing remediation obligations. Environmental laws have tended to become more stringent over time and any new obligations under these laws could have a negative impact on our operations or financial performance.
Laws focused on the energy efficiency of electronic products and accessories; recycling of both electronic products and packaging; reducing or eliminating certain hazardous substances in electronic products; and the transportation of batteries continue to expand significantly. Laws pertaining to accessibility features of electronic products, standardization of connectors and power supplies, the transportation of lithium-ion batteries, and other aspects are also proliferating. There are also demanding and rapidly changing laws around the globe related to issues such as product safety, radio interference, radio frequency radiation exposure, medical related functionality, and consumer and social mandates pertaining to use of wireless or electronic equipment. These laws, and changes to these laws, could have a substantial impact on whether we can offer certain products, solutions, and services, and on what capabilities and characteristics our products, solutions or services can or must include.
These laws impact our products and negatively affect our ability to manufacture and sell products competitively. We expect these trends to continue. In addition, we anticipate that we will see increased demand to meet voluntary criteria related to reduction or elimination of certain constituents from products, increasing energy efficiency, and providing additional accessibility.
Increased public awareness and worldwide focus on environmental and climate change issues has led to legislative and regulatory efforts to limit greenhouse gas emissions, and may result in more international, federal or regional requirements or industry standards to reduce or mitigate global warming. ESG requirements and other increased regulation of climate change concerns could subject us to additional costs and restrictions and require us to make certain changes to our manufacturing practices and/or product designs, which could negatively impact our business, results of operations, financial condition and competitive position.
From time to time, we create and publish voluntary disclosures regarding ESG matters. Identification, assessment, and disclosure of such matters is complex. Many of the statements in such voluntary disclosures are based on our expectations and assumptions, which may require substantial discretion and forecasts about costs and future circumstances. However, if our ESG practices or business portfolio do not meet evolving investor or other stakeholder expectations and standards, then our reputation, our ability to attract or retain employees and our attractiveness as an investment, supplier, business partner, or acquiror could be negatively impacted. In addition, we note that certain ESG matters are becoming less “voluntary” as regulators, including the SEC, begin proposing and adopting regulations regarding ESG matters, including, but not limited to climate change-related matters. To the extent we are subject to increased regulatory requirements, we could become subject to
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increased compliance-related costs and risks, including potential enforcement and litigation. Such ESG matters may also impact our suppliers and customers, which may compound or cause new impacts on our business, financial condition or results of operations.
None.
Item 2.Properties
Our corporate headquarters are located in Lincolnshire, Illinois; a northern suburb of Chicago. We also operate manufacturing, productionrepair, distribution and warehousing, administrative, research, and sales facilities in other U.S. and international locations.
As of December 31, 2017,2022, the Company owned three laboratory and warehouse facilities located in Holtsville, NY, Preston, UK,the U.S., U.K., and Mississauga, Ontario, Canada. The
As of December 31, 2022, the Company leases sevenhad a total of 117 leased facilities for the purposes of manufacturing, production, and warehousing; fivewith locations spread globally; 41 of which are located in the U.S. and two76 of which are located in other countries.
We generally consider the productive capacity of the plantsour facilities to be adequate and sufficient for our requirements. The extent of utilization of each manufacturing facility varies throughout the year.
Item 3.Legal Proceedings
Beginning in September 2021, Honeywell filed patent infringement lawsuits against Zebra in multiple jurisdictions, including the International Trade Commission and Federal District Court in the Western District of Texas in the United States, as well as foreign courts in the United Kingdom, Germany, Netherlands, and China. Honeywell made substantially similar allegations of patent infringement in all cases filed. The technology addressed in the various actions generally includes aspects of data capture, barcode reading, and scanning. The allegedly infringing Zebra products identified in the actions were described as barcode scanners, mobile computers with barcode scanning capabilities, scan engines, and components thereof. The remedies sought in these lawsuits included damages and injunctive relief. The same Zebra products and technology were implicated in all of the lawsuits. Zebra vigorously defended against these infringement allegations. In February 2022, Zebra filed patent infringement lawsuits against Honeywell in multiple jurisdictions, including the International Trade Commission and Federal District Court in the Eastern District of New York in the United States, as well as foreign courts in the United Kingdom, Germany and China. Zebra’s allegations against Honeywell in each case varied based on the underlying technology in the Zebra patent that is alleged to have been infringed by Honeywell. The technology addressed in the various actions includes scan engine functionality generally, distance scanning, power management and security. The Honeywell products that are accused of infringing Zebra’s patents in the various actions include scan engines and components thereof, barcode scanners, mobile computers, RFID printers and other wireless devices. The remedies sought in these lawsuits included damages and injunctive relief. In June 2022, the parties resolved their disputes and entered into a License and Settlement Agreement (“Settlement”). All pending matters between the parties were dismissed. The following are the relevant terms disclosed in Zebra’s Form 8-K filed on June 30, 2022: Under the Settlement, the Company and Honeywell each deny liability and agreed to a mutual general release from all past claims; entered into a covenant not to sue for patent infringement; agreed to a payment by the Company to Honeywell for past damages of $360 million which was charged in the Company’s second quarter 2022 results and will be paid in equal quarterly installments over eight quarters; and entered into a royalty-free cross-license with respect to each party’s existing patent portfolio for the lives of the licensed patents.
See Note 10, 14, Accrued Liabilities, Commitments and Contingenciesin the Notes to Consolidated Financial Statements included in this Form 10-K.for discussion of certain other matters.
Item 4.Mine Safety Disclosures
Not applicable.
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PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Information: Price Range and Common StockInformation
Our Class A common stockCommon Stock is traded on the NASDAQ Stock Market, LLC under the symbol “ZBRA”. The following table shows the high and low trade prices for each fiscal quarter in 2017 and 2016, as reported by the NASDAQ Stock Market, LLC.
| 2017 | High | Low | 2016 | High | Low | |||||||||||||
| First Quarter | $ | 93.61 | $ | 81.02 | First Quarter | $ | 70.30 | $ | 52.14 | |||||||||
| Second Quarter | 109.30 | 86.82 | Second Quarter | 68.49 | 48.51 | |||||||||||||
| Third Quarter | 109.89 | 94.78 | Third Quarter | 71.61 | 46.13 | |||||||||||||
| Fourth Quarter | 117.44 | 101.49 | Fourth Quarter | 88.00 | 62.91 | |||||||||||||
Dividend Policy
Since our initial public offering in 1991, we have not declared any cash dividends or distributions on our capital stock. We currently do not anticipate paying any cash dividends in the foreseeable future.
Treasury Shares
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (1) | ||||||||||||||||||||||
| October 2, 2022 - October 29, 2022 | 187,024 | $ | 267.33 | 187,024 | $ | 992 | ||||||||||||||||||||
| October 30, 2022 - November 26, 2022 | 12 | 282.67 | 12 | 992 | ||||||||||||||||||||||
| November 27, 2022 - December 31, 2022 | 187,629 | 250.50 | 187,629 | 945 | ||||||||||||||||||||||
| Total | 374,665 | $ | 258.90 | 374,665 | $ | 945 | ||||||||||||||||||||
(1)On May 17, 2022, the Company announced that its Board of Directors authorized a share repurchase program for up to $1 billion of its outstanding shares of Zebra Class Acommon stock. This authorization augments the previous $1 billion share repurchase authorization which was announced on July 30, 2019. Repurchases may be effected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. As of December 31, 2022, the Company has cumulatively repurchased 3,323,283 shares of common stock during 2017 as partfor approximately $1.1 billion, resulting in a remaining amount of the purchase plan program.
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Stock Performance Graph
| Value at each year-end of $100 initial investment made on December 31, 2017 | ||||||||||||||||||||||||||||||||||||||
| 12/17 | 12/18 | 12/19 | 12/20 | 12/21 | 12/22 | |||||||||||||||||||||||||||||||||
| Zebra Technologies Corporation | $ | 100.00 | $ | 153.40 | $ | 246.09 | $ | 370.26 | $ | 573.41 | $ | 247.02 | ||||||||||||||||||||||||||
| S&P 500 | $ | 100.00 | $ | 95.62 | $ | 125.72 | $ | 148.85 | $ | 191.58 | $ | 156.89 | ||||||||||||||||||||||||||
| S&P 500 Information Technology | $ | 100.00 | $ | 99.71 | $ | 149.86 | $ | 215.63 | $ | 290.08 | $ | 208.30 | ||||||||||||||||||||||||||
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| Year Ended December 31, | ||||||||||||||||||||
Consolidated Statements of Operations(1) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Total Net sales | $ | 3,722 | $ | 3,574 | $ | 3,650 | $ | 1,671 | $ | 1,038 | ||||||||||
| Gross profit | 1,710 | 1,642 | 1,644 | 778 | 503 | |||||||||||||||
| Net income (loss) | $ | 17 | $ | (137 | ) | $ | (158 | ) | $ | 32 | $ | 134 | ||||||||
| Basic earnings (loss) per share | $ | 0.33 | $ | (2.65 | ) | $ | (3.10 | ) | $ | 0.64 | $ | 2.65 | ||||||||
| Diluted earnings (loss) per share | $ | 0.32 | $ | (2.65 | ) | $ | (3.10 | ) | $ | 0.63 | $ | 2.63 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||
| Basic | 53,021,761 | 51,579,112 | 50,996,297 | 50,789,173 | 50,692,942 | |||||||||||||||
| Diluted | 53,688,832 | 51,579,112 | 50,996,297 | 51,379,698 | 51,063,189 | |||||||||||||||
Item 6.[Reserved]
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| December 31, | ||||||||||||||||||||
Consolidated Balance Sheets(1) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Cash and cash equivalents, investments and marketable securities | $ | 62 | $ | 156 | $ | 192 | $ | 418 | $ | 416 | ||||||||||
| Total Assets | 4,275 | 4,632 | 5,040 | 5,539 | 1,120 | |||||||||||||||
| Long-term liabilities | 2,441 | 2,891 | 3,252 | 3,346 | 15 | |||||||||||||||
| Total Stockholders’ Equity | 834 | 792 | 893 | 1,040 | 959 | |||||||||||||||
This section generally discusses fiscal 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 are not included herein. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for that discussion.
Overview
The Company is a global leader respected for innovative EAIproviding Enterprise Asset Intelligence (“EAI”) solutions in the automatic informationAutomatic Identification and Data Capture (“AIDC”) industry. The AIDC market consists of mobile computing, data capture, solutions industry. We design, manufacture, and sell a broad range of products that capture and move data, including: mobile computers;radio frequency identification devices (“RFID”), barcode scanners and imagers; RFID readers; specialty printers for barcode labeling and personal identification; RTLS; related accessories and supplies, such as self-adhesive labelsprinting, and other consumables; and software utilities and applications. We also provide a full range of services, including maintenance, technical support, and repair, managed and professional services, including cloud-based subscriptions. End-users of ourworkflow automation products and services include those in the retail and e-commerce, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, government and education enterprises around the world. Benefits of our solutions include improved efficiency and workflow management, increased productivity and asset utilization, real-time, actionable enterprise information, and better customer experiences. We provide our products and services globally through a direct sales force and an extensive network of partners. We provide products and services in over 180 countries, with 114 facilities and approximately 7,000 employees worldwide.
services. The Company’s operations consist of two reportable segments:segments that provide complementary offerings to our customers: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”). In January 2018, the Company changed the namesRefer to Part I, Item 1 of the reportable segments to better reflect business operations: (1) Asset Intelligence & Tracking (“AIT”), formerly Legacy Zebra, comprised of barcode and card printing, location solutions, supplies, and services; and (2) Enterprise Visibility & Mobility (“EVM”), formerly Enterprise, comprised of mobile computing, data capture, RFID, and services.this document for additional information.
•The AIT segment is an industry leader in barcode printing and asset tracking technologies. Its major product lines include barcode and card printers, supplies, servicesincluding temperature-monitoring labels and location solutions. Industries served include retail and e-commerce, transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America; Europe, Middle East, and Africa; Asia-Pacific; and Latin America.services.
•The EVM segment is an industry leader in automatic information and data capture solutions. Its major product lines include mobile computing, data capture, RFID, fixed industrial scanning and machine vision, services, workflow optimization solutions and location solutions. Our workflow optimization solutions include cloud-based software subscriptions, retail solutions, and robotic automation solutions.
During the past year, we have maintained our position as a market leader in our core businesses, which are generally considered to be comprised of our mobile computing and data capture products, printing products and supplies, as well as support and repair services. Industries served include retailCustomers across the industries that we serve have benefited from our core offerings to keep pace with the increasingly on-demand economy and e-commerce, transportationto invest in their long-term technology capabilities.
The Company has continued to make strategic investments to accelerate progress in certain adjacent and logistics, manufacturing, healthcare,expansion markets. In June 2022, the Company acquired Matrox Electronic Systems Ltd. (“Matrox) for $881 million in cash, net of Matrox’s cash on-hand. Matrox, part of our EVM segment, is a leading provider of advanced machine vision components and software serving many end-markets. Through its acquisition of Matrox, the Company significantly expanded its machine vision products and software offerings. The Company also continues to focus on scaling and integrating our other recent acquisitions (Antuit.ai, Fetch Robotics, Adaptive Vision Sp. z.o.o., and Reflexis) providing growth opportunities across our software and robotic solution offerings. These investments were funded partly through cash flow generation from our core businesses operations as well as through borrowings and other end markets withinworking capital facilities that enable us to maintain strong liquidity and manageable debt leverage.
As part of our ongoing supply chain optimization and resiliency initiatives, we extended the following regions:transition timeline of our distribution center in North America; Europe, Middle East,America. The transition negatively impacted product fulfillment and Africa; Asia-Pacific;operating results in the third quarter and Latin America.contributed to elevated inventory levels. To mitigate the impacts associated with that transition, we resumed servicing customer orders through our existing logistics service provider. Additionally, in January 2023, we terminated our contractual arrangement with the new service provider and have directly assumed the distribution center lease and have staffed the facility with Zebra employees, hence assuming all operational activities at the location.
Macroeconomic Environment
The acceleration of broad global cost inflation, a rising interest rate environment, and a stronger U.S. dollar in the current year have negatively impacted our operating results. We have partially mitigated the financial impacts of these headwinds through a combination of targeted price increases, as well as our ongoing foreign currency exchange and interest rate risk management programs. We believe that this challenging operating environment, partially due to the COVID-19 pandemic and Russia/Ukraine war, has contributed to a deceleration of certain customer demand, particularly late in the current year. The Company expects these macro conditions to persist into 2023.
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In the first quarter of 2022, we announced the suspension of our business operations in Russia. Neither Russia nor Ukraine comprises a material portion of our business; therefore, the war thus far has not had a significant effect on our results of operations. Additionally, the war has not significantly affected our ability to source supplies or deliver our products and services to our customers in the surrounding EMEA region. We will continue to monitor this for potential future adverse impacts on our business.
In 2020, the global COVID-19 pandemic resulted in significant declines in customer demand and supply chain disruptions, which negatively impacted the Company’s Net sales and overall profitability. In 2021, customer demand sharply rebounded as the underlying trend to digitize and automate workflows accelerated, which, along with pent-up demand from customers who we believe previously delayed purchases due to the pandemic, benefited the Company’s 2021 sales and profitability. The level of demand for certain product components resulted in lengthened lead times, component shortages, and higher input costs, including freight and component parts. Component shortages for certain products and elevated input costs continued in 2022 which negatively impacted our ability to meet customer demand and our operating results.
2022 Financial Highlights and Other Recent Developments
•Net sales were $5,781 million in the current year compared to $5,627 million in the prior year.
•Operating income was $529 million in the current year compared to $979 million in the prior year.
•Net income was $463 million, or $8.80 per diluted share in the current year, compared to Net income of $837 million, or $15.52 per diluted share in the prior year.
•Operating cash flow was $488 million in the current year compared to $1,069 million in the prior year.
•We repurchased $751 million of common shares in the current year compared to $57 million in the prior year.
Restructuring Activity
In the third quarter of 2022, the Company committed to certain organizational changes and leased site rationalization actions designed to generate structural cost efficiencies (collectively referred to as the “2022 Productivity Plan”). The total cost under the 2022 Productivity Plan, which is expected to be completed in 2023, is estimated to be approximately $25 million. Exit and restructuring charges associated with the 2022 Productivity Plan were $12 million for the year ended December 31, 2017,2022. The Company incurred Exit and restructuring costs, under previously announced programs of $2 million, $7 million, and $11 million for the years ended December 31, 2022, 2021 and 2020, respectively.
License and Settlement Agreement
On June 30, 2022, the Company recorded $3.7 billionannounced it entered into a License and Settlement Agreement (“Settlement”) resulting in a $372 million pre-tax charge, inclusive of net sales$12 million of external legal fees, within Operating expenses on the Consolidated Statement of Operations. Under the Settlement, Zebra agreed to pay $360 million to the counterparty in its consolidated statementseight quarterly payments of operations, of$45 million which approximately 48.3% were attributable to North America; approximately 32.8% were attributable to Europe, Middle East,began in the second quarter. See Item 3, Legal Proceedings and Africa (“EMEA”);Note 14, Accrued Liabilities, Commitments, and other foreign locations accountedContingencies for the remaining 18.9%. Net sales attributable from each region are relatively consistent with the prior year period.additional information.
In the first quarter 2017,of 2022, the Company’s executive leadership approvedlocation solutions offering, which provides a range of RTLS and services that generate on-demand information about the physical location and status of high-valued assets, equipment, and people, moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change did not have an initiative to continue the Company’s efforts to increase operational efficiency (the “Productivity Plan”). The Company expects the Productivity Plan to build upon the exit and restructuring initiatives specificimpact to the acquisition of the Enterprise business (“Enterprise”) from Motorola Solutions, Inc. in October 2014, (the “Acquisition Plan”). Actions under the Productivity Plan include organizational design changes, process improvements and automation. Implementation of actions identified through the Productivity Plan is expected to be substantially complete by December 2018. Exit and restructuring costs are not included in the operating results of our segments as they are not deemed to impact the specific segment measures as reviewed by our Chief Operating Decision Maker and
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| One-Time Transition Tax - Payments Due for Calendar Year Tax Returns | |||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||||||||
| Unremitted Earnings Payments | $ | 2 | $ | 2 | $ | 2 | $ | 2 | $ | 2 | $ | 4 | $ | 5 | $ | 7 | |||||||||||||||
Results of Operations: Year Ended 20172022 versus 20162021 and Year Ended 20162021 versus 20152020
Consolidated Results of Operations
(amounts in millions, except percentages)
| Year Ended December 31, | Percent Change 2022 vs 2021 | Percent Change 2021 vs 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Percent Change 2017 vs 2016 | Percent Change 2016 vs 2015 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,722 | $ | 3,574 | $ | 3,650 | 4.1 | % | (2.1 | )% | ||||||||||||||||||||||||||||||||||||
| Net sales: | Net sales: | |||||||||||||||||||||||||||||||||||||||||||||
| Tangible products | Tangible products | $ | 4,915 | $ | 4,845 | $ | 3,813 | 1.4 | % | 27.1 | % | |||||||||||||||||||||||||||||||||||
| Services and software | Services and software | 866 | 782 | 635 | 10.7 | % | 23.1 | % | ||||||||||||||||||||||||||||||||||||||
| Total Net sales | Total Net sales | 5,781 | 5,627 | 4,448 | 2.7 | % | 26.5 | % | ||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 1,710 | $ | 1,642 | $ | 1,644 | 4.1 | % | (0.1 | )% | Gross profit | 2,624 | 2,628 | 2,003 | (0.2) | % | 31.2 | % | ||||||||||||||||||||||||||||
| Gross margin | Gross margin | 45.4 | % | 46.7 | % | 45.0 | % | (130) bps | 170 bps | |||||||||||||||||||||||||||||||||||||
| Operating expenses | 1,388 | 1,562 | 1,607 | (11.1 | )% | (2.8 | )% | Operating expenses | 2,095 | 1,649 | 1,352 | 27.0 | % | 22.0 | % | |||||||||||||||||||||||||||||||
| Operating income | $ | 322 | $ | 80 | $ | 37 | 302.5 | % | 116.2 | % | Operating income | $ | 529 | $ | 979 | $ | 651 | (46.0) | % | 50.4 | % | |||||||||||||||||||||||||
| Gross margin | 45.9 | % | 45.9 | % | 45.0 | % | ||||||||||||||||||||||||||||||||||||||||
Net sales to customers by geographic region were as follows (amounts in millions, except percentages):
| Year Ended December 31, | Percent Change 2022 vs 2021 | Percent Change 2021 vs 2020 | |||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| North America | $ | 2,919 | $ | 2,819 | $ | 2,319 | 3.5 | % | 21.6 | % | |||||||||||||||||||
| EMEA | 1,920 | 1,976 | 1,495 | (2.8) | % | 32.2 | % | ||||||||||||||||||||||
| Asia-Pacific | 609 | 543 | 439 | 12.2 | % | 23.7 | % | ||||||||||||||||||||||
| Latin America | 333 | 289 | 195 | 15.2 | % | 48.2 | % | ||||||||||||||||||||||
| Total Net sales | $ | 5,781 | $ | 5,627 | $ | 4,448 | 2.7 | % | 26.5 | % | |||||||||||||||||||
| Year Ended December 31, | Percent Change 2017 vs 2016 | Percent Change 2016 vs 2015 | |||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||
| Europe, Middle East, and Africa | $ | 1,221 | $ | 1,138 | $ | 1,194 | 7.3 | % | (4.7 | )% | |||||||
| Latin America | 235 | 214 | 219 | 9.8 | % | (2.3 | )% | ||||||||||
| Asia-Pacific | 468 | 483 | 463 | (3.1 | )% | 4.3 | % | ||||||||||
| Total International | 1,924 | 1,835 | 1,876 | 4.9 | % | (2.2 | )% | ||||||||||
| North America | 1,798 | 1,739 | 1,774 | 3.4 | % | (2.0 | )% | ||||||||||
| Total Net sales | $ | 3,722 | $ | 3,574 | $ | 3,650 | 4.1 | % | (2.1 | )% | |||||||
Operating expenses are summarized below (amounts in millions, except percentages):
| Year Ended December 31, | As a Percentage of Net sales | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Selling and marketing | $ | 607 | $ | 587 | $ | 483 | 10.5 | % | 10.4 | % | 10.9 | % | |||||||||||||||||||||||
| Research and development | 570 | 567 | 453 | 9.9 | % | 10.1 | % | 10.2 | % | ||||||||||||||||||||||||||
| General and administrative | 375 | 348 | 304 | 6.5 | % | 6.2 | % | 6.8 | % | ||||||||||||||||||||||||||
| Settlement and related costs | 372 | — | — | 6.4 | % | — | — | ||||||||||||||||||||||||||||
| Amortization of intangible assets | 136 | 115 | 78 | NM | NM | NM | |||||||||||||||||||||||||||||
| Acquisition and integration costs | 21 | 25 | 23 | NM | NM | NM | |||||||||||||||||||||||||||||
| Exit and restructuring costs | 14 | 7 | 11 | NM | NM | NM | |||||||||||||||||||||||||||||
| Total Operating expenses | $ | 2,095 | $ | 1,649 | $ | 1,352 | 36.2 | % | 29.3 | % | 30.4 | % | |||||||||||||||||||||||
| Year Ended December 31, | Percent Change 2017 vs 2016 | Percent Change 2016 vs 2015 | |||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||
| Selling and marketing | $ | 448 | $ | 444 | $ | 494 | 0.9 | % | (10.1 | )% | |||||||
| Research and development | 389 | 376 | 394 | 3.5 | % | (4.6 | )% | ||||||||||
| General and administrative | 301 | 307 | 283 | (2.0 | )% | 8.5 | % | ||||||||||
| Amortization of intangible assets | 184 | 229 | 251 | (19.7 | )% | (8.8 | )% | ||||||||||
| Acquisition and integration costs | 50 | 125 | 145 | (60.0 | )% | (13.8 | )% | ||||||||||
| Impairment of goodwill and other intangibles | — | 62 | — | (100.0 | )% | NMF | |||||||||||
| Exit and restructuring costs | 16 | 19 | 40 | (15.8 | )% | (52.5 | )% | ||||||||||
| Total Operating expenses | $ | 1,388 | $ | 1,562 | $ | 1,607 | (11.1 | )% | (2.8 | )% | |||||||
Consolidated Organic Net sales growth:
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Reported GAAP Consolidated Net sales growth | 2.7 | % | 26.5 | % | |||||||
| Adjustments: | |||||||||||
Impact of foreign currency translations (1) | 2.0 | % | (2.1) | % | |||||||
Impact of acquisitions (2) | (1.5) | % | (1.2) | % | |||||||
Consolidated Organic Net sales growth (3) | 3.2 | % | 23.2 | % | |||||||
| December 31, | |||||
| 2017 | 2016 | ||||
| Reported GAAP Consolidated Net sales growth | 4.1 | % | (2.1 | )% | |
| Adjustments: | |||||
Impact of Wireless LAN Net sales (1) | 3.2 | % | 1.4 | % | |
Impact of foreign currency translation (2) | (0.6 | )% | 1.3 | % | |
Corporate, eliminations (3) | (0.2 | )% | (0.2 | )% | |
| Consolidated Organic Net sales growth | 6.5 | % | 0.4 | % | |
(1) The Company sold the wireless LAN business in October 2016. The Company excludes the impact of the net sales of this business in the prior year period when computing organic net sales growth.
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(2)For purposes of computing Organic Net sales increased by $148 million or 4.1% compared with the prior year period. The increase in net sales was due to higher hardware sales in North America, EMEA, and Latin America, offset by lower hardware sales in Asia-Pacific. The increase in hardware sales was largelygrowth, amounts directly attributable to increased sales of mobile computing, data capture, and barcode printing products, partially offset by the impact of the divestiture of the wireless LAN business in October 2016. Services sales were lower primarily due to the impact of the wireless LAN divestiture. acquisitions are excluded for twelve months following their respective acquisitions.
(3)Consolidated Organic Net sales growth was 6.5%, reflecting growth in all four geographic regions, most notably in EMEA and North America, and Latin America.is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.
Total Net sales was 45.9%,increased $154 million or flat2.7% compared to the prior year as our customers continue to digitize and automate their workflows. Net sales grew across both of our segments and most of our regions. Current year Net sales of both segments were negatively impacted by supply chain bottlenecks, which were particularly pronounced in our EVM segment. Prior year Net sales of both segments benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the effects of currency changes and acquisitions, the increase in Consolidated Organic Net sales was 3.2%.
Gross margin decreased to 45.4% for the current year compared to 46.7% in the prior year. This reflects an increaseGross margins were lower in both of our segments. The decrease in gross margin in the EVM segmentwas primarily due to higher premium freight and component part costs, the negative impact of foreign currency changes, inunfavorable business mix, and improved product costs,lower support service margins, partially offset by lower AIT segmenttargeted price increases. The prior year gross margin driven primarily by higher overhead and services costs, and increased customer sales incentives.included the benefit of partial recovery of Chinese import tariffs.
Operating expenses for the yearyears ended December 31, 20172022 and 2016,2021 were $1.4 billion,$2,095 million and $1,649 million, or 37.3%36.2% and 29.3% of net sales and $1.6 billion or 43.7% of netNet sales, respectively. The reduction in operatingExcluding the Settlement charge, Operating expenses was primarily due to impairment charges related to the disposalwere 29.8% of the Company’s wireless LAN businessNet sales in the priorcurrent year, period, lower acquisition and integration costs, and lower amortization of intangible assets. During 2017, the Company substantially completed its integration activities, including the implementation of a common enterprise resource planning system, associated with the Acquisition. The Company also exited the transition services agreements with Motorola Solutions. The decrease in amortization of intangible assets was due to certain assets reaching full amortization in 2017. Exit and restructuring costs were also lower than the year-ago period due to the prior year charges that included costs associated with the divestiture of the wireless LAN business. Research and development costs were higher primarily due to increased incentive compensation expense associated with improved financial performance partially offset by the impact of the divestiture of the wireless LAN business. General and administrative expenses were lower compared to the prior year period due primarily to reduced facility and IT expenses, professional fees, and employee benefits costs, as well as the impact of the divestiture of the wireless LAN business being offset partially by increased incentive compensation expense associated with improved financial performance.
Operating income was $529 million offset, in part, by the impact of early repayments of debt and lower interest rates.
The Company recognized tax expense of $71 million and $8 million for the period ending December 31, 2017 and 2016, respectively. The Company’s effective tax rates were 80.7% and (6.2)% as of December 31, 2017 and 2016, respectively. The Company’s effective tax ratedecrease was higher than the federal statutory rate of 35% primarily due to deferred income taxed on the outbound transfernegative impact of U.S. assets, an increase in uncertain tax benefits, increased valuation allowance for its foreign deferred tax assets, foreign non-deductible expenses, the one-time transition tax and remeasurement of its net U.S. deferred tax assets under U.S. tax reform. These increases were partially offset by the benefit of lower tax rates in foreign jurisdictions, recognition of deferred tax assets on intercompany asset transfers, the generation of tax credits in the current year, and deductions from vesting of equity compensation.Settlement charge.
Net salesincome decreased by $76 million or 2.1% compared with the prior year period. The decline in net sales is due to lower hardware sales in North America, EMEA, and Latin America, including the unfavorable impact of foreign currency changes, partially offset by higher hardware sales in Asia-Pacific. The decline in hardware sales is largely attributable to lower sales of barcode printer, data capture, wireless LAN products, and location solutions. Organic net sales increased 0.4% compared to the prior year period, reflecting growth in Asia-Pacific and North America, offset by declines in EMEA, and Latin America.
•Other income (expense), net was income of $15 million for the full-year impactcurrent year, compared to an expense of staff reductions implemented$11 million in 2015 and lower discretionary expenses and promotional spending. The decrease in research and development costs wasthe prior year primarily due to the current year benefiting from an $83 million gain on interest rate swaps compared to a reduction$13 million gain in headcountthe prior year, which was partially offset by higher interest expense due to higher average outstanding debt levels and other third-party resources,interest rates in the impact fromcurrent year.
•The Company’s effective tax rates for the divestiture of the wireless LAN business,years ended December 31, 2022 and shifting of headcount to lower cost engineering locations.December 31, 2021 were 14.9% and 13.5%, respectively. The increase in general and administrative costs was primarily due to higher IT related expenses, including increased support and maintenance costs for IT infrastructure and business systems as we exit transition services agreements with Motorola Solutions, and increased legal fees and litigation related expenses. The decrease in amortization of intangibles was due to impairment charges taken in the current year along with other intangible assets becoming fully amortized. Impairment of goodwill and other intangibles of $62 million was recorded during the third quarter related to the wireless LAN business divestiture. The Company has made significant progress on its integration activities associated with the Acquisition, including exiting many transition services agreements with Motorola Solutions. This has resulted in a decline in acquisition and integration costseffective tax rate compared to the prior year period. 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, partially offset by expenses associated with the Company’s divestiture of its wireless LAN business.
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 15,20, Segment Information and& Geographic Data in the Notes to the Consolidated Financial Statements included in this Form 10-K. TheStatements. To the extent applicable, segment results excludeoperating income excludes business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, and exit and restructuring costs.costs, as well as certain other non-recurring costs (such as the Settlement in the current year).
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Asset Intelligence & Tracking Segment (“AIT”)
(amounts in millions, except percentages)
| Year Ended December 31, | Percent Change 2022 vs 2021 | Percent Change 2021 vs 2020 | |||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||
| Tangible products | $ | 1,641 | $ | 1,563 | $ | 1,286 | 5.0 | % | 21.5 | % | |||||||||||||||||||
| Services and software | 95 | 94 | 83 | 1.1 | % | 13.3 | % | ||||||||||||||||||||||
| Total Net sales | 1,736 | 1,657 | 1,369 | 4.8 | % | 21.0 | % | ||||||||||||||||||||||
| Gross profit | 746 | 759 | 653 | (1.7) | % | 16.2 | % | ||||||||||||||||||||||
| Gross margin | 43.0 | % | 45.8 | % | 47.7 | % | (280) bps | (190) bps | |||||||||||||||||||||
| Operating expenses | 386 | 377 | 322 | 2.4 | % | 17.1 | % | ||||||||||||||||||||||
| Operating income | $ | 360 | $ | 382 | $ | 331 | (5.8) | % | 15.4 | % | |||||||||||||||||||
| Year Ended December 31, | Percent Change 2017 vs 2016 | Percent Change 2016 vs 2015 | |||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||
| Net sales | $ | 1,311 | $ | 1,247 | $ | 1,286 | 5.1 | % | (3.0 | )% | |||||||
| Gross profit | $ | 640 | $ | 620 | $ | 654 | 3.2 | % | (5.2 | )% | |||||||
| Operating expenses | 380 | 380 | 396 | — | % | (3.9 | )% | ||||||||||
| Operating income | $ | 260 | $ | 240 | $ | 258 | 8.3 | % | (7.0 | )% | |||||||
| Gross margin | 48.8 | % | 49.7 | % | 50.9 | % | |||||||||||
AIT Organic Net sales growth:
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| AIT Reported GAAP Net sales growth | 4.8 | % | 21.0 | % | |||||||
| Adjustments: | |||||||||||
Impact of foreign currency translations (1) | 1.9 | % | (1.9) | % | |||||||
AIT Organic Net sales growth (2) | 6.7 | % | 19.1 | % | |||||||
| December 31, | |||||
| 2017 | 2016 | ||||
| AIT Reported GAAP Net sales growth | 5.1 | % | (3.0 | )% | |
| Adjustments: | |||||
Impact of foreign currency translations (1) | (0.5 | )% | 1.8 | % | |
| AIT Organic Net sales growth | 4.6 | % | (1.2 | )% | |
(1)Operating results reported in U.S. dollarsDollars 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. dollar.Dollar. This impact is calculated by translating for certain currencies, the current period results at the currency exchange rates used in the comparable prior year period, rather than the exchange rates in effect during the current period. In addition, we exclude the impactinclusive of the company’sCompany’s foreign currency hedging program in both the current and prior year periods.program.
(2) AIT net sales for the period ending December 31, 2017 increased $64 million or 5.1% compared to prior year period. The increase in net sales was largely driven by higher sales of barcode and card printers, primarily in the EMEA and Asia-Pacific regions. Sales of supplies and services were also higher than the prior year. The year-on-year growth also reflects a price concession to distributors of barcode printer products imported into China in the third quarter of 2016. During 2017, no additional price concession provisions were required and a reduction of the 2016 provision was recorded due to a change in import classification for barcode printers. AIT organicOrganic Net sales growth foris a non-GAAP financial measure. See the year-ended December 31, 2017 was 4.6%.Non-GAAP Measures section at the end of this item.
2022 compared to 49.7%2021
Total Net sales for comparable prior year period. The decrease in gross margin reflects higher overhead costs, including freight and costs associated with our regional distribution center transitions, higher services costs andAIT increased customer sales incentives offset partially by lower provisions for price concessions to distributors of barcode printer products imported into China.
Gross margin decreased to 43.0% in EMEA which wasthe current year compared to 45.8% in the prior year primarily due to higher premium freight and component part costs, the negative impact of foreign currency changes, and unfavorable business mix, partially offset by an increasetargeted price increases. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating income decreased 5.8% in sales of supplies. The barcode printer sales decline was primarily due to lower sales in North America and EMEA. AIT organic net sales declinedthe current year compared to the prior year period by 1.2%.
due to lower Gross margin as a percentage of sales was 49.7% compared to 50.9% for comparable prior year period. The decrease in gross margin included impacts from lower sales of barcode printers, the impact of incentive programs, including the concession to distributors of printer products imported into China, costs associated with the relocation of North American distribution operations,profit and the unfavorable impact of foreign currency changes. These factors were partially offset by manufacturing cost improvements in supplies and lower hardware product costs.
higher Operating income declined 7.0% as a result of lower net sales and gross profit, partially offset by lower operating expenses.
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Enterprise Visibility & Mobility Segment (“EVM”)
(amounts in millions, except percentages)
| Year Ended December 31, | Percent Change 2022 vs 2021 | Percent Change 2021 vs 2020 | |||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||
| Tangible products | $ | 3,274 | $ | 3,282 | $ | 2,527 | (0.2) | % | 29.9 | % | |||||||||||||||||||
| Services and software | 771 | 694 | 559 | 11.1 | % | 24.2 | % | ||||||||||||||||||||||
| Total Net sales | 4,045 | 3,976 | 3,086 | 1.7 | % | 28.8 | % | ||||||||||||||||||||||
| Gross profit | 1,878 | 1,875 | 1,363 | 0.2 | % | 37.6 | % | ||||||||||||||||||||||
| Gross margin | 46.4 | % | 47.2 | % | 44.2 | % | (80) bps | 300 bps | |||||||||||||||||||||
| Operating expenses | 1,166 | 1,125 | 906 | 3.6 | % | 24.2 | % | ||||||||||||||||||||||
| Operating income | $ | 712 | $ | 750 | $ | 457 | (5.1) | % | 64.1 | % | |||||||||||||||||||
| Year Ended December 31, | Percent Change 2017 vs 2016 | Percent Change 2016 vs 2015 | |||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||
| Net sales | $ | 2,414 | $ | 2,337 | $ | 2,380 | 3.3 | % | (1.8 | )% | |||||||
| Gross profit | $ | 1,073 | $ | 1,032 | $ | 1,010 | 4.0 | % | 2.2 | % | |||||||
| Operating expenses | 758 | 746 | 774 | 1.6 | % | (3.6 | )% | ||||||||||
| Operating income | $ | 315 | $ | 286 | $ | 236 | 10.1 | % | 21.2 | % | |||||||
| Gross margin | 44.4 | % | 44.2 | % | 42.4 | % | |||||||||||
EVM Organic Net sales growth:
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| EVM Reported GAAP Net sales growth | 1.7 | % | 28.8 | % | |||||||
| Adjustments: | |||||||||||
Impact of foreign currency translations (1) | 2.2 | % | (1.9) | % | |||||||
Impact of acquisitions (2) | (2.2) | % | (1.9) | % | |||||||
EVM Organic Net sales growth (3) | 1.7 | % | 25.0 | % | |||||||
| December 31, | |||||
| 2017 | 2016 | ||||
| EVM Reported GAAP Net sales growth | 3.3 | % | (1.8 | )% | |
| Adjustments: | |||||
Impact of Wireless LAN Net sales (1) | 4.9 | % | 2.2 | % | |
Impact of foreign currency translation (2) | (0.7 | )% | 0.9 | % | |
| EVM Organic Net sales growth | 7.5 | % | 1.3 | % | |
(1) The Company sold the wireless LAN business in October 2016 and excludes the net sales of this business in the prior year period when computing organic net sales growth.
(2)For purposes of computing EVM Organic Net sales growth, amounts directly attributable to the currentacquisitions of Adaptive Vision, Fetch, Antuit, and Matrox are excluded for twelve months following their respective acquisitions.
(3)EVM Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.
2022 compared to 2021
Total Net sales for EVM increased $69 million or 1.7% compared to the prior year periods.
Gross margin fordecreased to 46.4% in the current year ended December 31, 2017 was 44.4% compared to 44.2%47.2% in the prior year period. The increase in gross margin primarily reflects changes indue to higher premium freight and component part costs, unfavorable business mix, and improvements in hardware product costs.
Operating income for the current year decreased 5.1% compared to the prior year period by 1.3%.primarily due to higher Operating expenses.
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Liquidity and Capital Resources
The primary factors that influence our liquidity include but are not limited to, the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, repatriation of foreign cashacquisitions, and investments, and acquisitions of third-parties.share repurchases. Management believes that our existing capital resources, inclusive of available borrowing capacity on debt and other financing facilities and funds generated from operations, are sufficient to meet anticipated capital requirements and service our indebtedness. The following table summarizes our cash flow activities for the years indicated (in millions):
| Year Ended December 31, | $ Change 2022 vs 2021 | $ Change 2021 vs 2020 | |||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||
| Cash flow provided by (used in): | |||||||||||||||||||||||||||||
| Operating activities | $ | 488 | $ | 1,069 | $ | 962 | $ | (581) | $ | 107 | |||||||||||||||||||
| Investing activities | (968) | (546) | (641) | (422) | 95 | ||||||||||||||||||||||||
| Financing activities | 253 | (371) | (157) | 624 | (214) | ||||||||||||||||||||||||
| Effect of exchange rates on cash balances | — | — | (2) | — | 2 | ||||||||||||||||||||||||
| Net (decrease) increase in cash and cash equivalents, including restricted cash | $ | (227) | $ | 152 | $ | 162 | $ | (379) | $ | (10) | |||||||||||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flow (used in) provided by: | |||||||||||
| Operating activities | $ | 478 | $ | 380 | $ | 122 | |||||
| Investing activities | (51 | ) | (39 | ) | (148 | ) | |||||
| Financing activities | (517 | ) | (384 | ) | (161 | ) | |||||
| Effect of exchange rates on cash balances | (4 | ) | 7 | (15 | ) | ||||||
| Net decrease in cash and cash equivalents | $ | (94 | ) | $ | (36 | ) | $ | (202 | ) | ||
The change in our cash and cash equivalents balance during the current year is reflective of the following:
•Cash used in investing activities was higher than the prior year working capital benefited fromprimarily due to the successful renegotiation$881 million acquisition of longer payment termsMatrox, with vendors.
•Cash provided by financing activities during the year included $1,037 million in net debt proceeds primarily related to the Acquisition integration were substantially completedCompany's debt refinancing activities in 2016. The prior year investing activities also included net cash proceedsthe second quarter, partially offset by $751 million of $39 million related to the sale of the wireless LAN business.
Company also had debt principal prepayments on Term Loan A and Term Loan B of $502 million and on the receivables financing facility of $10 million. As part of the repricing of Term Loan B, a portion of the debt was deemed to be modified and therefore, the Company included $263 million in proceeds from the issuance of long-term debt, offset by $263 million in payments of long-term debt within the Consolidated Statements of Cash Flows.Debt
The following table shows the carrying value of the Company’s debt (in millions):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Term Loan A | $ | 1,728 | $ | 888 | |||||||
| Revolving Credit Facility | 50 | — | |||||||||
| Receivables Financing Facilities | 254 | 108 | |||||||||
| Total debt | $ | 2,032 | $ | 996 | |||||||
| Less: Debt issuance costs | (4) | (3) | |||||||||
| Less: Unamortized discounts | (5) | (2) | |||||||||
| Less: Current portion of debt | (214) | (69) | |||||||||
| Total long-term debt | $ | 1,809 | $ | 922 | |||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Senior Notes | $ | — | $ | 1,050 | |||
| Term Loan B | 1,160 | 1,653 | |||||
| Term Loan A | 679 | — | |||||
| Revolving Credit Facility | 275 | — | |||||
| Receivables Financing Facility | 135 | — | |||||
| Total debt | 2,249 | 2,703 | |||||
| Less: Debt issuance costs | (7 | ) | (22 | ) | |||
| Less: Unamortized discounts | (15 | ) | (33 | ) | |||
| Less: Current portion of long-term debt | (51 | ) | — | ||||
| Total long-term debt | $ | 2,176 | $ | 2,648 | |||
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The facility allows for interest payments payable monthly or quarterlyprincipal on Term Loan A is due in quarterly installments, with the next quarterly installment due in March 2023 and quarterly on Term Loan B.the majority due upon maturity in 2027. The Company has entered into interest
The Company has a Revolving Credit Facility that is available for working capital and other general corporatebusiness purposes, including letters of credit. The amount (including letters of credit) cannot exceed $500 million. As of December 31, 2017,2022, the Company had letters of credit totaling $5$7 million, which reduced funds available for other borrowings under the Revolving Credit Facility from $1,500 million to $495$1,493 million. As of December 31, 2022, the Revolving Credit Facility had an average interest rate of 5.71%. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility will maturematures on May 25, 2027.
Receivables Financing Facilities
The Company has two Receivables Financing Facilities with financial institutions that have a combined total borrowing limit of up to $280 million. As collateral, the Company pledges perfected first-priority security interests in its U.S. domestically originated accounts receivable. The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings. The Company’s first Receivables Financing Facility allows for borrowings of up to $180 million and matures on March 19, 2024. The Company’s second Receivable Financing Facility allows for borrowings of up to $100 million and matures on May 15, 2023.
As of December 31, 2022, the related commitments will terminate on July 27, 2021.
Company’s Consolidated Balance Sheets included $785 million of receivables that were pledged under the two Receivables Financing Facilities. As of December 31, 2022, $254 million had been borrowed, of which $171 million was classified as current. Borrowings under the Revolving Credit FacilityReceivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of December 31, 2017,2022, the Revolving Credit FacilityReceivables Financing Facilities had an average interest rate of 3.39%5.33%. The facility allows for interest payments payable monthly or quarterly. As of December 31, 2017, the Company hadInterest is paid on these borrowings of $275 million against the Revolving Credit Facility. There were no borrowings against the Revolving Credit Facility in the prior year comparable period.
| Payments due by period | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| Operating lease obligations | $ | 138 | $ | 32 | $ | 47 | $ | 23 | $ | 36 | |||||||||
| Deferred compensation liability | 15 | — | — | — | 15 | ||||||||||||||
| Long-term debt – principal payments | 2,249 | 51 | 230 | 1,968 | — | ||||||||||||||
| Interest payments | 286 | 80 | 153 | 53 | — | ||||||||||||||
| Payments on interest rate swaps | 46 | 8 | 24 | 14 | — | ||||||||||||||
| Purchase obligations | 357 | 357 | — | — | — | ||||||||||||||
| Total | $ | 3,091 | $ | 528 | $ | 454 | $ | 2,058 | $ | 51 | |||||||||
Receivables Factoring
The Company currently has two Receivables Factoring arrangements, pursuant to which certain receivables are sold to banks without recourse in exchange for cash. One arrangement allows for the factoring of up to $25 million of uncollected receivables originated from the EMEA region. The second arrangement allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions. Transactions under the Receivables Factoring arrangements are accounted for as sales under Accounting Standards Codification 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under these Receivables Factoring arrangements, the Company does not maintain any beneficial interest in the receivables sold. The banks’ purchase of eligible receivables is subject to a maximum amount of uncollected receivables. The Company services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Net cash provided by operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Net cash used in financing activities on the Consolidated Statements of Cash Flows.
As of December 31, 2022 and 2021 there were a total of $61 million and $24 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.
As servicer of sold receivables, the Company had $130 million and $141 million of obligations that were not yet remitted to banks as of December 31, 2022 and 2021, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash used in financing activities on the Consolidated Statements of Cash Flows.
See Note 19, Accounts Receivable Factoring in the Notes to Consolidated Financial Statements for further details.
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Share Repurchases
On May 17, 2022, the Company announced that its Board of Directors authorized a share repurchase program for up to $1 billion of its outstanding shares of common stock. This authorization augments the previous $1 billion share repurchase authorization which was announced on July 30, 2019. The newly authorized share repurchase program does not have a stated expiration date. The level of the Company’s repurchases depends on a number of factors, including its financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors its management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. Repurchases may be affected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. During the year ended December 31, 2022, the Company repurchased 2,027,542 shares of common stock for approximately $751 million. As of December 31, 2022, the Company has cumulatively repurchased 3,323,283 shares of common stock for approximately $1.1 billion, resulting in a remaining amount of share repurchases authorized under the plans of $945 million. Subsequent to the year ended December 31, 2022, the Company has repurchased 55,811 shares of common stock for approximately $15 million through February 9, 2023.
Future Cash Requirements
We believe that our Cash and cash equivalents, which totaled $105 million as of December 31, 2022, along with anticipated cash generation from operations and available borrowing capacity on debt and other financing facilities, will be sufficient to fund the Company’s cash requirements during the next 12 months and thereafter based on our current business plans.
Included in the Company’s Cash and cash equivalents are amounts held by foreign subsidiaries, which was $36 million and $39 million as of December 31, 2022 and 2021, respectively. We do not expect that Cash and cash equivalents held by foreign subsidiaries will need to be repatriated in order to fund the Company’s U.S. operations based on current cash requirements.
Our cash requirements during the next 12 months and thereafter include payments to satisfy the following obligations:
•Purchase obligations — We have a limited number of multi-year purchase commitments, primarily related to semiconductors and cloud-services, which contain minimum purchase requirements and are non-cancellable. As of December 31, 2022, these commitments were approximately $557 million. This amount excludes routine purchase orders for good and services, as well as amounts already reflected within Accounts payable or Accrued expenses on the Consolidated Balance Sheet. See Note 14, Accrued Liabilities, Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional details.
•Debt obligations — We expect to make total payments of approximately $237 million associated with the Company’s debt facilities in 2023. This expected use of cash is based on the Company’s current borrowings and applicable interest rates and margins as of December 31, 2022, and includes principal and interest payments along with expected cash settlements associated with the Company’s interest rate swaps. In the ordinary course of business, the Company may decide to borrow additional amounts or repay principal earlier than contractually owed, which would affect future cash payments. See Note 12, Long-Term Debt in the Notes to Consolidated Financial Statements for further details related to the Company’s debt facilities.
•Leases obligations — We lease certain manufacturing facilities, distribution centers, sales and administrative offices, equipment, and vehicles. As of December 31, 2022, the Company’s fixed lease commitments totaled $243 million, of which $46 million is payable in 2023. See Note 13, Leases in the Notes to Consolidated Financial Statements for further details related to the Company’s lease arrangements.
In addition to the expected cash requirements described above, the Company may use cash to fund strategic acquisitions, investments, or repurchase common stock under its share repurchase program. We also expect to spend approximately $75 million to $85 million on capital expenditures in 2023.
Critical Accounting Estimates
Management prepared the consolidated financial statements of the Company under accounting principles generally accepted in the U.S. The application of these principles requires the use of estimates which affect the amounts reported in our consolidated financial statements. While we believe that our estimates are reasonable based upon available information, actual results could differ substantially from those estimates. Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements provides additional discussion of these items along with other significant accounting policies of the Company. The accounting estimates described below have been identified by Management as those that are most critical to our financial statements, as they require management to make significant judgments and assumptions about inherently uncertain matters.
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Income Taxes
We estimate a provision or benefit for income taxes and amounts to be settled or recovered in several tax jurisdictions globally. Our estimates are complex and involve significant judgments and interpretations of regulations. Resolution of income tax treatments in individual jurisdictions may not be known for several years after completion of a given year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis, which requires estimation of our ability to generate future taxable income. In particular, our income tax provision or benefit is dependent on our ability to forecast future taxable income in the U.S., U.K., Singapore, and other jurisdictions. Significant judgments included in this Form 10-Kour forecasts include projecting future sales volumes and pricing, costs to manufacture and procure products and to deliver services and solutions, among other factors. There were no significant changes in estimates to our income tax provision during the current year.
Acquisitions
We account for further information.acquired businesses using the acquisition method of accounting. This method requires that the purchase price be allocated to the identifiable assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. The estimates used to determine the fair values of long-lived intangible assets can be complex and require judgment. We generally value intangible assets using income-based valuation methodologies, such as the excess earnings method, which require critical estimates that include, but are not limited to, future expected cash flows from revenues and the determination of discount rates.
Goodwill Impairment
Goodwill impairment testing consists of comparing the estimated fair value of each of our reporting units to its carrying value. Fair value determinations require judgment and are sensitive to changes in underlying assumptions, estimates, as well as market factors. We estimate the fair value of reporting units using both income and market-based valuation approaches. Estimating the fair value of reporting units requires that we make assumptions and estimates including projections of revenue and income growth rates as well as cash flows; capital investments; competitive and customer trends; appropriate peer group selection; market-based discount rates and other market factors. Our annual quantitative impairment test, most recently completed in the fourth quarter of 2022, continues to indicate that the fair values of each of our reporting units significantly exceed their respective carrying values.
Revenue Recognition
We recognize revenues when we transfer control of promised goods, solutions or services to our customers in an amount that reflects the consideration we expect to receive. The consideration that we expect to receive is estimated by reflecting reductions to our transaction price for product returns, rebates, and other incentives. These estimates are developed using the expected value that the Company anticipates receiving and are based on recent trends observed in similar transactions. Additionally, some of our contracts with customers contain multiple performance obligations, including various hardware, software, and/or services. For such contracts that contain multiple performance obligations, we allocate the estimated total transaction price to each performance obligation based on relative standalone selling prices (“SSP”). The determination of SSP is established at a regional level. SSP is based on observable prices in recent standalone transactions for the same or similar offerings, to the extent available, which is often applicable to tangible products and software licenses. Alternatively, in the absence of recent observable prices, the Company generally applies the expected cost-plus margin approach to professional services, repair and maintenance services, and solution offerings. There were no changes to our estimation processes for consideration received or SSP that materially affected revenues during the year.
New Accounting Pronouncements
See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements regarding recent accounting pronouncements.
Non-GAAP Measures
The Company has provided reconciliations of the supplemental non-GAAP financial measures, as defined under the rules of the Securities and Exchange Commission, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP.
These supplemental non-GAAP financial measures – Consolidated Organic Net sales growth, AIT Organic Net sales growth, and EVM Organic Net sales growth – are presented because our management evaluates our financial results both including and excluding the effects of business acquisitions and foreign currency translation, as applicable. Management believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of our business from period to period and trends in our historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with the GAAP financial measures presented.
36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the sensitivity of income to changes in interest rates, commodity prices, and foreign currency changes. Zebra is primarily exposed to the following types of market risk: interest ratesrate and foreign currency.
Interest Rate Risk
We are exposed to interest rate volatility with regard to existing debt issuances. PrimaryOur exposures include LIBOR rates. From time to time, wethe London Inter-bank Offered Rate (“LIBOR”) and the Secured Overnight Financing Rate (“SOFR”). We use interest rate derivative contracts, including interest rate swaps, to hedge ourmitigate the majority of the Company’s exposure to the impact offrom interest rate changes on existing debt and future debt issuances, to reducethereby reducing the volatility of our financing costs and, based on current and projected market conditions, achieve a desired proportion of fixed versus floating-rate debt. Generally, under these interest rate swaps, we agree with a counterparty to exchange floating-rate for fixed-rate interest amounts with an agreed upon notional principal amount.
The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced in 2017 the phase out of LIBOR. We continue to closely monitor the phase out of LIBOR to assess any impacts to our debt and interest rate swap contracts. We have already taken actions to amend certain contracts to incorporate a SOFR benchmark rate, and we expect other key contracts will be amended to incorporate a SOFR benchmark rate before the LIBOR phase out is completed. As of December 31, 2017,2022, our remaining contracts containing exposure to LIBOR pertain only to LIBOR tenors that will be phased out by June 30, 2023.
As of December 31, 2022, we had $2.2approximately $2.0 billion of debt outstanding under our debt facilities, which bears interest determined by reference to a variable rate index. A one percentage point increase or decrease in interest rates on the various debt instruments we hold would increase or decrease the annual interest expense we recognize and the cash we pay for interest expense by approximately $22$12 million. This amount excludesexposure includes the impact of any associated derivative contracts. To mitigate this risk, we entered into forward interest rate swaps to hedge the interest rate risk associated with the variable interest payments on our debt facilities.outstanding as of December 31, 2022. Refer to Note 7, 11, Derivative Instruments in the Notes to Consolidated Financial Statements included in this Form 10-K for further discussion of hedgingthese risk mitigation activities. Exposure to variable interest may increase or decrease, to the extent that the Company’s borrowings under its debt facilities increase or decrease, respectively.
Foreign Exchange Risk
We provide products, solutions and services in over 180approximately 190 countries throughout the world and, therefore, at times are exposed to risk based on movements in foreign exchange rates. On occasion,In some instances, we invoice customers in their local currency and have a resulting foreign currency denominated revenue transaction and accounts receivable. We also purchase certain raw materials and other items in foreign currencies. We manage these risks using derivative financial instruments.instruments, including foreign currency exchange contracts. See Note 7, 11, Derivative Instruments in the Notes to the Consolidated Financial Statements included in this Form 10-K for further discussions of hedging activities.
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Item 8.Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
| Financial Statements | |||||
38
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Zebra Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Zebra Technologies Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Income Taxes
| Description of the Matter | As discussed in Note 16 of the financial statements, the Company earns a significant amount of its operating income across multiple jurisdictions and the Company’s organizational structure and transactional flows are designed to reflect strategic and operational business imperatives that change over time. As the Company operates in a multinational tax environment and incurs income tax obligations in a number of jurisdictions, complexities and uncertainties can arise in the application of complex tax regulations to the Company’s multinational operations. Auditing the application of taxation legislation to the Company’s affairs is inherently complex, highly specialized and requires judgment. These factors impact the Company’s estimation of tax exposures, valuation allowances and income tax provisions. | ||||
39
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s identification of and accounting for the tax impact of changes in the business or significant changes in tax laws. This included controls over the Company’s evaluation of tax law changes, the evaluation of cross-jurisdictional transactions and the Company’s tax technical assessment over those changes and/or transactions. We involved our tax professionals in the Company’s significant operating jurisdictions to assist in the evaluation of the Company’s tax obligations and the application of significant tax law changes. We assessed the completeness of the tax matters identified, evaluated the Company’s assessment regarding the related status and potential exposure, assessed the Company’s computations resulting from significant tax law changes and evaluated the adequacy of the Company’s disclosures of tax and ongoing tax matters. | ||||
Acquisition of Matrox Electronic Systems Ltd. – Valuation of Intangible Assets
| Description of the Matter | During 2022, the Company completed its acquisition of Matrox Electronic Systems Ltd. (“Matrox”) for net consideration of $881 million, as disclosed in Note 5 to the consolidated financial statements. The Company’s accounting for the acquisition required it to determine the fair value of the intangible assets acquired, including technology assets and customer relationships. Auditing the Company’s accounting for the acquired intangible assets was complex and subjective due to the estimation required in management’s determination of the fair values of these assets. The estimation was significant due to the sensitivity of the respective fair values to the underlying assumptions, in particular, projected revenue growth rates and the selected discount rate. These assumptions relate to the future performance of the acquired business, are forward-looking and could be affected by future economic and market conditions. | ||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s valuation of acquired intangible assets. For example, we tested controls over management’s review of the valuation of the acquired intangibles assets, including the review of the valuation model and significant assumptions used in the valuation. To test the fair value of the acquired intangible assets, our audit procedures included, among others, evaluating the appropriateness of the valuation methodologies used by management, evaluating the projected revenue growth rates and discount rate, and testing the completeness and accuracy of underlying data. Evaluating the reasonableness of the projected revenue growth rates involved comparing the projections to historical results of the acquired business and current industry and market trends. We involved our valuation specialists to assist in the evaluation of the Company’s discount rate by comparing it against a range of reasonable rates that was independently developed using publicly available market data for comparable entities. | ||||
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2005.
Chicago, Illinois
February 16, 2023
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ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 105 | $ | 332 | |||||||
| Accounts receivable, net of allowances for doubtful accounts of $1 million each as of December 31, 2022 and 2021 | 768 | 752 | |||||||||
| Inventories, net | 860 | 491 | |||||||||
| Income tax receivable | 26 | 8 | |||||||||
| Prepaid expenses and other current assets | 124 | 106 | |||||||||
| Total Current assets | 1,883 | 1,689 | |||||||||
| Property, plant and equipment, net | 278 | 272 | |||||||||
| Right-of-use lease assets | 156 | 131 | |||||||||
| Goodwill | 3,899 | 3,265 | |||||||||
| Other intangibles, net | 630 | 469 | |||||||||
| Deferred income taxes | 407 | 192 | |||||||||
| Other long-term assets | 276 | 197 | |||||||||
| Total Assets | $ | 7,529 | $ | 6,215 | |||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 214 | $ | 69 | |||||||
| Accounts payable | 811 | 700 | |||||||||
| Accrued liabilities | 744 | 639 | |||||||||
| Deferred revenue | 425 | 380 | |||||||||
| Income taxes payable | 138 | 12 | |||||||||
| Total Current liabilities | 2,332 | 1,800 | |||||||||
| Long-term debt | 1,809 | 922 | |||||||||
| Long-term lease liabilities | 139 | 121 | |||||||||
| Deferred income taxes | 75 | 6 | |||||||||
| Long-term deferred revenue | 333 | 315 | |||||||||
| Other long-term liabilities | 108 | 67 | |||||||||
| Total Liabilities | 4,796 | 3,231 | |||||||||
| 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 | 561 | 462 | |||||||||
| Treasury stock at cost, 20,700,357 and 18,736,582 shares as of December 31, 2022 and 2021, respectively | (1,799) | (1,023) | |||||||||
| Retained earnings | 4,036 | 3,573 | |||||||||
| Accumulated other comprehensive loss | (66) | (29) | |||||||||
| Total Stockholders’ Equity | 2,733 | 2,984 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 7,529 | $ | 6,215 | |||||||
See accompanying Notes to Consolidated Financial Statements.
41
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net sales | |||||||||||||||||
| Tangible products | $ | 4,915 | $ | 4,845 | $ | 3,813 | |||||||||||
| Services and software | 866 | 782 | 635 | ||||||||||||||
| Total Net sales | 5,781 | 5,627 | 4,448 | ||||||||||||||
| Cost of sales: | |||||||||||||||||
| Tangible products | 2,699 | 2,590 | 2,065 | ||||||||||||||
| Services and software | 458 | 409 | 380 | ||||||||||||||
| Total Cost of sales | 3,157 | 2,999 | 2,445 | ||||||||||||||
| Gross profit | 2,624 | 2,628 | 2,003 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling and marketing | 607 | 587 | 483 | ||||||||||||||
| Research and development | 570 | 567 | 453 | ||||||||||||||
| General and administrative | 375 | 348 | 304 | ||||||||||||||
| Settlement and related costs | 372 | — | — | ||||||||||||||
| Amortization of intangible assets | 136 | 115 | 78 | ||||||||||||||
| Acquisition and integration costs | 21 | 25 | 23 | ||||||||||||||
| Exit and restructuring costs | 14 | 7 | 11 | ||||||||||||||
| Total Operating expenses | 2,095 | 1,649 | 1,352 | ||||||||||||||
| Operating income | 529 | 979 | 651 | ||||||||||||||
| Other (loss) income, net: | |||||||||||||||||
| Foreign exchange loss | (3) | (5) | (18) | ||||||||||||||
| Interest income (expense), net | 23 | (5) | (76) | ||||||||||||||
| Other (expense) income, net | (5) | (1) | 3 | ||||||||||||||
| Total Other income (expense), net | 15 | (11) | (91) | ||||||||||||||
| Income before income tax | 544 | 968 | 560 | ||||||||||||||
| Income tax expense | 81 | 131 | 56 | ||||||||||||||
| Net income | $ | 463 | $ | 837 | $ | 504 | |||||||||||
| Basic earnings per share | $ | 8.86 | $ | 15.66 | $ | 9.43 | |||||||||||
| Diluted earnings per share | $ | 8.80 | $ | 15.52 | $ | 9.35 | |||||||||||
See accompanying Notes to Consolidated Financial Statements.
42
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income | $ | 463 | $ | 837 | $ | 504 | |||||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||||||||
| Changes in unrealized gains and losses on anticipated sales hedging transactions | (29) | 46 | (30) | ||||||||||||||
| Foreign currency translation adjustment | (8) | (6) | 5 | ||||||||||||||
| Comprehensive income | $ | 426 | $ | 877 | $ | 479 | |||||||||||
See accompanying Notes to Consolidated Financial Statements.
43
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share data)
| 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 | 557,599 | — | 5 | 7 | — | — | 12 | |||||||||||||||||||||||||||||||||||||
| Shares withheld to fund withholding tax obligations related to share-based compensation plans | (149,709) | — | — | (37) | — | — | (37) | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 51 | — | — | — | 51 | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (948,740) | — | — | (200) | — | — | (200) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 504 | — | 504 | |||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | (30) | (30) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 5 | 5 | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 53,462,082 | $ | 1 | $ | 395 | $ | (919) | $ | 2,736 | $ | (69) | $ | 2,144 | |||||||||||||||||||||||||||||||
| Issuances of treasury shares related to share-based compensation plans, net of forfeitures | 150,097 | — | (9) | (4) | — | — | (13) | |||||||||||||||||||||||||||||||||||||
| Shares withheld to fund withholding tax obligations related to share-based compensation plans | (87,789) | — | — | (43) | — | — | (43) | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 76 | — | — | — | 76 | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (109,115) | — | — | (57) | — | — | (57) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 837 | — | 837 | |||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | 46 | 46 | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (6) | (6) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 53,415,275 | $ | 1 | $ | 462 | $ | (1,023) | $ | 3,573 | $ | (29) | $ | 2,984 | |||||||||||||||||||||||||||||||
| Issuances of treasury shares related to share-based compensation plans, net of forfeitures | 126,309 | — | 11 | (1) | — | — | 10 | |||||||||||||||||||||||||||||||||||||
| Shares withheld to fund withholding tax obligations related to share-based compensation plans | (62,542) | — | — | (24) | — | — | (24) | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 88 | — | — | — | 88 | |||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (2,027,542) | — | — | (751) | — | — | (751) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 463 | — | 463 | |||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | (29) | (29) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (8) | (8) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 51,451,500 | $ | 1 | $ | 561 | $ | (1,799) | $ | 4,036 | $ | (66) | $ | 2,733 | |||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
44
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 463 | $ | 837 | $ | 504 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 204 | 187 | 146 | ||||||||||||||
| Amortization of debt issuance costs, extinguishment costs and discounts | 4 | 2 | 3 | ||||||||||||||
| Share-based compensation | 88 | 76 | 51 | ||||||||||||||
| Deferred income taxes | (210) | (69) | (40) | ||||||||||||||
| Unrealized (gain) loss on forward interest rate swaps | (89) | (30) | 33 | ||||||||||||||
| Other, net | 1 | (1) | 1 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable, net | (5) | (239) | 130 | ||||||||||||||
| Inventories, net | (341) | 18 | (42) | ||||||||||||||
| Other assets | (48) | (23) | 11 | ||||||||||||||
| Accounts payable | 92 | 96 | 47 | ||||||||||||||
| Accrued liabilities | (51) | 110 | 16 | ||||||||||||||
| Deferred revenue | 60 | 113 | 103 | ||||||||||||||
| Income taxes | 108 | 1 | (5) | ||||||||||||||
| Legal settlement liability | 225 | — | — | ||||||||||||||
| Other operating activities | (13) | (9) | 4 | ||||||||||||||
| Net cash provided by operating activities | 488 | 1,069 | 962 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Acquisition of businesses, net of cash acquired | (881) | (452) | (548) | ||||||||||||||
| Purchases of property, plant and equipment | (75) | (59) | (67) | ||||||||||||||
| Proceeds from the sale of long-term investments | — | — | 6 | ||||||||||||||
| Purchases of short-term investments | — | (1) | — | ||||||||||||||
| Purchases of long-term investments | (12) | (34) | (32) | ||||||||||||||
| Net cash used in investing activities | (968) | (546) | (641) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from issuance of long-term debt | 1,284 | 46 | 302 | ||||||||||||||
| Payments of long term-debt | (247) | (303) | (342) | ||||||||||||||
| Payment of debt issuance costs, extinguishment costs and discounts | (8) | — | (1) | ||||||||||||||
| Payments for repurchases of common stock | (751) | (57) | (200) | ||||||||||||||
| Net payments related to share-based compensation plans | (14) | (56) | (25) | ||||||||||||||
| Change in unremitted cash collections from servicing factored receivables | (11) | (1) | 109 | ||||||||||||||
| Net cash provided by (used in) financing activities | 253 | (371) | (157) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents, including restricted cash | — | — | (2) | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents, including restricted cash | (227) | 152 | 162 | ||||||||||||||
| Cash and cash equivalents, including restricted cash, at beginning of period | 344 | 192 | 30 | ||||||||||||||
| Cash and cash equivalents, including restricted cash, at end of period | $ | 117 | $ | 344 | $ | 192 | |||||||||||
| Less restricted cash, included in Prepaid expenses and other current assets | (12) | (12) | (24) | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 105 | $ | 332 | $ | 168 | |||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||||||||
| Income taxes paid | $ | 168 | $ | 199 | $ | 107 | |||||||||||
| Interest paid | $ | 58 | $ | 32 | $ | 38 | |||||||||||
See accompanying Notes to Consolidated Financial Statements.
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ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description 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 and solutions, including cloud-based software subscriptions, that capture and move data. We also provide a full range of services, including maintenance, technical support, repair, managed and professional services. End-users of our products, solutions and services include those in retail and e-commerce, manufacturing, transportation and logistics, healthcare, public sector, and other industries. We provide our products, solutions and services globally through a direct sales force and an extensive network of channel partners.
Effective January 1, 2022, the location solutions offering, which provides a range of real-time location systems (“RTLS”) and services that generate on-demand information about the physical location and status of assets, equipment, and people, moved from our Asset Intelligence & Tracking (“AIT”) segment into our Enterprise Visibility & Mobility (“EVM”) segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change does not have an impact to the Consolidated Financial Statements. See Note 20, Segment Information & Geographic Data for additional information related to each segment’s results.
Note 2 Significant Accounting Policies
Principles of Consolidation
These accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the U.S. and include the accounts of Zebra and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Calendar
The Company’s fiscal year is a 52-week period ending on December 31. Interim fiscal quarters end on a Saturday and generally include 13 weeks of operating activity. During the 2022 fiscal year, the Company’s quarter end dates were April 2, July 2, October 1, and December 31.
Use of Estimates
These consolidated financial statements were prepared using estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of accounting estimates include: cash flow projections and other valuation assumptions included in business acquisition purchase price allocations as well as annual goodwill impairment testing; the measurement of variable consideration and allocation of transaction price to performance obligations in revenue transactions; inventory valuation; useful lives of our tangible and intangible assets; and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash consists primarily of deposits with banks. In addition, the Company considers highly liquid short-duration term deposits with banks, as well as other highly liquid short-term investments with original maturities of less than three months, to be cash equivalents. Cash equivalents are readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of a change in value because of changes in interest rates.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist primarily of amounts due to us from our customers in the normal course of business. Collateral on trade accounts receivable is generally not required. The Company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable that is based on expected credit losses. Expected credit losses are estimated based on historical loss experience, the durations of outstanding trade receivables, and expectations of the future economic environment. Accounts are written off against the allowance account when they are determined to be no longer collectible.
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Inventories
Inventories are stated at the lower of a moving-average cost (which approximates cost on a first-in, first-out basis) and net realizable value. Manufactured inventory cost includes materials, labor, and manufacturing overhead. Purchased inventory cost also includes internal purchasing overhead costs. Raw material inventories largely consist of supplies used in repair operations. Provisions are made to reduce excess and obsolete inventories to their estimated net realizable values. Inventory provisions are based on forecasted demand, experience with specific customers, the age and nature of the inventory, and the ability to redistribute inventory to other programs or to rework into other consumable inventory.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the various classes of property, plant and equipment, which are thirty years for buildings and range from three to ten years for all other asset categories. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or ten years.
Leases
The Company recognizes right-of-use (“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. 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. In determining future lease payments, the Company has elected not to separate lease and non-lease components. As the Company’s lease arrangements 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 Company’s ROU assets also include any initial direct costs incurred and exclude lease incentives. The Company’s lease agreements do not contain any significant 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.
Income Taxes
The Company accounts for income taxes under the liability method in accordance with Accounting Standards Codification (“ASC”) 740 Topic, Income Taxes. Accordingly, deferred income taxes are provided for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities are measured using tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company recognizes the benefit of tax positions when it is more likely than not to be sustained on its technical merits. The Company recognizes interest and penalties related to income tax matters as part of income tax expense. The Company has elected consolidated tax filings in certain of its jurisdictions which may allow the group to offset one member’s income with losses of other members in the current period and on a carryover basis. The income tax effects of non-inventory intra-entity asset transfers are recognized in the period in which the transfer occurs. The Company classifies its balance sheet accounts by applying jurisdictional netting principles for locations where consolidated tax filing elections are in place.
U.S. tax law contains the Global Intangible Low-Taxed Income (“GILTI”), Base Erosion Anti-Avoidance Tax (“BEAT”), and Deduction for Foreign-Derived Intangible Income (“FDII”) provisions, which relate to the taxation of certain foreign income. The Company recognizes its GILTI, BEAT, and FDII inclusions, when applicable, within income tax expense in the year included in its U.S. tax return.
Goodwill
Goodwill is tested annually for impairment, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. Our annual impairment testing consists of comparing the estimated fair value of each reporting unit to its carrying value. If the carrying value of a reporting unit exceeds its estimated fair value, goodwill would be considered to be impaired and reduced to its implied fair value. We estimate the fair value of reporting units with valuation techniques, including both the income and market approaches. The income approach requires management to estimate projected future operating and cash flow results, economic projections, and discount rates. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry group.
We most recently performed our annual goodwill impairment testing in the fourth quarter of 2022 using a quantitative approach which did not result in any impairments. See Note 6, Goodwill and Other Intangibles for additional information.
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Other Intangible Assets
Other intangible assets consist primarily of technology and patent rights, customer and other relationships, and trade names. These assets, which are generally acquired through business combinations, are recorded at fair value upon acquisition and amortized on a straight-line basis over the asset’s useful life which typically range from two to eleven years.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company accounts for long-lived assets in accordance with the provisions of ASC Topic 360, Property, Plant and Equipment, whichrequires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposition of the asset. If such assets are impaired, the impairment to be recognized is the excess of the carrying amount over the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Investments in Securities
The Company’s investments primarily include equity securities that are accounted for at cost, adjusted for impairment losses or changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. These investments are primarily in venture capital backed technology companies where the Company's ownership interest is less than 20% and the Company does not have the ability to exercise significant influence. See Note 8, Investments for additional information.
Revenue Recognition
Revenues are primarily comprised of sales of hardware, supplies, services, solutions and software offerings. We recognize revenues when we transfer control of promised goods or services to our customers in an amount that reflects the consideration that we expect to receive, which includes estimates of variable consideration, in exchange for those goods or services. We are typically the principal in all elements of our transactions and record Net sales and Cost of sales on a gross basis. Substantially all revenues for tangible products, supplies and perpetual or term software licenses are recognized at a point in time, which is generally upon shipment, when control and the risks and rewards of ownership have transferred to the customer, and the Company has a contractual right to payment. Revenues for our service offerings are recognized over time. Our service offerings include repair and maintenance service contracts, as well as professional services such as installation, integration and provisioning that typically occur in the early stages of a project. The average life of repair and maintenance service contracts is approximately three years. Professional service arrangements range in duration from a day to several weeks or months. Revenues for solutions, including Company-hosted software license and maintenance agreements, are typically recognized over time.
The Company elects to exclude sales and other governmental taxes that are collected by the Company from a customer, from the transaction price The Company also considers shipping and handling activities as part of its fulfillment costs and not as a separate performance obligation. See Note 3, Revenues for additional information.
Research and Development Costs
Research and development (“R&D”) costs include:
•Salaries, benefits, and other R&D personnel related costs;
•Consulting and other outside services used in the R&D process;
•Engineering supplies;
•Engineering related information systems costs; and
•Allocation of building and related costs.
R&D costs are expensed as incurred, including those associated with developing and maintaining software within our customer offerings. The Company typically applies a dynamic and iterative approach to developing customer product and software offerings as well as ongoing software feature and functionality enhancement releases, and accordingly, such costs do not meet capitalization criteria.
Advertising
Advertising costs are expensed as incurred. These costs totaled $33 million, $35 million, and $25 million for the years ended 2022, 2021 and 2020, respectively.
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Warranties
In general, the Company provides warranty coverage of one year on mobile computers and batteries. Printers are warrantied from one to two years, depending on the model. Advanced data capture products are warrantied from one to five years, depending on the product. Thermal printheads are warrantied for six months and battery-based products, such as location tags, are covered by a 90-day warranty. A provision for warranty expense is adjusted quarterly based on historical and expected warranty experience.
Contingencies
The Company establishes a liability for loss contingencies when the loss is both probable and estimable. In addition, for some matters for which a loss is probable or reasonably possible, a reliable estimate of the amount of loss or range of loss cannot be determined, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our financial assets and liabilities that are accounted for at fair value generally include our employee deferred compensation plan investments, foreign currency forwards, and interest rate swaps. In accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”), we recognize derivative instruments and hedging activities as either assets or liabilities on the Consolidated Balance Sheets and measure them at fair value. Accounting for the gains and losses on our derivatives resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.
The Company utilizes foreign currency forwards to hedge certain foreign currency exposures. We use broker quotations or market transactions, in either the listed or over-the-counter markets, to value our foreign currency exchange contracts. The Company also has interest rate swaps to hedge a portion of the variability in future cash flows on debt. We use relevant observable market inputs at quoted intervals, such as forward yield curves and the Company’s own credit risk, to value our interest rate swaps. See Note 11, Derivative Instruments for additional information on the Company’s derivatives and hedging activities.
The Company’s securities held for its deferred compensation plans are measured at fair value using quoted prices in active markets for identical assets. If active markets for identical assets are not available to determine fair value, then we use quoted prices for similar assets or inputs that are observable either directly or indirectly.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to the short-term nature of those financial instruments. See Note 10, Fair Value Measurements for information related to financial assets and liabilities carried at fair value.
Share-Based Compensation
The Company has share-based compensation plans and an employee stock purchase plan under which shares of Class A Common Stock are available for future grant and purchase. The Company recognizes compensation costs over the vesting period of awards, which is typically three years, net of estimated forfeitures. Compensation costs associated with awards with graded vesting terms are recognized on a straight-line basis. See Note 15, Share-Based Compensation for additional information.
Foreign Currency Translation
The balance sheet accounts of the Company’s subsidiaries that have not designated the U.S. Dollar as its functional currency are translated into U.S. Dollars using the period-end exchange rate, and statement of earnings items are translated using the average exchange rate for the period. The resulting translation gains or losses are recorded in Stockholders’ equity as a cumulative translation adjustment, which is a component of AOCI within the Consolidated Balance Sheets.
Acquisitions
We account for acquired businesses using the acquisition method of accounting which requires that the purchase price be allocated to the identifiable assets acquired and liabilities assumed, generally measured at their estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill.
The estimates used to determine the fair values of long-lived assets, such as intangible assets, can be complex and require judgment. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from revenues and the determination of discount rates. Management’s estimates of fair value are based on estimates and assumptions utilized as part of the purchase price allocation process and are believed to be reasonable; however elements of these estimates and assumptions are inherently uncertain and subject to refinement during the measurement period, which is up to one year after the acquisition date.
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Recently Adopted Accounting Pronouncements
The Company did not adopt any material new accounting standards during the year ended December 31, 2022.
Note 3 Revenues
The Company recognizes revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration which it expects to receive for providing those goods or services. To determine total expected consideration, the Company estimates elements of variable consideration, which primarily include product rights of return, rebates, and other incentives. These estimates are developed using the expected value method and are reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the extent it is probable that a significant reversal in cumulative revenues recognized will not occur in future periods.
We enter into contracts that may include combinations of tangible products, services, solutions and software offerings, which are generally capable of being distinct and accounted for as separate performance obligations. We evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract has more than one performance obligation. This evaluation requires judgment, and the decision to combine a group of contracts or separate the combined or single contract into multiple distinct performance obligations may impact the amount of revenue recorded in a reporting period. We deem performance obligations to be distinct if the customer can benefit from the product or service on its own or together with readily available resources (“capable of being distinct”) and if the transfer of products, solutions or services is separately identifiable from other promises in the contract (“distinct within the context of the contract”).
For contract arrangements that include multiple performance obligations, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices for each performance obligation. In general, standalone selling prices are observable for tangible products and software licenses, while standalone selling prices for professional services, repair and maintenance services, and solutions are developed primarily with an expected cost-plus margin approach. Regional pricing, marketing strategies, and business practices are evaluated to derive estimated standalone selling prices.
The Company recognizes revenue for each performance obligation upon transfer of control of the promised goods or services. Control is deemed to have been transferred when the customer has the ability to direct the use of and has obtained substantially all of the remaining benefits from the goods and services. The determination of whether control transfers at a point in time or over time requires judgment and includes our consideration of the following: 1) whether the customer simultaneously receives and consumes the benefits provided as the Company performs its promises; 2) whether the Company’s performance creates or enhances an asset that is under control of the customer; and 3) whether the Company’s performance does not create an asset with an alternative use to the Company, while the Company has an enforceable right to payment for its performance completed to date.
Revenues for products are generally recognized upon shipment, whereas revenues for services and solution offerings are generally recognized over time by using an output or time-based method, assuming all other criteria for revenue recognition have been met. Revenues for software are recognized either upon delivery or over time using a time-based method, depending upon how control is transferred to the customer. In cases where a bundle of products, services, solutions and/or software are delivered to the customer, judgment is required to select the method of progress which best reflects the transfer of control.
Disaggregation of Revenue
The following table presents our Net sales disaggregated by product category for each of our segments, AIT and EVM, for the years ended December 31, 2022, 2021 and 2020 (in millions):
| Year Ended December 31, 2022 | |||||||||||||||||
| Segment | Tangible Products | Services and Software | Total | ||||||||||||||
| AIT | $ | 1,641 | $ | 95 | $ | 1,736 | |||||||||||
| EVM | 3,274 | 771 | 4,045 | ||||||||||||||
Corporate eliminations (1) | — | — | — | ||||||||||||||
| Total | $ | 4,915 | $ | 866 | $ | 5,781 | |||||||||||
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| Year Ended December 31, 2021 | |||||||||||||||||
| Segment | Tangible Products | Services and Software | Total | ||||||||||||||
| AIT | $ | 1,563 | $ | 94 | $ | 1,657 | |||||||||||
| EVM | 3,282 | 694 | 3,976 | ||||||||||||||
Corporate eliminations (1) | — | (6) | (6) | ||||||||||||||
| Total | $ | 4,845 | $ | 782 | $ | 5,627 | |||||||||||
| Year Ended December 31, 2020 | |||||||||||||||||
| Segment | Tangible Products | Services and Software | Total | ||||||||||||||
| AIT | $ | 1,286 | $ | 83 | $ | 1,369 | |||||||||||
| EVM | 2,527 | 559 | 3,086 | ||||||||||||||
Corporate eliminations (1) | — | (7) | (7) | ||||||||||||||
| Total | $ | 3,813 | $ | 635 | $ | 4,448 | |||||||||||
(1) Amounts included in Corporate eliminations consist of purchase accounting adjustments.
In addition, refer to Note 20, Segment Information & Geographic Data for Net sales to customers by geographic region.
Performance Obligations
The Company’s remaining performance obligations primarily relate to repair and support services, as well as solution offerings. The aggregated transaction price allocated to remaining performance obligations for arrangements with an original term exceeding one year was $1,105 million and $1,033 million, inclusive of deferred revenue, as of December 31, 2022 and 2021, respectively. On average, remaining performance obligations as of December 31, 2022 and 2021 are expected to be recognized over a period of approximately two years.
Contract Balances
Progress on satisfying performance obligations under contracts with customers related to billed revenues is reflected on the Consolidated Balance Sheets in Accounts receivable, net. Progress on satisfying performance obligations under contracts with customers related to unbilled revenues (“contract assets”) is reflected on the Consolidated Balance Sheets as Prepaid expenses and other current assets for revenues expected to be billed within the next twelve months, and Other long-term assets for revenues expected to be billed thereafter. The total contract asset balances were $16 million and $10 million as of December 31, 2022 and 2021, respectively. These contract assets result from timing differences between billing and satisfying performance obligations, as well as the impact from the allocation of the transaction price among performance obligations for contracts that include multiple performance obligations. Contract assets are evaluated for impairment and no impairment losses have been recognized during the years ended December 31, 2022, 2021 and 2020.
Deferred revenue on the Consolidated Balance Sheets consists of payments and billings in advance of our performance. The combined short-term and long-term deferred revenue balances were $758 million and $695 million as of December 31, 2022 and 2021, respectively. The Company recognized $399 million, $319 million and $256 million in revenue that was previously included in the beginning balance of deferred revenue during the years ended December 31, 2022, 2021 and 2020, respectively.
Our payment terms vary by the type and location of our customer and the products, solutions or services offered. The time between invoicing and when payment is due is not significant. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts do not include a significant financing component.
Costs to Obtain a Contract
Our incremental direct costs of obtaining a contract, which consist of sales commissions and incremental fringe benefits, are deferred and amortized over the weighted-average contract term. The incremental costs to obtain a contract are derived at a portfolio level and amortized on a straight-line basis. The total ending balance of deferred commission costs, which are recorded in Prepaid expenses and other current assets or Other long-term assets on the Consolidated Balance Sheets, depending on the timing of expected amortization, was $35 million and $28 million as of December 31, 2022 and 2021, respectively. Amortization of deferred commission costs, which is recorded in Selling and Marketing expense on the Consolidated Statements of Operations, was $21 million, $18 million and $14 million during the years ended December 31, 2022, 2021 and 2020, respectively. Incremental costs of obtaining a contract are expensed as incurred if the amortization period would otherwise be one year or less.
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Note 4 Inventories
The components of Inventories, net are as follows (in millions):
| December 31, 2022 | December 31, 2021 | ||||||||||
| Raw materials | $ | 293 | $ | 196 | |||||||
| Work in process | 4 | 3 | |||||||||
| Finished goods | 563 | 292 | |||||||||
| Total Inventories, net | $ | 860 | $ | 491 | |||||||
Note 5 Business Acquisitions
Matrox
On June 3, 2022, the Company acquired Matrox Electronic Systems Ltd. (“Matrox”), a developer of advanced machine vision components and software. Through its acquisition of Matrox, the Company significantly expanded its machine vision products and software offerings.
The acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s final purchase consideration was $881 million comprised of cash paid, net of Matrox’s cash on-hand.
The Company utilized estimated fair values as of the acquisition date 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 several estimates and assumptions, as well as customary valuation techniques, primarily the excess earnings method for customer relationships as well as the relief from royalty method for technology and patent intangible assets. 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 still considered preliminary as of December 31, 2022 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 | $ | 297 | |||
| Inventory | 31 | ||||
| Deferred tax liabilities | (79) | ||||
| Other liabilities assumed | (32) | ||||
| Net assets acquired | $ | 241 | |||
| Goodwill on | 640 | ||||
| Total purchase price | $ | 881 | |||
The $640 million of goodwill, which is non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned global expansion and integration of Matrox into the Company’s machine vision offerings.
The preliminary purchase price allocation to identifiable intangible assets acquired was as follows:
| Fair Value (in millions) | Useful Life (in years) | ||||||||||
| Customer and other relationships | $ | 232 | 11 | ||||||||
| Technology and patents | 63 | 7 | |||||||||
| Trade names | 2 | 2 | |||||||||
| Total identifiable intangible assets | $ | 297 | |||||||||
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In connection with the acquisition of Matrox, the Company granted $13 million of cash-settled RSUs to certain employees in the second quarter, which are attributable to service to be rendered subsequent to the acquisition and will generally be expensed over a 3-year service period.
Antuit
On October 7, 2021, the Company acquired Antuit Holdings Pte. Ltd. (“Antuit”), a provider of demand-sensing and pricing optimization software solutions for retail and consumer products companies. Through this acquisition, the Company intends to enhance its solution offerings to customers in these industries by combining Antuit’s platform with its existing software solutions and EVM products.
The acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s purchase consideration was $145 million in cash paid, net of Antuit’s cash on-hand.
The Company utilized estimated fair values as of the acquisition date 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 several estimates and assumptions, as well as customary valuation techniques, primarily the excess earnings method for technology and patent intangible assets.
The purchase price allocation to assets acquired and liabilities assumed was as follows (in millions):
| Identifiable intangible assets | $ | 47 | |||
| Accounts receivable | 9 | ||||
| Other assets acquired | 4 | ||||
| Deferred tax liabilities | (5) | ||||
| Other liabilities assumed | (11) | ||||
| Net assets acquired | $ | 44 | |||
| Goodwill on acquisition | 101 | ||||
| Total purchase price | $ | 145 | |||
The $101 million of goodwill, which is non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned expansion of Antuit’s portfolio and integration with the Company’s existing solution offerings as well as expansion into current and new markets, industries and product offerings.
The purchase price allocation to identifiable intangible assets acquired was as follows:
| Fair Value (in millions) | Useful Life (in years) | ||||||||||
| Technology and patents | $ | 39 | 8 | ||||||||
| Customer and other relationships | 7 | 2 | |||||||||
| Trade names | 1 | 2 | |||||||||
| Total identifiable intangible assets | $ | 47 | |||||||||
In connection with the acquisition of Antuit, the Company also granted share-based compensation awards in the form of stock and cash-settled restricted stock units with an approximate fair value of $5 million. The total fair value of the awards is attributable to post-acquisition service and will generally be expensed over a three-year service period.
Fetch
On August 9, 2021, the Company acquired Fetch Robotics, Inc. (“Fetch”), a provider of autonomous mobile robot solutions for customers who operate in the manufacturing, distribution, and fulfillment industries, enabling customers to optimize workflows through robotic automation. Through this acquisition, the Company intends to expand its automation solution offerings within these industries.
The acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s total purchase consideration was $301 million, which consisted of $290 million in cash paid, net of Fetch’s cash on-hand, and the fair value of the Company’s existing ownership interest in Fetch of $11 million, as remeasured upon acquisition. This remeasurement resulted in a $1 million gain reflected in Other (expense) income, net on the Consolidated Statements of Operations.
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The Company utilized estimated fair values as of the acquisition date 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 several estimates and assumptions, as well as customary valuation techniques, primarily the excess earnings method for technology and patent intangible assets.
The purchase price allocation to assets acquired and liabilities assumed was as follows (in millions):
| Identifiable intangible assets | $ | 114 | |||
| Right-of-use lease asset | 11 | ||||
| Inventories | 5 | ||||
| Deferred tax assets | 6 | ||||
| Other assets acquired | 4 | ||||
| Lease liability | (11) | ||||
| Other liabilities assumed | (4) | ||||
| Net assets acquired | $ | 125 | |||
| Goodwill on acquisition | 176 | ||||
| Total purchase price | $ | 301 | |||
The $176 million of goodwill, which is non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned geographic expansion and integration of Fetch into the Company’s manufacturing and warehouse automation offerings.
The purchase price allocation to identifiable intangible assets acquired was as follows:
| Fair Value (in millions) | Useful Life (in years) | ||||||||||
| Technology and patents | $ | 100 | 7 | ||||||||
| Customer and other relationships | 5 | 2 | |||||||||
| Trade names | 9 | 5 | |||||||||
| Total identifiable intangible assets | $ | 114 | |||||||||
In connection with the acquisition of Fetch, the Company granted share-based compensation awards, principally as a replacement for unvested Fetch stock options, in the form of stock-settled restricted stock units. The total fair value of approximately $23 million is attributable to post-acquisition service and will generally be expensed over a three-year service period.
Adaptive Vision
On May 17, 2021, the Company acquired Adaptive Vision Sp. z o.o. (“Adaptive Vision”), a provider of graphical machine vision software with applications in the manufacturing industry, as well as a provider of libraries and other offerings for machine vision developers. The acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s cash purchase consideration of $18 million, net of cash on-hand, was primarily allocated to technology-related intangible assets of $13 million and associated deferred tax liabilities, and goodwill of $7 million. The technology-related intangible assets have an estimated useful life of eight years. The goodwill, which will be non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned expansion of the Adaptive Vision technologies into new product offerings and markets.
Reflexis
On September 1, 2020, the Company acquired 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 enhanced its solution offerings to customers in these industries by combining Reflexis’ platform with its existing software solutions and its EVM product offerings.
The Reflexis acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s final cash purchase consideration was $547 million, net of Reflexis’ cash on-hand and including resolution of contractual matters that resulted in escrow proceeds of $1 million being received by the Company in 2021.
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
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stock options. The total fair value of approximately $9 million is primarily attributable to post-acquisition service and expensed over the remaining service period. See Note 15, Share-Based Compensation for additional details related to these options.
The Company utilized estimated fair values as of the acquisition date 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 several estimates and assumptions, as well as customary valuation techniques, primarily the excess earnings method for technology and patent intangible assets, as well as exit cost methodologies for liabilities such as deferred revenues.
The purchase price allocation to assets acquired and liabilities assumed was as follows (in millions):
| Identifiable intangible assets | $ | 213 | |||
| Accounts receivable | 20 | ||||
| Property, plant and equipment | 10 | ||||
| Other assets acquired | 17 | ||||
| Deferred revenue | (16) | ||||
| Deferred tax liabilities | (39) | ||||
| Other liabilities assumed | (14) | ||||
| Net assets acquired | $ | 191 | |||
| Goodwill on acquisition | 356 | ||||
| Total purchase consideration | $ | 547 | |||
The $356 million of goodwill, which is 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 expansion in current and new markets, industries and product offerings.
The purchase price allocation to identifiable intangible assets acquired was:
| Fair Value (in millions) | Useful Life (in years) | |||||||||||||
| Technology and patents | $ | 160 | 8 | |||||||||||
| Customer and other relationships | 43 | 2 | ||||||||||||
| Trade names | 10 | 8 | ||||||||||||
| Total identifiable intangible assets | $ | 213 | ||||||||||||
The operating results of each acquired company have been included in the Company’s Consolidated Balance Sheets and Statements of Operations beginning on their respective acquisition dates. The Company has not included unaudited pro forma results for the year preceding each acquisition, as doing so would not yield materially different results.
Acquisition and integration costs
The Company incurred $21 million of acquisition-related costs in 2022, primarily related to third-party and advisory fees associated with the Matrox acquisition. These costs are included within Acquisition and integration costs on the Consolidated Statements of Operations.
The Company incurred $25 million of acquisition-related costs during 2021, primarily related to third-party transaction and advisory fees associated with our business acquisitions, as well as transaction bonuses paid to existing Antuit option holders. These costs are included within Acquisition and integration costs on the Consolidated Statements of Operations.
The Company incurred $23 million of acquisition-related costs during 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, as well as other third-party transaction and advisory fees associated with our business acquisitions. These costs are included within Acquisition and integration costs on the Consolidated Statements of Operations.
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Note 6 Goodwill and Other Intangibles
Goodwill
Changes in the net carrying value of goodwill by segment were as follows (in millions):
| AIT | EVM | Total | |||||||||||||||
| Goodwill as of December 31, 2020 | $ | 228 | $ | 2,760 | $ | 2,988 | |||||||||||
| Retail Solutions move to EVM segment, effective January 1, 2021 | (59) | 59 | — | ||||||||||||||
| Antuit acquisition | — | 105 | 105 | ||||||||||||||
| Fetch acquisition | — | 174 | 174 | ||||||||||||||
| Adaptive Vision acquisition | — | 7 | 7 | ||||||||||||||
| Reflexis purchase price allocation adjustments | — | (7) | (7) | ||||||||||||||
| Reflexis purchase price reduction | — | (1) | (1) | ||||||||||||||
| Foreign exchange impact | — | (1) | (1) | ||||||||||||||
| Goodwill as of December 31, 2021 | $ | 169 | $ | 3,096 | $ | 3,265 | |||||||||||
| Matrox acquisition | — | 640 | 640 | ||||||||||||||
| Fetch purchase price allocation adjustments | — | 2 | 2 | ||||||||||||||
| Antuit purchase price allocation adjustments | — | (4) | (4) | ||||||||||||||
| Foreign exchange impact | — | (4) | (4) | ||||||||||||||
| Goodwill as of December 31, 2022 | $ | 169 | $ | 3,730 | $ | 3,899 | |||||||||||
See Note 5, Business Acquisitions for further details related to the Company’s acquisitions and purchase price allocation adjustments.
The Company’s goodwill balance consists of four reporting units. The Company completed its annual goodwill impairment testing during the fourth quarter of 2022 utilizing a quantitative approach. The estimated fair value of each reporting unit significantly exceeds its carrying value. However, there is risk of future impairment to the extent that an individual reporting unit’s performance does not meet projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors are not met, or if other valuation factors outside of our control change unfavorably, the estimated fair value of our reporting units could be adversely affected, leading to a potential impairment in the future.
No events occurred during the fiscal years ended 2022, 2021, or 2020 that indicated it was more likely than not that our goodwill was impaired.
Other Intangibles, net
The balances in Other Intangibles, net consisted of the following (in millions):
| As of December 31, 2022 | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Amortized intangible assets | |||||||||||||||||||||||||||||||||||
| Technology and patents | $ | 951 | $ | (621) | $ | 330 | $ | 889 | $ | (566) | $ | 323 | |||||||||||||||||||||||
| Customer and other relationships | 860 | (576) | 284 | 631 | (503) | 128 | |||||||||||||||||||||||||||||
| Trade names | 66 | (50) | 16 | 64 | (46) | 18 | |||||||||||||||||||||||||||||
| Total | $ | 1,877 | $ | (1,247) | $ | 630 | $ | 1,584 | $ | (1,115) | $ | 469 | |||||||||||||||||||||||
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Amortization expense was $136 million, $115 million, and $78 million for fiscal years ended 2022, 2021 and 2020, respectively.
Estimated future intangible asset amortization expense is as follows (in millions):
| Year Ended December 31, | |||||
| 2023 | $ | 103 | |||
| 2024 | 98 | ||||
| 2025 | 97 | ||||
| 2026 | 93 | ||||
| 2027 | 78 | ||||
| Thereafter | 161 | ||||
| Total | $ | 630 | |||
Note 7 Property, Plant and Equipment
Property, plant and equipment, net is comprised of the following (in millions):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Buildings | $ | 75 | $ | 75 | |||||||
| Land | 7 | 7 | |||||||||
| Machinery and equipment | 318 | 276 | |||||||||
| Furniture and office equipment | 24 | 26 | |||||||||
| Software and computer equipment | 125 | 127 | |||||||||
| Leasehold improvements | 88 | 94 | |||||||||
| Projects in progress | 48 | 40 | |||||||||
| 685 | 645 | ||||||||||
| Less accumulated depreciation | (407) | (373) | |||||||||
| Property, plant and equipment, net | $ | 278 | $ | 272 | |||||||
Depreciation expense was $68 million, $72 million and $68 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Note 8Investments
The carrying value of the Company’s long-term investments was $113 million and $101 million as of December 31, 2022 and 2021, respectively, which are included in Other long-term assets on the Consolidated Balances Sheets. The Company paid $12 million, $34 million, and $32 million for the purchases of long-term investments during the years ended December 31, 2022, 2021, and 2020, respectively. Net gains and losses related to the Company’s long-term investments are included within Other (expense) income, net on the Consolidated Statements of Operations. There were no net gains in the year ended December 31, 2022. Net gains were $2 million and $5 million during the years ended December 31, 2021 and 2020, respectively.
Note 9 Exit and Restructuring Costs
In the third quarter of 2022, the Company committed to certain organizational changes and leased site rationalization designed to generate structural cost efficiencies (collectively referred to as the “2022 Productivity Plan”). The total cost under the 2022 Productivity Plan, which is expected to be completed in 2023, is estimated to be approximately $25 million. Exit and restructuring charges associated with the 2022 Productivity Plan were $12 million for the year ended December 31, 2022.The Company incurred Exit and restructuring costs, under previously announced programs of $2 million, $7 million and $11 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Note 10 Fair Value Measurements
Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer
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a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into the following three broad levels:
•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 in 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.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs to the extent possible. In addition, the Company considers counterparty credit risk in the assessment of fair value.
The Company’s financial assets and liabilities carried at fair value as of December 31, 2022 are classified below (in millions):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Forward interest rate swap contracts (2) | $ | — | $ | 72 | $ | — | $ | 72 | |||||||||||||||
| Investments related to the deferred compensation plan | 35 | — | — | 35 | |||||||||||||||||||
| Total Assets at fair value | $ | 35 | $ | 72 | $ | — | $ | 107 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Foreign exchange contracts (1) | $ | 5 | $ | 14 | $ | — | $ | 19 | |||||||||||||||
| Liabilities related to the deferred compensation plan | 35 | — | — | 35 | |||||||||||||||||||
| Total Liabilities at fair value | $ | 40 | $ | 14 | $ | — | $ | 54 | |||||||||||||||
The Company’s financial assets and liabilities carried at fair value as of December 31, 2021 are classified below (in millions):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Foreign exchange contracts (1) | $ | — | $ | 23 | $ | — | $ | 23 | |||||||||||||||
| Investments related to the deferred compensation plan | 37 | — | — | 37 | |||||||||||||||||||
| Total Assets at fair value | $ | 37 | $ | 23 | $ | — | $ | 60 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Forward interest rate swap contracts (2) | $ | — | $ | 16 | $ | — | $ | 16 | |||||||||||||||
| Liabilities related to the deferred compensation plan | 37 | — | — | 37 | |||||||||||||||||||
| Total Liabilities at fair value | $ | 37 | $ | 16 | $ | — | $ | 53 | |||||||||||||||
(1)The fair value of the foreign exchange contracts is calculated as follows:
•Fair value of regular forward contracts associated with forecasted sales hedges is calculated using the period-end exchange rate adjusted for current forward points.
•Fair value of hedges against net assets denominated in foreign currencies is calculated at the period-end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at year 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.
Note 11 Derivative Instruments
In the normal course of business, the Company is exposed to global market risks, including the effects of changes in foreign currency exchange rates and interest rates. The Company uses derivative instruments to manage its exposure to such risks and may elect to designate certain derivatives as hedging instruments under ASC Topic 815, Derivatives and Hedging (“ASC 815”). The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking hedge transactions. The Company does not hold or issue derivatives for trading or speculative purposes.
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In accordance with ASC 815, the Company recognizes derivative instruments as either assets or liabilities on the Consolidated Balance Sheets and measures them at fair value. The following table presents the fair value of its derivative instruments (in millions):
| Asset (Liability) | |||||||||||||||||
| Fair Values as of December 31, | |||||||||||||||||
| Balance Sheets Classification | 2022 | 2021 | |||||||||||||||
| Derivative instruments designated as hedges: | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | — | $ | 23 | ||||||||||||
| Foreign exchange contracts | Accrued liabilities | (14) | — | ||||||||||||||
| Total derivative instruments designated as hedges | $ | (14) | $ | 23 | |||||||||||||
| Derivative instruments not designated as hedges: | |||||||||||||||||
| Forward interest rate swaps | Prepaid expenses and other current assets | $ | 25 | $ | — | ||||||||||||
| Forward interest rate swaps | Other long-term assets | 47 | — | ||||||||||||||
| Foreign exchange contracts | Accrued liabilities | (5) | — | ||||||||||||||
| Forward interest rate swaps | Accrued liabilities | — | (15) | ||||||||||||||
| Forward interest rate swaps | Other long-term liabilities | — | (1) | ||||||||||||||
| Total derivative instruments not designated as hedges | $ | 67 | $ | (16) | |||||||||||||
| Total net derivative asset | $ | 53 | $ | 7 | |||||||||||||
The following table presents the net gains (losses) from changes in fair values of derivatives that are not designated as hedges (in millions):
| Gain (Loss) Recognized in Income | |||||||||||||||||||||||
| Statements of Operations Classification | Year Ended December 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||
| Derivative instruments not designated as hedges: | |||||||||||||||||||||||
| Foreign exchange contracts | Foreign exchange gain (loss) | $ | 2 | $ | 7 | $ | (12) | ||||||||||||||||
| Forward interest rate swaps | Interest income (expense), net | 83 | 13 | (46) | |||||||||||||||||||
| Total gain (loss) recognized in income | $ | 85 | $ | 20 | $ | (58) | |||||||||||||||||
Activities related to derivative instruments are reflected within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Credit and Market Risk Management
Financial instruments, including derivatives, expose the Company to counterparty credit risk of nonperformance and to market risk related to currency exchange rate and interest rate fluctuations. The Company manages its exposure to counterparty credit risk by establishing minimum credit standards, diversifying its counterparties, and monitoring its concentrations of credit. The Company’s counterparties are commercial banks with expertise in derivative financial instruments. The Company evaluates the impact of market risk on the fair value and cash flows of its derivative and other financial instruments by considering reasonably possible changes in interest rates and currency exchange rates. The Company continually monitors the creditworthiness of the customers to which it grants credit terms in the normal course of business. The terms and conditions of the Company’s credit policies are designed to mitigate concentrations of credit risk.
The Company’s master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. We present the assets and liabilities of our derivative financial instruments, for which we have net settlement agreements in place, on a net basis on the Consolidated Balance Sheets. If the derivative financial instruments had been presented gross on the Consolidated Balance Sheets, the asset and liability positions would have been increased by $4 million as of December 31, 2022 and would have been increased by $1 million as of December 31, 2021.
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Foreign Currency Exchange Risk Management
The Company conducts business on a multinational basis in a variety of foreign currencies. Exposure to market risk for changes in foreign currency exchange rates arises primarily from Euro-denominated external revenues, cross-border financing activities between subsidiaries, and foreign currency denominated monetary assets and liabilities. The Company manages its objective of preserving the economic value of non-functional currency denominated cash flows by initially hedging transaction exposures with natural offsets and, once these opportunities have been exhausted, through foreign exchange forward and option contracts, as deemed appropriate.
The Company manages the exchange rate risk of anticipated Euro-denominated sales using forward contracts, which typically mature within twelve months of execution. The Company designates these derivative contracts as cash flow hedges. Unrealized gains and losses on these contracts are deferred in Accumulated other comprehensive income (loss) (“AOCI”) on the Consolidated Balance Sheets until the contract is settled and the hedged sale is realized. The realized gain or loss is then recorded as an adjustment to Net sales on the Consolidated Statements of Operations. Realized amounts reclassified to Net sales were $87 million of gains for the year ended December 31, 2022, and $2 million and $6 million of losses for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the notional amounts of the Company’s foreign exchange cash flow hedges were €549 million and €675 million, respectively. The Company has reviewed its cash flow hedges for effectiveness and determined that they are highly effective.
The Company uses forward contracts, which are not designated as hedging instruments, to manage its exposures related to net assets denominated in foreign currencies. These forward contracts typically mature within one month after execution. Monetary gains and losses on these forward contracts are recorded in income and are generally offset by the transaction gains and losses related to their net asset positions. The notional values and the net fair values of these outstanding contracts were as follows (in millions):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Notional balance of outstanding contracts: | |||||||||||
| British Pound/U.S. Dollar | £ | 11 | £ | 13 | |||||||
| Euro/U.S. Dollar | € | 191 | € | 142 | |||||||
| Euro/Czech Koruna | € | 15 | € | 16 | |||||||
| Singapore Dollar/U.S. Dollar | S$ | 5 | S$ | 16 | |||||||
| Mexican Peso/U.S. Dollar | Mex$ | 372 | Mex$ | 64 | |||||||
| Polish Zloty/U.S. Dollar | zł | 47 | zł | 103 | |||||||
| Net fair value of liabilities of outstanding contracts | $ | 5 | $ | — | |||||||
Interest Rate Risk Management
The Company’s debt consists of borrowings under a term loan (“Term Loan A”), Revolving Credit Facility, and Receivables Financing Facilities, which bear interest at variable rates plus applicable margins. As a result, the Company is exposed to market risk associated with the variable interest rate payments on these borrowings. See Note 12, Long-Term Debt for further details related to these borrowings.
The Company manages its exposure to changes in interest rates by utilizing long-term forward interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions. The Company had one active long-term forward interest rate swap agreement with a notional amount of $800 million to lock into a fixed LIBOR interest rate base, which expired in December 2022. In addition, the Company previously held fixed LIBOR interest rate swaps with an $800 million total notional amount that were subject to net cash settlements effective between December 2022 and August 2024. In the first quarter of 2022, the Company terminated those interest rate swaps and entered into new interest rate swap agreements that contain a total notional amount of $800 million to lock into a fixed SOFR interest rate base, which is subject to monthly net cash settlements effective in December 2022 and ending in October 2027.
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Note 12 Long-Term Debt
The following table shows the carrying value of the Company’s debt (in millions):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Term Loan A | $ | 1,728 | $ | 888 | |||||||
| Revolving Credit Facility | 50 | — | |||||||||
| Receivables Financing Facilities | 254 | 108 | |||||||||
| Total debt | $ | 2,032 | $ | 996 | |||||||
| Less: Debt issuance costs | (4) | (3) | |||||||||
| Less: Unamortized discounts | (5) | (2) | |||||||||
| Less: Current portion of debt | (214) | (69) | |||||||||
| Total long-term debt | $ | 1,809 | $ | 922 | |||||||
As of December 31, 2022, the future maturities of debt are as follows (in millions):
| 2023 | $ | 214 | ||||||
| 2024 | 127 | |||||||
| 2025 | 66 | |||||||
| 2026 | 88 | |||||||
| 2027 | 1,537 | |||||||
| Total future maturities of debt | $ | 2,032 | ||||||
All borrowings as of December 31, 2022 were denominated in U.S. Dollars.
The estimated fair value of the Company’s debt approximated $2.0 billion and $1.0 billion as of December 31, 2022 and 2021, respectively. These fair value amounts, developed based on inputs classified as Level 2 within the fair value hierarchy, represent the estimated value at which the Company’s lenders could trade its debt within the financial markets and do not represent the settlement value of these liabilities to the Company. The fair value of debt will continue to vary each period based on a number of factors, including fluctuations in market interest rates as well as changes to the Company’s credit ratings.
In May 2022, the Company refinanced its long-term credit facilities by entering into its third amendment to the Amended and Restated Credit Agreement (“Amendment No. 3”). Amendment No. 3 increased the Company’s borrowing under Term Loan A from $875 million to $1.75 billion and increased the Company’s borrowing capacity under the Revolving Credit Facility from $1 billion to $1.5 billion. Amendment No. 3 also extended the maturities of Term Loan A and the Revolving Credit Facility to May 25, 2027 and replaced LIBOR with SOFR as the benchmark reference rate. This refinancing resulted in one-time charges of $2 million, which included certain third-party fees and the accelerated amortization of previously deferred issuance costs. These items are included in Interest income (expense), net on the Consolidated Statements of Operations. Additionally, $6 million of new issuance costs and fees were deferred and will be amortized over the remaining term of Term Loan A and the Revolving Credit Facility.
Term Loan A
The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in March 2023 and the majority due upon maturity in 2027. The Company may make prepayments, in whole or in part, without premium or penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of December 31, 2022, the Term Loan A interest rate was 5.67%. Interest payments are made monthly and are subject to variable rates plus an applicable margin.
Revolving Credit Facility
The Company has a Revolving Credit Facility that is available for working capital and other general business purposes, including letters of credit. As of December 31, 2022, the Company had letters of credit totaling $7 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1,500 million to $1,493 million. As of December 31, 2022, the Revolving Credit Facility had an average interest rate of 5.71%. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility matures on May 25, 2027.
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Receivables Financing Facilities
The Company has two Receivables Financing Facilities with financial institutions that have a combined total borrowing limit of up to $280 million. As collateral, the Company pledges perfected first-priority security interests in its U.S. domestically originated accounts receivable. The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings. The Company’s first Receivables Financing Facility allows for borrowings of up to $180 million and matures on March 19, 2024. The Company’s second Receivable Financing Facility allows for borrowings of up to $100 million and matures on May 15, 2023.
As of December 31, 2022, the Company’s Consolidated Balance Sheets included $785 million of receivables that were pledged under the two Receivables Financing Facilities. As of December 31, 2022, $254 million had been borrowed, of which $171 million was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of December 31, 2022, the Receivables Financing Facilities had an average interest rate of 5.33%. Interest is paid on these borrowings on a monthly basis.
Each of the Company’s borrowing arrangements described above include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels.
The Company uses interest rate swaps to manage the interest rate risk associated with its debt. See Note 11, Derivative Instruments for further information.
As of December 31, 2022, the Company was in compliance with all debt covenants.
Note 13 Leases
The Company leases various manufacturing and repair facilities, distribution centers, research facilities, sales and administrative offices, equipment, and vehicles. All leases are classified as operating leases with remaining terms of up to 10 years, with certain leases containing renewal options and termination options. The Company records ROU assets and lease liabilities on the Consolidated Balance Sheets associated with the fixed lease and non-lease payments of leases with terms greater than one year.
The following table presents activities associated with our leases (in millions):
| December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Fixed lease expenses | $ | 48 | $ | 39 | $ | 35 | |||||||||||
| Variable lease expenses | 40 | 37 | 34 | ||||||||||||||
| Total lease expenses | $ | 88 | $ | 76 | $ | 69 | |||||||||||
| Cash paid for leases | $ | 93 | $ | 76 | $ | 69 | |||||||||||
| ROU assets obtained in exchange for lease obligations | $ | 72 | $ | 32 | $ | 55 | |||||||||||
| Reductions of ROU assets and lease liabilities | (4) | — | (3) | ||||||||||||||
| Net non-cash increases to ROU assets and lease liabilities | $ | 68 | $ | 32 | $ | 52 | |||||||||||
Variable lease expenses incurred were not included in the measurement of the Company’s ROU assets and lease liabilities. These expenses consisted primarily of distribution center service costs that were based on product distribution volumes, as well as non-fixed common area maintenance, real estate taxes, and other operating costs associated with various facility leases. Expenses related to short-term leases were not significant.
Cash payments for leases are included within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
ROU assets obtained in exchange for lease obligations include new lease arrangements entered into by the Company as well as contract modifications that extend lease terms and/or provide us additional rights, changes in assessments that render it reasonably certain that lease renewal options will be exercised based on facts and circumstances that arose during the period, as well as lease arrangements obtained through acquisitions.
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Reductions of the Company’s ROU assets and lease liabilities generally relate to modifications to lease agreements that result in a reduction to future minimum lease payments, as well as changes in assessments that render it no longer reasonably certain that lease renewal options will be exercised based on facts and circumstances that arose during the period. The Company’s reduction of ROU assets and lease liabilities during 2022, 2021 and 2020 were not significant.
The weighted average remaining term of the Company’s leases was approximately 6 years each as of December 31, 2022, 2021 and 2020. The weighted average discount rate used to measure the ROU assets and lease liabilities was approximately 5% each as of December 31, 2022, 2021, and 2020.
Future minimum lease payments under non-cancellable leases as of December 31, 2022 were as follows (in millions):
| 2023 | $ | 45 | ||||||
| 2024 | 43 | |||||||
| 2025 | 31 | |||||||
| 2026 | 23 | |||||||
| 2027 | 17 | |||||||
| Thereafter | 48 | |||||||
| Total future minimum lease payments | $ | 207 | ||||||
| Less: Interest | (31) | |||||||
| Present value of lease liabilities | $ | 176 | ||||||
| Reported as of December 31, 2022: | ||||||||
| Current portion of lease liabilities | $ | 37 | ||||||
| Long-term lease liabilities | 139 | |||||||
| Present value of lease liabilities | $ | 176 | ||||||
The current portion of lease liabilities is included within Accrued liabilities on the Consolidated Balance Sheets.
As of December 31, 2022, the Company had future fixed payments of approximately $36 million related to a new office facility lease agreement that had not yet commenced. This new lease agreement is expected to commence in 2023 and has a 10-year term.
Revenues earned from lease arrangements under which the Company is a lessor during the years ended December 31, 2022, 2021 and 2020 were not significant.
Note 14 Accrued Liabilities, Commitments and Contingencies
Accrued Liabilities
The components of Accrued liabilities are as follows (in millions):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Settlement | $ | 180 | $ | — | |||||||
| Payroll and benefits | 90 | 96 | |||||||||
| Incentive compensation | 100 | 155 | |||||||||
| Warranty | 26 | 26 | |||||||||
| Customer rebates | 55 | 51 | |||||||||
| Leases | 37 | 33 | |||||||||
| Unremitted cash collections due to banks on factored accounts receivable | 130 | 141 | |||||||||
| Foreign exchange contracts | 19 | — | |||||||||
| Short-term interest rate swaps | — | 15 | |||||||||
| Freight and duty | 19 | 45 | |||||||||
| Other | 88 | 77 | |||||||||
| Accrued liabilities | $ | 744 | $ | 639 | |||||||
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Warranties
The following table is a summary of the Company’s accrued warranty obligations (in millions):
| Year Ended December 31, | |||||||||||||||||
| Warranty Reserve | 2022 | 2021 | 2020 | ||||||||||||||
| Balance at the beginning of the year | $ | 26 | $ | 24 | $ | 21 | |||||||||||
| Warranty expense | 29 | 33 | 30 | ||||||||||||||
| Warranties fulfilled | (29) | (31) | (27) | ||||||||||||||
| Balance at the end of the year | $ | 26 | $ | 26 | $ | 24 | |||||||||||
Commitments
The Company has a limited number of multi-year purchase commitments, primarily related to semiconductors and cloud-services, which contain minimum purchase requirements and are non-cancellable. Commitments under these contracts are as follows (in millions):
| 2023 | $ | 369 | ||||||
| 2024 | 141 | |||||||
| 2025 | 23 | |||||||
| 2026 | 24 | |||||||
| Thereafter | — | |||||||
| Total | $ | 557 | ||||||
Contingencies
The Company is subject to a variety of investigations, claims, suits, and other legal proceedings that arise from time to time in the ordinary course of business, including but not limited to, intellectual property, employment, tort, and breach of contract matters. The Company currently believes that the outcomes of such proceedings, individually and in the aggregate, will not have a material adverse impact on its business, cash flows, financial position, or results of operations. Any legal proceedings are subject to inherent uncertainties, and the Company’s view of these matters and their potential effects may change in the future. The Company records a liability for contingencies when a loss is deemed to be probable and the loss can be reasonably estimated.
In 2020, the Company received approval of its exclusion request of customs duties that had been paid on certain products under Section 301 of the U.S. Trade Act of 1974 from September 1, 2019 through September 1, 2020 and commenced a process to request recovery of previously assessed amounts. Recoveries are recognized when the Company has completed all regulatory filing requirements and determined that receipt of amounts is virtually certain. Recoveries recorded during the current year were insignificant. Recoveries totaling $19 million were recorded during the year ended December 31, 2021, of which $10 million related to our AIT segment and $9 million related to our EVM segment. Recoveries totaling $12 million were recorded in the fourth quarter of 2020, of which $4 million related to our AIT segment and $8 million related to our EVM segment. Both the initially incurred costs and related recoveries were included within Cost of sales for Tangible products on the Consolidated Statements of Operations. The Company believes that it has recovered substantially all of the import duties that it expects to receive on previously paid amounts.
During the second quarter of 2022, the Company entered into a License and Settlement Agreement (“Settlement”) to resolve certain patent-related litigation. Under the Settlement, the Company and the counterparty each agreed to a mutual general release from all past claims asserted by the parties; entered into a covenant not to sue for patent infringement; agreed to a payment by the Company to the counterparty for past damages of $360 million and entered into a royalty-free cross-license with respect to each party’s existing patent portfolio for the lives of the licensed patents. Based on the terms of the Settlement and a relative fair value analysis of each of the settlement provisions, the Company concluded that no significant portion of the payment resulted in a future benefit, and as such, the full $360 million was recorded as a charge in the second quarter. That charge, along with $12 million of external legal fees, is reflected within Settlement and related costs on the Consolidated Statement of Operations. The payment terms under the Settlement consist of 8 quarterly payments of $45 million that began in the second quarter. The portion payable in the next 12 months is included within Accrued liabilities, with the remaining amounts included within Other long-term liabilities on the Consolidated Balance Sheets. See Item 3, Legal Proceedings for additional information.
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Note 15 Share-Based Compensation
The Company issues share-based compensation awards under the Zebra Technologies 2018 Long-Term Incentive Plan (“2018 Plan”), approved by shareholders in 2018 which superseded and replaced all prior share-based incentive plans. Outstanding awards issued prior to the 2018 Plan are governed by the provisions of those plans until such awards have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with their terms. Awards available under the 2018 Plan include stock-settled awards, including stock-settled restricted stock units, stock-settled performance stock units, restricted stock awards, performance share awards, stock appreciation rights, incentive stock options, and non-qualified stock options.Awards available under the 2018 Plan also include cash-settled awards, including cash-settled stock appreciation rights, cash-settled restricted stock units, and cash-settled performance stock units. No awards remain available for future grants under previous plans.
The Company uses treasury shares as its source for issuing shares under the share-based compensation programs. As of December 31, 2022, the Company had 2,791,708 shares of Class A Common stock remaining available to be issued under the 2018 Plan.
The compensation expense from the Company’s share-based compensation plans and associated income tax benefit, excluding the effects of excess tax benefits or shortfalls, were included in the Consolidated Statements of Operations as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| Compensation costs and related income tax benefit | 2022 | 2021 | 2020 | ||||||||||||||
| Cost of sales | $ | 6 | $ | 8 | $ | 6 | |||||||||||
| Selling and marketing | 22 | 26 | 16 | ||||||||||||||
| Research and development | 34 | 28 | 16 | ||||||||||||||
| General and administration | 34 | 31 | 21 | ||||||||||||||
| Total compensation expense | $ | 96 | $ | 93 | $ | 59 | |||||||||||
| Income tax benefit | $ | 17 | $ | 14 | $ | 9 | |||||||||||
As of December 31, 2022, total unearned compensation costs related to the Company’s share-based compensation plans was $111 million, which will be recognized over the weighted average remaining service period of approximately 1.4 years.
The majority of the Company’s share-based compensation awards are generally issued as part of its employee and non-employee director incentive program during the second quarter of each fiscal year. The Company also issues awards associated with business acquisitions or other off-cycle events.
Stock-Settled Restricted Stock Units (“stock-settled RSUs”) and Stock-Settled Performance Share Units (“stock-settled PSUs”)
The Company began issuing stock-settled RSUs and stock-settled PSUs in the second quarter of 2021. Stock-settled RSUs and stock-settled PSUs each typically vest over a three-year service period, with stock-settled RSUs vesting ratably in three annual installments and stock-settled PSUs vesting at the end of the three-year period. Vesting for each participant is subject to restrictions, such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, stock-settled RSUs and stock-settled PSUs are converted into shares of Class A Common Stock that are released to participants.
Compensation cost for the Company’s stock-settled RSUs and stock-settled PSUs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on the grant date multiplied by the number of units granted, net of estimated forfeitures. The fair value of PSUs also includes assumptions around achievement of certain Company-wide financial performance goals.
Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”)
Prior to 2021, the Company’s restricted stock grants consisted of time-vested RSAs and PSAs as part of the Company’s annual incentive program. These awards are considered participating securities, and as such, are included as part of the Company’s Class A Common Stock outstanding. The RSAs and PSAs vest at each vesting date, subject to restrictions such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, RSAs and PSAs are released to holders and are no longer subject to restrictions.
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Compensation cost for the Company’s RSAs and PSAs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on the grant date multiplied by the number of awards granted, net of estimated forfeitures. The fair value of PSAs also includes assumptions around achievement of certain Company-wide financial performance goals. The total required service period is typically three years.
The Company also issues RSAs to non-employee directors. The number of shares granted to each non-employee director is determined by dividing the value of the annual grant by the price of a share of the Company’s Class A Common Stock. New directors in any fiscal year earn a prorated amount. During fiscal 2022, there were 5,686 shares granted to non-employee directors compared to 2,877 and 6,314 during fiscal 2021 and 2020, respectively. The shares vest immediately upon grant.
A summary of the Company’s restricted and performance stock-settled awards for the years ended December 31, 2022, 2021 and 2020 is as follows:
| Year Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSUs | PSUs | RSAs | PSAs | |||||||||||||||||||||||||||||||||||||||||||||||
| Units | Weighted-Average Grant Date Fair Value | Units | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||||||||||||||||||||||
| Outstanding at beginning of year | 130,009 | $ | 518.80 | 37,691 | $ | 482.42 | 154,322 | $ | 253.54 | 74,032 | $ | 225.34 | ||||||||||||||||||||||||||||||||||||||
| Granted | 181,351 | 359.02 | 70,777 | 367.16 | 6,122 | 321.03 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Released | (48,095) | 518.64 | (226) | 482.42 | (104,891) | 248.36 | (38,671) | 206.62 | ||||||||||||||||||||||||||||||||||||||||||
| Forfeited | (20,533) | 463.11 | (2,314) | 410.80 | (8,582) | 259.93 | (115) | 244.62 | ||||||||||||||||||||||||||||||||||||||||||
| Outstanding at end of year | 242,732 | $ | 404.19 | 105,928 | $ | 406.89 | 46,971 | $ | 271.92 | 35,246 | $ | 245.79 | ||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSUs | PSUs | RSAs | PSAs | |||||||||||||||||||||||||||||||||||||||||||||||
| Units | Weighted-Average Grant Date Fair Value | Units | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||||||||||||||||||||||
| Outstanding at beginning of year | — | $ | — | — | $ | — | 318,565 | $ | 228.08 | 126,022 | $ | 199.77 | ||||||||||||||||||||||||||||||||||||||
| Granted | 134,419 | 518.39 | 38,393 | 482.42 | 6,005 | 486.02 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Released | (674) | 489.16 | — | — | (159,702) | 212.33 | (49,236) | 160.11 | ||||||||||||||||||||||||||||||||||||||||||
| Forfeited | (3,736) | 509.58 | (702) | 482.42 | (10,546) | 239.78 | (2,754) | 236.18 | ||||||||||||||||||||||||||||||||||||||||||
| Outstanding at end of year | 130,009 | $ | 518.80 | 37,691 | $ | 482.42 | 154,322 | $ | 253.54 | 74,032 | $ | 225.34 | ||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSAs | PSAs | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||
| Outstanding at beginning of year | 434,641 | $ | 151.52 | 170,749 | $ | 144.47 | ||||||||||||||||||||||||||||||||||||||||||||
| Granted | 178,150 | 265.06 | 98,820 | 239.79 | ||||||||||||||||||||||||||||||||||||||||||||||
| Released | (275,318) | 133.43 | (131,943) | 160.18 | ||||||||||||||||||||||||||||||||||||||||||||||
| Forfeited | (18,908) | 199.04 | (11,604) | 194.23 | ||||||||||||||||||||||||||||||||||||||||||||||
| Outstanding at end of year | 318,565 | $ | 228.08 | 126,022 | $ | 199.77 | ||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights (“SARs”)
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SARs were previously granted primarily as part of the Company’s annual share-based compensation incentive program. Beginning in 2021, the Company no longer included SARs in its annual share based compensation award issuances and did not issue any SARs during the years ended December 31, 2022 and 2021. The total fair value of SARs granted during the year ended December 31, 2020 was $6 million, which was estimated on the respective dates of grant using a binomial model.
A summary of the Company’s SARs is as follows:
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| SARs | SARs | Weighted-Average Grant Date Exercise Price | SARs | Weighted-Average Grant Date Exercise Price | SARs | Weighted-Average Grant Date Exercise Price | |||||||||||||||||||||||||||||
| Outstanding at beginning of year | 474,151 | $ | 121.05 | 638,124 | $ | 113.98 | 896,923 | $ | 89.05 | ||||||||||||||||||||||||||
| Granted | — | — | — | — | 69,742 | 253.62 | |||||||||||||||||||||||||||||
| Exercised | (28,659) | 88.35 | (159,035) | 89.87 | (295,770) | 67.96 | |||||||||||||||||||||||||||||
| Forfeited | (1,987) | 229.46 | (4,938) | 213.80 | (31,193) | 149.09 | |||||||||||||||||||||||||||||
| Expired | (29) | 205.12 | — | — | (1,578) | 166.52 | |||||||||||||||||||||||||||||
| Outstanding at end of year | 443,476 | $ | 122.67 | 474,151 | $ | 121.05 | 638,124 | $ | 113.98 | ||||||||||||||||||||||||||
| Exercisable at end of year | 400,351 | $ | 110.14 | 383,273 | $ | 97.29 | 417,856 | $ | 81.88 | ||||||||||||||||||||||||||
The following table summarizes information about SARs outstanding as of December 31, 2022:
| Outstanding | Exercisable | ||||||||||
| Aggregate intrinsic value (in millions) | $ | 60 | $ | 59 | |||||||
| Weighted-average remaining contractual life (in years) | 2.6 | 2.5 | |||||||||
The intrinsic value of SARs exercised during fiscal 2022, 2021 and 2020 was $8 million, $69 million and $60 million, respectively. The total fair value of SARs that vested during fiscal 2022, 2021 and 2020 was $3 million, $5 million and $8 million, respectively.
Reflexis Replacement Options
In connection with the Company’s acquisition of Reflexis in 2020, the Company assumed the 2016 Stock Incentive Plan of Reflexis Systems, Inc. (the “Reflexis Plan”) and replaced certain unvested options under the Reflexis Plan with Zebra incentive stock options (“Reflexis Replacement Options”). Upon exercise of Reflexis Replacement Options, the Company receives cash proceeds equal to the exercise price and issues whole shares of Class A Common Stock to participants.
As of December 31, 2022, there were 17,457 outstanding Reflexis Replacement Options, of which 16,148 were exercisable. The outstanding awards have a weighted average exercise price and remaining contractual life of $58.20 and 5.4 years, respectively. The awards that are exercisable have a weighted average exercise price and remaining contractual life of $56.69 and 5.3 years, respectively. The intrinsic value of Reflexis Replacement Options exercised during fiscal 2022, 2021 and 2020 was $2 million, $4 million and $1 million, respectively. The total fair value of Reflexis Replacement Options that vested during fiscal 2022, 2021 and 2020 was $1 million, $5 million and $2 million, respectively.
Cash-settled awards
The Company also issues cash-settled share-based compensation awards, including cash-settled stock appreciation rights, cash-settled restricted stock units and cash-settled performance stock units that are classified as liability awards. These awards are expensed over the vesting period of the related award, which is typically three years. Compensation cost is calculated at the fair value on grant date multiplied by the number of share-equivalents granted. The fair value is remeasured at the end of each reporting period based on the Company’s stock price, with remeasurements reflected as an adjustment to compensation expense in the Consolidated Statements of Operations. Cash settlement is based on the fair value of share equivalents at the time of vesting, which was $5 million, $11 million and $9 million in 2022, 2021 and 2020, respectively. Share-equivalents issued under these programs totaled 66,923, 11,644 and 40,166 in fiscal 2022, 2021 and 2020, respectively.
Employee Stock Purchase Plan
In May 2020, the Company’s stockholders approved the Zebra Technologies Corporation 2020 Employee Stock Purchase Plan (“2020 ESPP”), which superseded the 2011 Employee Stock Purchase Plan (“2011 ESPP”) and became effective on July 1,
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2020. Like the 2011 ESPP, the 2020 ESPP permits eligible employees to purchase common stock at 95% of the fair market value at the date of purchase. Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under the 2020 ESPP is 1,500,000 shares. As of December 31, 2022, 1,399,851 shares remained available for future purchase.
Note 16 Income Taxes
The geographical sources of income (loss) before income taxes were as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| U.S. | $ | (69) | $ | 328 | $ | 33 | |||||||||||
| Outside U.S. | 613 | 640 | 527 | ||||||||||||||
| Total | $ | 544 | $ | 968 | $ | 560 | |||||||||||
Income tax expense (benefit) consisted of the following (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 141 | $ | 63 | $ | 6 | |||||||||||
| State | 22 | 12 | 1 | ||||||||||||||
| Foreign | 126 | 124 | 89 | ||||||||||||||
| Total current | $ | 289 | $ | 199 | $ | 96 | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | (168) | (48) | (25) | ||||||||||||||
| State | (22) | (12) | (5) | ||||||||||||||
| Foreign | (18) | (8) | (10) | ||||||||||||||
| Total deferred | $ | (208) | $ | (68) | $ | (40) | |||||||||||
| Total | $ | 81 | $ | 131 | $ | 56 | |||||||||||
The Company’s effective tax rates were 14.9%, 13.5% and 10.0% for the years ended December 31, 2022, 2021 and 2020, respectively.
A reconciliation of the U.S. federal statutory income tax rate to our actual income tax rate is provided below:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Provision computed at statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| Remeasurement of deferred taxes | (0.4) | (1.0) | (0.6) | ||||||||||||||
| Change in valuation allowance | 0.1 | (0.1) | 0.1 | ||||||||||||||
| U.S. impact of Enterprise acquisition | 0.4 | 0.3 | 0.3 | ||||||||||||||
| Change in contingent income tax reserves | (0.3) | (0.2) | (0.4) | ||||||||||||||
| Foreign earnings subject to U.S. taxation | (3.5) | (2.0) | 1.5 | ||||||||||||||
| Foreign rate differential | (3.4) | (1.7) | (5.5) | ||||||||||||||
| State income tax, net of federal tax benefit | (0.5) | 0.3 | 0.4 | ||||||||||||||
| Tax credits | (3.1) | (2.0) | (2.9) | ||||||||||||||
| Equity compensation deductions | (0.1) | (2.4) | (3.2) | ||||||||||||||
| Return to provision and other true ups | 1.5 | (0.9) | (2.5) | ||||||||||||||
| Settlements with tax authorities | 2.0 | 0.0 | 0.0 | ||||||||||||||
| Permanent differences and other | 1.2 | 2.2 | 1.8 | ||||||||||||||
| Provision for income taxes | 14.9 | % | 13.5 | % | 10.0 | % | |||||||||||
For the year ended December 31, 2022, the Company’s effective tax rate was lower than the federal statutory rate of 21% primarily due to lower tax rates in foreign jurisdictions, the generation of tax credits and the favorable impacts of foreign
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earnings subject to U.S. taxation. For the years ended December 31, 2021 and 2020, the Company’s effective tax rate was lower than the federal statutory rate of 21% primarily due to lower tax rates in foreign jurisdictions, the generation of tax credits and the favorable impacts of share-based compensation benefits.
The Company evaluated the provisions of the Inflation Reduction Act of 2022, signed into law on August 16, 2022; the American Rescue Plan Act, signed into law on March 11, 2021; the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020; and the Coronavirus Aid, Relief and Economic Security Act, signed into law on March 27, 2020. The provisions of these laws did not have a significant impact to our effective tax rate in either the current or prior years. Management continues to monitor guidance regarding these laws and developments related to other coronavirus tax relief throughout the world for potential impacts.
In December of 2021, the Organization for Economic Co-operation and Development (“OECD”) released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15%. The OECD continues to release additional guidance on these rules and the framework calls for law enactment by OECD members to take effect in 2024. The Company will continue to monitor developments but believes the impact to future effective tax rates and corporate tax liability will be minimal.
The Company earns a significant amount of its operating income outside of the U.S that is taxed at rates different than the U.S. federal statutory rate. The Company’s principal foreign jurisdictions that provide sources of operating income are the U.K. and Singapore. The Company has received an incentivized tax rate from the Singapore Economic Development Board, which reduces the income tax rate in that jurisdiction effective for calendar years 2019 to 2023. The Company has committed to making additional investments in Singapore over the period 2019 to 2023. However, should the Company not make these investments in accordance with the agreement, any incentive benefit would have to be repaid to the Singapore tax authorities.
Tax effects of temporary differences that resulted in deferred tax assets and liabilities are as follows (in millions):
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Deferred tax assets: | |||||||||||
| Capitalized research expenditures | $ | 138 | $ | 14 | |||||||
| Deferred revenue | 93 | 85 | |||||||||
| Tax credits | 32 | 37 | |||||||||
| Net operating loss carryforwards | 432 | 438 | |||||||||
| Other accruals | 31 | 40 | |||||||||
| Inventory items | 21 | 15 | |||||||||
| Sales return/rebate reserve | 81 | 61 | |||||||||
| Share-based compensation expense | 14 | 12 | |||||||||
| Legal accrual | 55 | 2 | |||||||||
| Lease liabilities | 23 | 12 | |||||||||
| Valuation allowance | (420) | (422) | |||||||||
| Total deferred tax assets | $ | 500 | $ | 294 | |||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and amortization | 127 | 84 | |||||||||
| Unrealized gains and losses on securities and investments | 12 | 5 | |||||||||
| Undistributed earnings | 2 | 4 | |||||||||
| Right of use lease assets | 20 | 11 | |||||||||
| Other | 7 | 4 | |||||||||
| Total deferred tax liabilities | $ | 168 | $ | 108 | |||||||
| Net deferred tax assets | $ | 332 | $ | 186 | |||||||
For tax years beginning in 2022, the Tax Cuts and Jobs Act of 2017 imposed a requirement that all R&D expenses be capitalized and amortized for U.S. tax purposes. The effect of this new provision is an increase of approximately $130 million to deferred tax assets with a corresponding increase to the current tax liability.
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The Company’s valuation allowance primarily relates to Luxembourg reorganization activities in 2019, which had resulted in the realization of deferred tax liabilities and a corresponding increase in valuation allowances related to depreciation and amortization. The Company’s valuation allowance also consists of certain net operating loss (“NOL”) and credit carryforwards for which the Company believes it is more likely than not that a tax benefit will not be realized. With respect to all other deferred tax assets, the Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize a tax benefit. There were no significant adjustments to the Company’s valuation allowance during the year ended December 31, 2022.
As of December 31, 2022, the Company had approximately $432 million (tax effected) of “NOLs” and $32 million of credit carryforwards. Approximately $183 million of NOLs will expire beginning in 2023 through 2040, and $25 million of credits will expire beginning in 2023 through 2037, with the remaining amounts of NOLs and credit carryforwards having no expiration dates.
The Company is subject to the GILTI, BEAT and FDII provisions, for which we recorded an income tax benefit of $19 million and $20 million for the years ended December 31, 2022 and 2021, respectively, and an income tax expense of $8 million for the year ended December 31, 2020. These impacts are included in the calculation of the Company’s effective tax rate.
The Company is not permanently reinvested with respect to its U.S. directly-owned foreign subsidiaries. The Company is subject to U.S. income tax on substantially all foreign earnings under GILTI, while any remaining foreign earnings are eligible for a dividends received deduction. As a result, future repatriation of earnings will not be subject to additional U.S. federal income tax but may be subject to currency translation gains or losses. Where required, the Company has recorded a deferred tax liability for foreign withholding taxes on current earnings. Additionally, gains and losses on any future taxable dispositions of U.S.-owned foreign affiliates continue to be subject to U.S. income tax.
The Company has not recognized deferred tax liabilities in the U.S. with respect to its outside basis differences in its directly-owned foreign affiliates. It is not practicable to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings.
Unrecognized tax benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| Year ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Balance at beginning of year | $ | 7 | $ | 8 | |||||||
| Additions for tax positions related to prior years | 3 | — | |||||||||
| Settlements for tax positions | (2) | — | |||||||||
| Lapse of statutes | (1) | (1) | |||||||||
| Balance at end of year | $ | 7 | $ | 7 | |||||||
As of December 31, 2022 and December 31, 2021, there were $7 million of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. Additionally, fiscal years 2009 through 2022 remain open to examination by multiple foreign and U.S. state taxing jurisdictions.
As of December 31, 2022, no significant uncertain tax positions are expected to be settled within the next twelve months. Due to uncertainties in any tax audit or litigation outcome, the Company’s estimates of the ultimate settlements of uncertain tax positions may change and the actual tax benefits may differ significantly from estimates.
The Company recognized less than $1 million of net tax benefit associated with interest and penalties related to income tax matters during the year ended December 31, 2022. The Company recognized no net tax benefit and a tax benefit of $2 million for interest and penalties during the years ended December 31, 2021 and 2020, respectively. The expense or benefit associated with interest and penalties was reflected within Income tax expense on the Consolidated Statements of Operations. The Company has included $5 million and $6 million of estimated interest and penalty obligations within Other long-term liabilities on the Consolidated Balance Sheets each as of December 31, 2022 and 2021.
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Note 17 Earnings Per Share
Basic net earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of diluted common shares outstanding. Diluted common shares outstanding is computed using the Treasury Stock method and, in periods of income, reflects the additional shares that would be outstanding if dilutive share-based compensation awards were converted into common shares during the period.
Earnings per share (in millions, except share data):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Basic: | |||||||||||||||||
| Net income | $ | 463 | $ | 837 | $ | 504 | |||||||||||
| Weighted-average shares outstanding | 52,207,903 | 53,446,399 | 53,441,375 | ||||||||||||||
| Basic earnings per share | $ | 8.86 | $ | 15.66 | $ | 9.43 | |||||||||||
| Diluted: | |||||||||||||||||
| Net income | $ | 463 | $ | 837 | $ | 504 | |||||||||||
| Weighted-average shares outstanding | 52,207,903 | 53,446,399 | 53,441,375 | ||||||||||||||
| Dilutive shares | 350,809 | 456,031 | 471,870 | ||||||||||||||
| Diluted weighted-average shares outstanding | 52,558,712 | 53,902,430 | 53,913,245 | ||||||||||||||
| Diluted earnings per share | $ | 8.80 | $ | 15.52 | $ | 9.35 | |||||||||||
Anti-dilutive share-based compensation awards are excluded from diluted earnings per share calculations. There were 173,519, 8,000, and 46,128 shares that were anti-dilutive for the years ended December 31, 2022, 2021, and 2020, respectively.
Note 18 Accumulated Other Comprehensive Income (Loss)
Stockholders’ equity includes certain items classified as AOCI, including:
•Unrealized gain (loss) 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 11, Derivative Instruments for more details.
•Foreign currency translation adjustments relate to the Company’s non-U.S. subsidiary companies that have designated a functional currency other than the U.S. Dollar. The Company is required to translate the subsidiary functional currency financial statements to U.S. Dollars using a combination of historical, period end, and average foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of AOCI.
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The changes in each component of AOCI during the three years ended December 31, 2022, 2021, and 2020 were as follows (in millions):
| Unrealized gain (loss) on sales hedging | Foreign currency translation adjustments | Total | |||||||||||||||||||||
| Balance at December 31, 2019 | $ | 2 | $ | (46) | $ | (44) | |||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (43) | 5 | (38) | ||||||||||||||||||||
Amounts reclassified from AOCI(1) | 6 | — | 6 | ||||||||||||||||||||
| Tax effect | 7 | — | 7 | ||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | (30) | 5 | (25) | ||||||||||||||||||||
| Balance at December 31, 2020 | (28) | (41) | (69) | ||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 55 | (6) | 49 | ||||||||||||||||||||
Amounts reclassified from AOCI(1) | 2 | — | 2 | ||||||||||||||||||||
| Tax effect | (11) | — | (11) | ||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 46 | (6) | 40 | ||||||||||||||||||||
| Balance at December 31, 2021 | 18 | (47) | (29) | ||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 50 | (8) | 42 | ||||||||||||||||||||
Amounts reclassified from AOCI(1) | (87) | — | (87) | ||||||||||||||||||||
| Tax effect | 8 | — | 8 | ||||||||||||||||||||
| Other comprehensive (loss) income, net of tax | (29) | (8) | (37) | ||||||||||||||||||||
| Balance at December 31, 2022 | $ | (11) | $ | (55) | $ | (66) | |||||||||||||||||
(1) See Note 11, Derivative Instruments regarding timing of reclassifications to operating results.
Note 19 Accounts Receivable Factoring
The Company has Receivables Factoring arrangements, pursuant to which certain receivables are sold to banks without recourse in exchange for cash. Transactions under the Receivables Factoring arrangements are accounted for as sales under ASC 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under these Receivables Factoring arrangements, the Company does not maintain any beneficial interest in the receivables sold. The banks’ purchase of eligible receivables is subject to a maximum amount of uncollected receivables. The Company services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Cash flows from operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Cash flows from financing activities on the Consolidated Statements of Cash Flows.
The Company currently has two active Receivables Factoring arrangements. One arrangement allows for the factoring of up to $25 million of uncollected receivables originated from the EMEA region. The second arrangement allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions. With respect to the second arrangement, the Company may be required to maintain a portion of sales proceeds as deposits in a restricted cash account that is released to the Company as it satisfies its obligations as servicer of sold receivables, which totaled $12 million each as of December 31, 2022 and 2021, respectively, and is classified within Prepaid expenses and other current assets on the Consolidated Balance Sheets.
During the years ended December 31, 2022, 2021 and 2020, the Company received cash proceeds of $1,496 million, $1,504 million and $1,291 million, respectively, from the sales of accounts receivables under its factoring arrangements. As of December 31, 2022 and 2021, there were a total of $61 million and $24 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.
As servicer of sold receivables, the Company had $130 million and $141 million of obligations that were not yet remitted to banks as of December 31, 2022 and 2021, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash provided by (used in) financing activities on the Consolidated Statements of Cash Flows.
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Fees incurred in connection with these arrangements were not significant.
Note 20 Segment Information & Geographic Data
Segment results
The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”). The reportable segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker or “CODM”) to assess segment performance and allocate resources among the Company’s segments. The CODM reviews adjusted operating income to assess segment profitability. To the extent applicable, segment operating income excludes business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, as well as certain other non-recurring costs (such as the Settlement in the current year). Segment assets are not reviewed by the Company’s CODM and therefore are not disclosed below.
Effective January 1, 2022, the location solutions offering, which provides a range of RTLS and services that generate on-demand information about the physical location and status of assets, equipment, and people, moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change did not have an impact to the Consolidated Financial Statements.
Financial information by segment is presented as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net sales: | |||||||||||||||||
| AIT | $ | 1,736 | $ | 1,657 | $ | 1,369 | |||||||||||
| EVM | 4,045 | 3,976 | 3,086 | ||||||||||||||
| Total segment Net sales | 5,781 | 5,633 | 4,455 | ||||||||||||||
Corporate eliminations(1) | — | (6) | (7) | ||||||||||||||
| Total Net sales | $ | 5,781 | $ | 5,627 | $ | 4,448 | |||||||||||
| Operating income: | |||||||||||||||||
AIT(2) | $ | 360 | $ | 382 | $ | 331 | |||||||||||
EVM(2) | 712 | 750 | 457 | ||||||||||||||
| Total segment operating income | 1,072 | 1,132 | 788 | ||||||||||||||
Corporate eliminations(1) | (543) | (153) | (137) | ||||||||||||||
| Total Operating income | $ | 529 | $ | 979 | $ | 651 | |||||||||||
(1)To the extent applicable, amounts included in Corporate eliminations consist of business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, as well as certain other non-recurring costs (such as the Settlement in the current year).
(2)AIT and EVM segment operating income includes depreciation and share-based compensation expense. The amounts of depreciation and share-based compensation expense are proportionate to each segment’s Net sales.
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Sales to significant customers
The Company has three customers, who are distributors of the Company’s products and solutions, that individually accounted for more than 10% of total Company Net sales during the years ended December 31, 2022, 2021 and 2020. The approximate percentage of our segment and Company total Net sales to these customers were as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| AIT | EVM | Total | AIT | EVM | Total | AIT | EVM | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Customer A | 7.2 | % | 13.5 | % | 20.7 | % | 7.3 | % | 15.0 | % | 22.3 | % | 6.5 | % | 14.2 | % | 20.7 | % | |||||||||||||||||||||||||||||||||||
| Customer B | 5.7 | % | 9.3 | % | 15.0 | % | 5.1 | % | 8.5 | % | 13.6 | % | 4.9 | % | 9.0 | % | 13.9 | % | |||||||||||||||||||||||||||||||||||
| Customer C | 3.7 | % | 9.1 | % | 12.8 | % | 3.1 | % | 9.5 | % | 12.6 | % | 4.8 | % | 12.9 | % | 17.7 | % | |||||||||||||||||||||||||||||||||||
These customers accounted for 21.7%, 19.5%, and 17.8%, respectively, of accounts receivable as of December 31, 2022, and 22.7%, 13.4% and 14.8%, respectively, of accounts receivable as of December 31, 2021. No other customer accounted for more than 10% of total Net sales during the years ended December 31, 2022, 2021 or 2020, or more than 10% of outstanding accounts receivable as of December 31, 2022 or 2021.
Geographic data
Information regarding the Company’s operations by geographic area is contained in the following tables. Net sales amounts are attributed to geographic area based on customer location.
Net sales by region were as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| North America | $ | 2,919 | $ | 2,819 | $ | 2,319 | |||||||||||
| EMEA | 1,920 | 1,976 | 1,495 | ||||||||||||||
| Asia-Pacific | 609 | 543 | 439 | ||||||||||||||
| Latin America | 333 | 289 | 195 | ||||||||||||||
| Total Net sales | $ | 5,781 | $ | 5,627 | $ | 4,448 | |||||||||||
The U.S. and Germany were the only countries that accounted for more than 10% of the Company’s net sales in 2022, 2021, and 2020. Net sales during these years were as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| U.S. | $ | 2,840 | $ | 2,784 | $ | 2,291 | |||||||||||
| Germany | 949 | 901 | 595 | ||||||||||||||
| Other | 1,992 | 1,942 | 1,562 | ||||||||||||||
| Total Net sales | $ | 5,781 | $ | 5,627 | $ | 4,448 | |||||||||||
Geographic data for long-lived assets is as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| North America | $ | 336 | $ | 290 | $ | 289 | |||||||||||
| EMEA | 58 | 68 | 68 | ||||||||||||||
| Asia-Pacific | 35 | 39 | 45 | ||||||||||||||
| Latin America | 5 | 6 | 7 | ||||||||||||||
| Total long-lived assets | $ | 434 | $ | 403 | $ | 409 | |||||||||||
Long-lived assets are defined by the Company as property, plant and equipment and ROU assets. Primarily all of the Company’s long-lived assets in the North America region are located in the U.S.
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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Form 10-K. The evaluation was conducted under the supervision of our Disclosure Committee, and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or furnish under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control 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 control over financial reporting as of December 31, 2017.2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework as released in 2013. Based on this assessment and those criteria, our management believes that, as of December 31, 2017,2022, our internal control over financial reporting is effective.
Our assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls over the operations of Matrox Electronic Systems Ltd., which are included in our 2022 consolidated financial statements and constituted 1% of total assets as of December 31, 2022, and 1% of revenues for the year then ended.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on Zebra’s internal control over financial reporting. Ernst & Young LLP’s report is included on page 37in the latter portion of this report on Form 10-K.Item 9A.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of 2017,2022, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent or detect 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 misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Zebra have been prevented or 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.
75
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Zebra Technologies Corporation
Opinion on Internal Control over Financial Reporting
We have audited Zebra Technologies Corporation’sCorporation and subsidiaries internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Zebra Technologies Corporation (the “Company”)Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.
As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls over the operations of Matrox Electronic Systems Ltd., which is included in the 2022 consolidated financial statements of the Company and constituted 1% of total assets as of December 31, 2022, and 1% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Matrox Electronic Systems Ltd.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Zebra Technologies Corporation as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017,2022, and the related notes, and financial statement schedule listed in Index Item 15 and our report dated February 22, 201816, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Ernst & Young LLP
Chicago, Illinois
February 22, 201816, 2023
76
Item 9B.Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
77
PART III
Item 10.Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics for Senior Financial Officers (“Code of Ethics”) that applies to Zebra’s Chief Executive Officer, Chief Financial Officer and the Chief Accounting Officer. The Code of Ethics is posted on the Investor Relations – Corporate Governance Documents page of Zebra’s Internet web site, www.zebra.com under “Investors-Governance-Governance Documents”, and is available for download. Any waiver from the Code of Ethics and any amendment to the Code of Ethics will be disclosed on such page of Zebra’s web sitesite.
All other information in response to this item is incorporated by reference from the Proxy Statement sections entitled “Corporate Governance,” “Election of Directors,” “Board and Committees“Committees of the Board,” “Executive Officers,” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports.”
Item 11.Executive Compensation
The information in response to this item is incorporated by reference from the Proxy Statement sections entitled “Compensation Discussion and Analysis-Executive Summary,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Director Compensation,” “Compensation“Executive Compensation – Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report.”
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information in response to this item is incorporated by reference from the Proxy Statement sections entitled “Ownership of our Common Stock” and “Equity“Executive Compensation – Equity Compensation Plan Information.”
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information in response to this item is incorporated by reference from the Proxy Statement sectionsections entitled “Corporate Governance.Governance – Related Party Transactions,” “Corporate Governance – Director Independence,” “Election of Directors,” and “Committees of the Board.”
Item 14.Principal Accounting Fees and Services
The information in response to this item is incorporated by reference from the Proxy Statement section entitled “Fees of Independent Auditors.”
78
PART IV
Item 15.Exhibits and Financial Statement Schedules
Index to Consolidated Financial Statements
| PAGE | |||||||||||
Index to Financial Statements and Schedule. The exhibitsStatement Schedules
Schedules are omitted because the information is not required or because the information required is included in the
Notes to Consolidated Financial Statements.
Index to Exhibits
| Incorporated by Reference | ||||||||||||||||||||||||||||||||
| Exhibit Number | Exhibit Description | Form | Exhibit Number | Filing Date or Period End Date | Filed or Furnished Within | |||||||||||||||||||||||||||
| 3.1(i) | 8-K | 3.1(i) | August 6, 2012 | |||||||||||||||||||||||||||||
| 3.1(ii) | 8-K | 3.1 | December 8, 2022 | |||||||||||||||||||||||||||||
| 4.1 | 10-K | 4.1 | December 31, 2017 | |||||||||||||||||||||||||||||
| 4.2 | 10-K | 4.2 | December 31, 2019 | |||||||||||||||||||||||||||||
| 10.1 | 10-K | 10.1 | December 31, 2020 | |||||||||||||||||||||||||||||
| 10.2 | 10-K | 10.6 | December 31, 2016 | |||||||||||||||||||||||||||||
| 10.3 | 10-Q | 10.1 | June 28, 2014 | |||||||||||||||||||||||||||||
| 10.4 | 10-K | 10.11 | December 31, 2017 | |||||||||||||||||||||||||||||
| 10.5 | S-8 | 4.1 | June 1, 2018 | |||||||||||||||||||||||||||||
| 10.6 | 10-K | 10.6 | December 31, 2021 | |||||||||||||||||||||||||||||
| 10.7 | 10-Q | 10.10 | April 3, 2010 | |||||||||||||||||||||||||||||
| 10.8 | 10-Q | 10.11 | April 3, 2010 | |||||||||||||||||||||||||||||
| 10.9 | 8-K | 10.2 | December 8, 2022 | |||||||||||||||||||||||||||||
| 10.10 | 8-K | 10.1 | December 8, 2022 | |||||||||||||||||||||||||||||
| 10.11 | 10-Q | 10.1 | March 30, 2013 | |||||||||||||||||||||||||||||
79
| 10.12 | 10-Q | 10.1 | April 1, 2017 | |||||||||||||||||||||||||||||
| 10.13 | 10-Q | 10.2 | June 30, 2018 | |||||||||||||||||||||||||||||
| 10.14 | 10-Q | 10.2 | June 29, 2019 | |||||||||||||||||||||||||||||
| 10.15 | 10-Q | 10.2 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.16 | 10-Q | 10.3 | July 3, 2021 | |||||||||||||||||||||||||||||
| 10.17 | 10-Q | 10.3 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.18 | 10-Q | 10.4 | March 30, 2013 | |||||||||||||||||||||||||||||
| 10.19 | 10-Q | 10.2 | April 1, 2017 | |||||||||||||||||||||||||||||
| 10.20 | 10-Q | 10.5 | June 30, 2018 | |||||||||||||||||||||||||||||
| 10.21 | 10-Q | 10.5 | June 29, 2019 | |||||||||||||||||||||||||||||
| 10.22 | 10-Q | 10.5 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.23 | 10-Q | 10.3 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.24 | 10-Q | 10.2 | July 3, 2021 | |||||||||||||||||||||||||||||
| 10.25 | 10-Q | 10.2 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.26 | 10-Q | 10.1 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.27 | 10-Q | 10.1 | July 3, 2021 | |||||||||||||||||||||||||||||
| 10.28 | 10-Q | 10.1 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.29 | 10-Q | 10.6 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.30 | 10-Q | 10.5 | July 3, 2021 | |||||||||||||||||||||||||||||
| 10.31 | 10-Q | 10.5 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.32 | 10-Q | 10.4 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.33 | 10-Q | 10.4 | July 3, 2021 | |||||||||||||||||||||||||||||
| 10.34 | 10-Q | 10.4 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.35 | 10-Q | 10.1 | July 1, 2017 | |||||||||||||||||||||||||||||
| 10.36 | 10-Q | 10.7 | June 30, 2018 | |||||||||||||||||||||||||||||
| 10.37 | 10-Q | 10.1 | September 28, 2019 | |||||||||||||||||||||||||||||
80
| 10.38 | 10-Q | 10.7 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.39 | 10-Q | 10.2 | September 28, 2019 | |||||||||||||||||||||||||||||
| 10.40 | 10-Q | 10 | September 26, 2020 | |||||||||||||||||||||||||||||
| 10.41 | 10-K | 10.34 | December 31, 2017 | |||||||||||||||||||||||||||||
| 10.42 | 10-K | 10.35 | December 31, 2017 | |||||||||||||||||||||||||||||
| 10.43 | 10-Q | 10.6 | July 2, 2022 | |||||||||||||||||||||||||||||
| 10.44 | 10-K | 10.36 | December 31, 2017 | |||||||||||||||||||||||||||||
| 10.45 | 10-K | 10.37 | December 31, 2017 | |||||||||||||||||||||||||||||
| 10.46 | 10-Q | 10 | April 3, 2021 | |||||||||||||||||||||||||||||
| 10.47 | 10-K | 10.43 | December 31, 2018 | |||||||||||||||||||||||||||||
| 10.48 | 10-Q | 10.7 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.49 | 10-K | 10.50 | December 31, 2020 | |||||||||||||||||||||||||||||
| 10.50 | 10-Q | 10.8 | June 27, 2020 | |||||||||||||||||||||||||||||
| 10.51 | 10-Q | 10.9 | June 27, 2020 | |||||||||||||||||||||||||||||
81
| 21.1 | X | |||||||||||||||||||||||||||||||
| 23.1 | X | |||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||
| 32.1 | X | |||||||||||||||||||||||||||||||
| 32.2 | X | |||||||||||||||||||||||||||||||
| 101 | The following financial information from Zebra Technologies Corporation Annual Report on Form 10-K, for the year ended December 31, 2022, formatted in Inline XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because Inline XBRL tags are embedded in the iXBRL document. | |||||||||||||||||||||||||||||||
| 104 | The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (included in Exhibit 101). | |||||||||||||||||||||||||||||||
+ Management contract or compensatory plan or arrangement required to be filed as a partan exhibit to this Annual Report on Form 10-K.
Item 16. Form 10-K Summary
None.
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, there untothereunto duly authorized, on the 22nd16th day of February 2018.
2023.
| ZEBRA TECHNOLOGIES CORPORATION | ||
By: /s/ Anders Gustafsson | ||
| Anders Gustafsson | ||
| Chief Executive Officer | ||
Pursuant to the requirements of the Securities and Exchange Act of 1934, thethis report has been signed below by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||
/s/ Anders Gustafsson Anders Gustafsson | Chief Executive Officer and Director (Principal Executive Officer) | February | ||||||
/s/ | Chief Financial Officer (Principal Financial Officer) | February | ||||||
/s/ Colleen M. O’Sullivan Colleen M. O’Sullivan | Senior Vice President, Chief Accounting Officer (Principal Accounting Officer) | February | ||||||
/s/ Michael A. Smith Michael A. Smith | Director and Chairman of the Board of Directors | February | ||||||
/s/ | Director | February | ||||||
/s/ Ross W. Manire Ross W. Manire | Director | February | ||||||
/s/ Richard L. Keyser Richard L. Keyser | Director | February | ||||||
/s/ Janice M. Roberts Janice M. Roberts | Director | February | ||||||
/s/ Chirantan J. Desai Chirantan J. Desai | Director | February | ||||||
/s/ Frank B. Modruson Frank B. Modruson | Director | February | ||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 62 | $ | 156 | |||
| Accounts receivable, net | 479 | 625 | |||||
| Inventories, net | 458 | 345 | |||||
| Income tax receivable | 40 | 32 | |||||
| Prepaid expenses and other current assets | 24 | 64 | |||||
| Total Current assets | 1,063 | 1,222 | |||||
| Property, plant and equipment, net | 264 | 292 | |||||
| Goodwill | 2,465 | 2,458 | |||||
| Other intangibles, net | 299 | 480 | |||||
| Long-term deferred income taxes | 119 | 113 | |||||
| Other long-term assets | 65 | 67 | |||||
| Total Assets | $ | 4,275 | $ | 4,632 | |||
| Liabilities and Stockholders' Equity | |||||||
| Current liabilities: | |||||||
| Current portion of long-term debt | $ | 51 | $ | — | |||
| Accounts payable | 383 | 413 | |||||
| Accrued liabilities | 337 | 323 | |||||
| Deferred revenue | 186 | 191 | |||||
| Income taxes payable | 43 | 22 | |||||
| Total Current liabilities | 1,000 | 949 | |||||
| Long-term debt | 2,176 | 2,648 | |||||
| Long-term deferred income taxes | — | 3 | |||||
| Long-term deferred revenue | 148 | 124 | |||||
| Other long-term liabilities | 117 | 116 | |||||
| Total Liabilities | 3,441 | 3,840 | |||||
| Stockholders’ Equity: | |||||||
| Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued | — | — | |||||
| Class A common stock, $.01 par value; authorized 150,000,0000 shares; issued 72,151,857 shares | 1 | 1 | |||||
| Additional paid-in capital | 257 | 210 | |||||
| Treasury stock at cost, 18,915,762 and 19,267,269 shares at December 31, 2017 and December 31, 2016, respectively | (620 | ) | (614 | ) | |||
| Retained earnings | 1,248 | 1,240 | |||||
| Accumulated other comprehensive loss | (52 | ) | (45 | ) | |||
| Total Stockholders’ Equity | 834 | 792 | |||||
| Total Liabilities and Stockholders’ Equity | $ | 4,275 | $ | 4,632 | |||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net sales | |||||||||||
| Net sales of tangible products | $ | 3,223 | $ | 3,056 | $ | 3,131 | |||||
| Revenue from services and software | 499 | 518 | 519 | ||||||||
| Total Net sales | 3,722 | 3,574 | 3,650 | ||||||||
| Cost of sales: | |||||||||||
| Cost of sales of tangible products | 1,677 | 1,593 | 1,629 | ||||||||
| Cost of services and software | 335 | 339 | 377 | ||||||||
| Total Cost of sales | 2,012 | 1,932 | 2,006 | ||||||||
| Gross profit | 1,710 | 1,642 | 1,644 | ||||||||
| Operating expenses: | |||||||||||
| Selling and marketing | 448 | 444 | 494 | ||||||||
| Research and development | 389 | 376 | 394 | ||||||||
| General and administrative | 301 | 307 | 283 | ||||||||
| Amortization of intangible assets | 184 | 229 | 251 | ||||||||
| Acquisition and integration costs | 50 | 125 | 145 | ||||||||
| Impairment of goodwill and other intangibles | — | 62 | — | ||||||||
| Exit and restructuring costs | 16 | 19 | 40 | ||||||||
| Total Operating expenses | 1,388 | 1,562 | 1,607 | ||||||||
| Operating income | 322 | 80 | 37 | ||||||||
| Other expenses: | |||||||||||
| Foreign exchange loss | (1 | ) | (5 | ) | (23 | ) | |||||
| Interest expense, net | (227 | ) | (193 | ) | (193 | ) | |||||
| Other, net | (6 | ) | (11 | ) | (1 | ) | |||||
| Total Other expenses | (234 | ) | (209 | ) | (217 | ) | |||||
| Income (loss) before income taxes | 88 | (129 | ) | (180 | ) | ||||||
| Income tax expense (benefit) | 71 | 8 | (22 | ) | |||||||
| Net income (loss) | $ | 17 | $ | (137 | ) | $ | (158 | ) | |||
| Basic earnings (loss) per share | $ | 0.33 | $ | (2.65 | ) | $ | (3.10 | ) | |||
| Diluted earnings (loss) per share | $ | 0.32 | $ | (2.65 | ) | $ | (3.10 | ) | |||
| Basic weighted average shares outstanding | 53,021,761 | 51,579,112 | 50,996,297 | ||||||||
| Diluted weighted average and equivalent shares outstanding | 53,688,832 | 51,579,112 | 50,996,297 | ||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net income (loss) | $ | 17 | $ | (137 | ) | $ | (158 | ) | |||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Unrealized (loss) gain on anticipated sales hedging transactions | (15 | ) | 7 | (6 | ) | ||||||
| Unrealized gain (loss) on forward interest rate swaps hedging transactions | 6 | — | (7 | ) | |||||||
| Foreign currency translation adjustment | 2 | (4 | ) | (26 | ) | ||||||
| Comprehensive income (loss) | $ | 10 | $ | (134 | ) | $ | (197 | ) | |||
| Class A Common Stock Shares | Class A Common Stock Amount | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||
| Balance at December 31, 2014 | 51,654,337 | $ | 1 | $ | 147 | $ | (634 | ) | $ | 1,535 | $ | (9 | ) | $ | 1,040 | ||||||||||||
| Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations | 646,395 | — | 1 | 16 | — | — | 17 | ||||||||||||||||||||
| Shares withheld related to net share settlement | (138,881 | ) | — | — | (13 | ) | — | — | (13 | ) | |||||||||||||||||
| Issuance of warrants exercisable for 250,000 shares, exercise price $89.34, expiration April 5, 2017 | — | — | 4 | — | — | — | 4 | ||||||||||||||||||||
| Additional tax benefit resulting from exercise of options | — | — | 11 | — | — | — | 11 | ||||||||||||||||||||
| Share-based compensation | — | — | 31 | — | — | — | 31 | ||||||||||||||||||||
| Net loss | — | — | — | — | (158 | ) | — | (158 | ) | ||||||||||||||||||
| Unrealized loss anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | (6 | ) | (6 | ) | ||||||||||||||||||
| Unrealized loss on forward interest rate swaps hedging transactions (net of income taxes) | — | — | — | — | — | (7 | ) | (7 | ) | ||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (26 | ) | (26 | ) | ||||||||||||||||||
| Balance at December 31, 2015 | 52,161,851 | $ | 1 | $ | 194 | $ | (631 | ) | $ | 1,377 | $ | (48 | ) | $ | 893 | ||||||||||||
| Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations | 817,943 | — | (14 | ) | 25 | — | — | 11 | |||||||||||||||||||
| Shares withheld related to net share settlement | (95,206 | ) | — | — | (8 | ) | — | — | (8 | ) | |||||||||||||||||
| Additional tax benefit resulting from exercise of options | — | — | 3 | — | — | — | 3 | ||||||||||||||||||||
| Share-based compensation | — | — | 27 | — | — | — | 27 | ||||||||||||||||||||
| Net loss | — | — | — | — | (137 | ) | — | (137 | ) | ||||||||||||||||||
| Unrealized loss on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | 7 | 7 | ||||||||||||||||||||
| Unrealized gain on forward interest rate swaps hedging transactions (net of income taxes) | — | — | — | — | — | — | — | ||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||||||||
| Balance at December 31, 2016 | 52,884,588 | $ | 1 | $ | 210 | $ | (614 | ) | $ | 1,240 | $ | (45 | ) | $ | 792 | ||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | — | (9 | ) | — | (9 | ) | ||||||||||||||||||
| Issuance of treasury shares upon exercise of stock options, purchases under stock purchase plan and grants of restricted stock awards, net of cancellations | 410,239 | — | 12 | — | — | — | 12 | ||||||||||||||||||||
| Shares withheld related to net share settlement | (58,732 | ) | — | — | (6 | ) | — | — | (6 | ) | |||||||||||||||||
| Share-based compensation | — | — | 35 | — | — | — | 35 | ||||||||||||||||||||
| Net income | — | — | — | — | 17 | — | 17 | ||||||||||||||||||||
| Unrealized loss on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | (15 | ) | (15 | ) | ||||||||||||||||||
| Unrealized gain on forward interest rate swaps hedging transactions (net of income taxes) | — | — | — | — | — | 6 | 6 | ||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||
| Balance at December 31, 2017 | 53,236,095 | $ | 1 | $ | 257 | $ | (620 | ) | $ | 1,248 | $ | (52 | ) | $ | 834 | ||||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 17 | $ | (137 | ) | $ | (158 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 263 | 304 | 320 | ||||||||
| Impairment of goodwill, intangibles and other assets | 1 | 69 | — | ||||||||
| Amortization of debt issuance costs and discounts | 38 | 23 | 16 | ||||||||
| Share-based compensation | 35 | 27 | 31 | ||||||||
| Debt extinguishment costs | 65 | — | — | ||||||||
| Deferred income taxes | (9 | ) | (44 | ) | (142 | ) | |||||
| Unrealized gain on forward interest rate swaps | (2 | ) | — | (4 | ) | ||||||
| Other, net | 4 | 3 | 14 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | 161 | 34 | 2 | ||||||||
| Inventories, net | (110 | ) | 34 | (13 | ) | ||||||
| Other assets | 16 | 7 | (7 | ) | |||||||
| Accounts payable | (40 | ) | 125 | (21 | ) | ||||||
| Accrued liabilities | 4 | (29 | ) | (5 | ) | ||||||
| Deferred revenue | 17 | 7 | 16 | ||||||||
| Income taxes | 26 | (41 | ) | 47 | |||||||
| Other operating activities | (8 | ) | (2 | ) | 26 | ||||||
| Net cash provided by operating activities | 478 | 380 | 122 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of businesses, net of cash acquired | — | — | (52 | ) | |||||||
| Purchases of property, plant and equipment | (50 | ) | (77 | ) | (122 | ) | |||||
| Proceeds from the sale of a business | — | 39 | — | ||||||||
| Proceeds from the sale of long-term investments | — | — | 3 | ||||||||
| Purchases of long-term investments | (1 | ) | (1 | ) | (1 | ) | |||||
| Purchases of investments and marketable securities | — | — | (1 | ) | |||||||
| Proceeds from sales of investments and marketable securities | — | — | 25 | ||||||||
| Net cash used in investing activities | (51 | ) | (39 | ) | (148 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Payments of debt issuance costs and discounts | (5 | ) | (5 | ) | — | ||||||
| Proceeds from issuance of long-term debt | 1,371 | 102 | — | ||||||||
| Payments of long term-debt | (1,825 | ) | (484 | ) | (165 | ) | |||||
| Payments of debt extinguishment costs | (65 | ) | — | — | |||||||
| Proceeds from exercise of stock options and stock purchase plan purchases | 12 | 11 | 17 | ||||||||
| Taxes paid related to net share settlement of equity awards | (5 | ) | (8 | ) | (13 | ) | |||||
| Net cash used in financing activities | (517 | ) | (384 | ) | (161 | ) | |||||
| Effect of exchange rate changes on cash | (4 | ) | 7 | (15 | ) | ||||||
| Net decrease in cash and cash equivalents | (94 | ) | (36 | ) | (202 | ) | |||||
| Cash and cash equivalents at beginning of year | 156 | 192 | 394 | ||||||||
| Cash and cash equivalents at end of year | $ | 62 | $ | 156 | $ | 192 | |||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Income taxes paid | $ | 65 | $ | 81 | $ | 38 | |||||
| Interest paid | $ | 195 | $ | 180 | $ | 183 | |||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Raw material | $ | 116 | $ | 111 | |||
| Work in process | 1 | 1 | |||||
| Finished goods | 341 | 233 | |||||
| Inventories, net | $ | 458 | $ | 345 | |||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Buildings | $ | 54 | $ | 51 | |||
| Land | 8 | 10 | |||||
| Machinery and equipment | 233 | 226 | |||||
| Furniture and office equipment | 19 | 15 | |||||
| Software and computer equipment | 235 | 197 | |||||
| Leasehold improvements | 69 | 64 | |||||
| Projects in progress | 23 | 35 | |||||
| 641 | 598 | ||||||
| Less accumulated depreciation | (377 | ) | (306 | ) | |||
| Property, plant and equipment, net | $ | 264 | $ | 292 | |||
| Year Ended December 31, | |||||||||||
| Warranty reserve | 2017 | 2016 | 2015 | ||||||||
| Balance at the beginning of the year | $ | 21 | $ | 22 | $ | 25 | |||||
| Warranty expense | 28 | 31 | 30 | ||||||||
| Warranty payments | (31 | ) | (32 | ) | (33 | ) | |||||
| Balance at the end of the year | $ | 18 | $ | 21 | $ | 22 | |||||
| Year Ended December 31, | |||||||||||
| Compensation costs and related income tax benefit | 2017 | 2016 | 2015 | ||||||||
| Cost of sales | $ | 3 | $ | 2 | $ | 3 | |||||
| Selling and marketing | 8 | 6 | 8 | ||||||||
| Research and development | 11 | 9 | 8 | ||||||||
| General and administration | 16 | 11 | 14 | ||||||||
| Total compensation expense | $ | 38 | $ | 28 | $ | 33 | |||||
| Income tax benefit | $ | 11 | $ | 9 | $ | 11 | |||||
| December 31, 2017 | |||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
| Amortized intangible assets | |||||||||||
| Current technology | $ | 24 | $ | (23 | ) | $ | 1 | ||||
| Trade names | 41 | (41 | ) | — | |||||||
| Unpatented technology | 242 | (205 | ) | 37 | |||||||
| Patents and patent rights | 235 | (215 | ) | 20 | |||||||
| Customer relationships | 481 | (240 | ) | 241 | |||||||
| Total | $ | 1,023 | $ | (724 | ) | $ | 299 | ||||
| Amortization expense for the year ended December 31, 2017 | $ | 184 | |||||||||
| December 31, 2016 | |||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
| Amortized intangible assets | |||||||||||
| Current technology | $ | 24 | $ | (21 | ) | $ | 3 | ||||
| Trade names | 40 | (40 | ) | — | |||||||
| Unpatented technology | 241 | (146 | ) | 95 | |||||||
| Patent and patent rights | 238 | (161 | ) | 77 | |||||||
| Customer relationships | 478 | (173 | ) | 305 | |||||||
| Total | $ | 1,021 | $ | (541 | ) | $ | 480 | ||||
| Amortization expense for the year ended December 31, 2016 | $ | 229 | |||||||||
| Estimated amortization expense for future periods is as follows (in millions): | Amount | ||
| For the year ended December 31, 2018 | $ | 96 | |
| For the year ended December 31, 2019 | 83 | ||
| For the year ended December 31, 2020 | 39 | ||
| For the year ended December 31, 2021 | 37 | ||
| For the year ended December 31, 2022 | 31 | ||
| Thereafter | 13 | ||
| Total | $ | 299 | |
| Total | |||
| Goodwill as of December 31, 2015 | $ | 2,490 | |
| Impairment charge – wireless LAN divestiture | (32 | ) | |
| Goodwill as of December 31, 2016 | 2,458 | ||
| Foreign exchange impact | 7 | ||
| Goodwill as of December 31, 2017 | $ | 2,465 | |
| Type of Cost | Cumulative costs incurred through December 31, 2017 | Costs incurred for the year ended December 31, 2017 | Cumulative costs incurred through December 31, 2016 | |||||||||
| Severance, stay bonuses, and other employee-related expenses | $ | 69 | $ | 15 | $ | 54 | ||||||
| Obligations for future lease payments | 12 | 1 | 11 | |||||||||
| Total | $ | 81 | $ | 16 | $ | 65 | ||||||
| Year Ended December 31, | |||||||
| 2017 | 2016 | ||||||
| Balance at beginning of year | $ | 10 | $ | 15 | |||
| Charged to earnings | 16 | 19 | |||||
| Cash paid | (18 | ) | (22 | ) | |||
| WLAN Divestiture | — | (2 | ) | ||||
| Balance at the end of year | $ | 8 | $ | 10 | |||
| Year Ended December 31, | |||||||
| 2017 | 2016 | ||||||
| Accrued liabilities | $ | 6 | $ | 7 | |||
| Other long-term liabilities | 2 | 3 | |||||
| Total liabilities related to exit and restructuring activities | $ | 8 | $ | 10 | |||
| 16, 2023 | ||||||||
/s/ Nelda J. Connors Nelda J. Connors | Director | |||||||
83
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Money market investments related to the deferred compensation plan | $ | 15 | $ | — | $ | — | $ | 15 | |||||||
| Total Assets at fair value | $ | 15 | $ | — | $ | — | $ | 15 | |||||||
| Liabilities: | |||||||||||||||
Forward interest rate swap contracts(2) | $ | — | $ | 18 | $ | — | $ | 18 | |||||||
Foreign exchange contracts(1) | 2 | 9 | — | 11 | |||||||||||
| Liabilities related to the deferred compensation plan | 15 | — | — | 15 | |||||||||||
| Total Liabilities at fair value | $ | 17 | $ | 27 | $ | — | $ | 44 | |||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
Foreign exchange contracts(1) | $ | 11 | $ | 12 | $ | — | $ | 23 | |||||||
| Money market investments related to the deferred compensation plan | 11 | — | — | 11 | |||||||||||
| Total Assets at fair value | $ | 22 | $ | 12 | $ | — | $ | 34 | |||||||
| Liabilities: | |||||||||||||||
Forward interest rate swap contracts(2) | $ | — | $ | 27 | $ | — | $ | 27 | |||||||
| Liabilities related to the deferred compensation plan | 11 | — | — | 11 | |||||||||||
| Total Liabilities at fair value | $ | 11 | $ | 27 | $ | — | $ | 38 | |||||||
| Asset (Liability) Derivatives | |||||||||
| Consolidated Balance Sheets Classification | Fair Value | ||||||||
| December 31 | |||||||||
| 2017 | 2016 | ||||||||
| Derivative instruments designated as hedges: | |||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | — | $ | 12 | ||||
| Foreign exchange contracts | Accrued liabilities | (9 | ) | — | |||||
| Forward interest rate swaps | Accrued liabilities | (2 | ) | (3 | ) | ||||
| Forward interest rate swaps | Other long-term liabilities | (8 | ) | (13 | ) | ||||
| Total derivative instruments designated as hedges | $ | (19 | ) | $ | (4 | ) | |||
| Derivative instruments not designated as hedges: | |||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | — | $ | 11 | ||||
| Foreign exchange contracts | Accrued liabilities | (2 | ) | — | |||||
| Forward interest rate swaps | Accrued liabilities | (1 | ) | (1 | ) | ||||
| Forward interest rate swaps | Other long-term liabilities | (7 | ) | (10 | ) | ||||
| Total derivative instruments not designated as hedges | (10 | ) | — | ||||||
| Total Net Derivative Liability | $ | (29 | ) | $ | (4 | ) | |||
| Net (Loss) Gain Recognized in Income | |||||||||||||
| Year Ended December 31, | |||||||||||||
| Consolidated Statements of Operations Classification | 2017 | 2016 | 2015 | ||||||||||
| Derivative instruments not designated as hedges: | |||||||||||||
| Foreign exchange contracts | Foreign exchange (loss) gain | $ | (24 | ) | $ | 5 | $ | 11 | |||||
| Forward interest rate swaps | Interest expense and other, net | 2 | — | 4 | |||||||||
| Total net (loss) gain from derivative instruments not designated as hedges | $ | (22 | ) | $ | 5 | $ | 15 | ||||||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Notional balance of outstanding contracts (in millions): | |||||||
| British Pound/US dollar | £ | 13 | £ | 3 | |||
| Euro/US dollar | € | 108 | € | 148 | |||
| British Pound/Euro | £ | 5 | £ | 8 | |||
| Canadian Dollar/US dollar | $ | 12 | $ | 13 | |||
| Czech Koruna/US dollar | Kč | 361 | Kč | 147 | |||
| Brazilian Real/US dollar | R$ | 34 | R$ | 56 | |||
| Malaysian Ringgit/US dollar | RM | — | RM | 16 | |||
| Australian Dollar/US dollar | $ | 55 | $ | 50 | |||
| Swedish Krona/US dollar | kr | 13 | kr | 7 | |||
| Japanese Yen/US dollar | ¥ | 151 | ¥ | 48 | |||
| Singapore Dollar/US dollar | S$ | 4 | S$ | 15 | |||
| Net fair value (liability) asset of outstanding contracts (in millions) | $ | (2 | ) | $ | 11 | ||
| Gross Fair Value | Offsetting Counterparty Fair Value | Net Fair Value in the Consolidated Balance Sheets | |||||||||
| Counterparty A | $ | 8 | $ | 4 | $ | 4 | |||||
| Counterparty B | 3 | 1 | 2 | ||||||||
| Counterparty C | 3 | 1 | 2 | ||||||||
| Counterparty D | 5 | 3 | 2 | ||||||||
| Counterparty E | 3 | 1 | 2 | ||||||||
| Counterparty F | 3 | 1 | 2 | ||||||||
| Counterparty G | 4 | — | 4 | ||||||||
| Total | $ | 29 | $ | 11 | $ | 18 | |||||
| Year 2018 | $ | 544 | |
| Year 2019 | 1,344 | ||
| Year 2020 | 1,072 | ||
| Year 2021 | 1,072 | ||
| Remainder | 800 | ||
| Notional balance of outstanding contracts | $ | 4,832 | |
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Senior Notes | $ | — | $ | 1,050 | |||
| Term Loan B | 1,160 | 1,653 | |||||
| Term Loan A | 679 | — | |||||
| Revolving Credit Facility | 275 | — | |||||
| Receivables Financing Facility | 135 | — | |||||
| Total debt | 2,249 | 2,703 | |||||
| Less: Debt issuance costs | (7 | ) | (22 | ) | |||
| Less: Unamortized discounts | (15 | ) | (33 | ) | |||
| Less: Current portion of long-term debt | (51 | ) | — | ||||
| Total long-term debt | $ | 2,176 | $ | 2,648 | |||
| 2018 | $ | 51 | ||||
| 2019 | 174 | |||||
| 2020 | 56 | |||||
| 2021 | 1,968 | |||||
| 2022 | — | |||||
| Thereafter | — | |||||
| Total future maturities of long-term debt | $ | 2,249 | ||||
| Future Minimum Payments | |||
| 2018 | $ | 32 | |
| 2019 | 27 | ||
| 2020 | 20 | ||
| 2021 | 13 | ||
| 2022 | 10 | ||
| 2023 and thereafter | 36 | ||
| Total minimum future lease obligations | $ | 138 | |
| 2017 | 2016 | 2015 | ||||||||||||||||||
| SARs | Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||||
| Outstanding at beginning of year | 1,740,786 | $ | 56.15 | 1,397,611 | $ | 56.78 | 1,292,142 | $ | 42.20 | |||||||||||
| Granted | 402,029 | 98.87 | 627,971 | 52.13 | 332,159 | 107.31 | ||||||||||||||
| Exercised | (250,326 | ) | 48.66 | (160,946 | ) | 35.37 | (179,702 | ) | 40.71 | |||||||||||
| Forfeited | (66,550 | ) | 75.38 | (115,215 | ) | 65.74 | (45,441 | ) | 75.26 | |||||||||||
| Expired | (7,948 | ) | 108.20 | (8,635 | ) | 88.65 | (1,547 | ) | 47.11 | |||||||||||
| Outstanding at end of year | 1,817,991 | $ | 65.73 | 1,740,786 | $ | 56.15 | 1,397,611 | $ | 56.78 | |||||||||||
| Exercisable at end of year | 874,942 | $ | 50.86 | 828,754 | $ | 45.14 | 736,075 | $ | 35.90 | |||||||||||
| 2017 | 2016 | 2015 | |||
| Expected dividend yield | 0% | 0% | 0% | ||
| Forfeiture rate | 9.37% | 9.01% | 10.24% | ||
| Volatility | 35.49% | 43.14% | 33.98% | ||
| Risk free interest rate | 1.77% | 1.29% | 1.53% | ||
| Range of interest rates | 0.71%-2.41% | 0.25%-1.75% | 0.02% - 2.14% | ||
| Expected weighted-average life (in years) | 4.13 | 5.33 | 5.32 | ||
| Fair value of SARs granted | $12.01 | $12.65 | $11.63 | ||
| Weighted-average grant date fair value of SARs granted (per underlying share) | $29.86 | $20.18 | $35.00 | ||
| Outstanding | Exercisable | ||||||
| Aggregate intrinsic value (in millions) | $ | 70 | $ | 47 | |||
| Weighted-average remaining contractual term (in years) | 6.1 | 4.7 | |||||
| 2017 | 2016 | 2015 | |||||||||||||||||||
| Restricted Stock Awards | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||
| Outstanding at beginning of year | 622,814 | $ | 70.19 | 566,447 | $ | 77.68 | 691,621 | $ | 60.06 | ||||||||||||
| Granted | 199,629 | 98.90 | 389,193 | 51.93 | 185,782 | 107.17 | |||||||||||||||
| Released | (165,846 | ) | 75.90 | (275,229 | ) | 59.39 | (253,801 | ) | 51.95 | ||||||||||||
| Forfeited | (27,955 | ) | 72.81 | (57,597 | ) | 70.50 | (57,155 | ) | 75.11 | ||||||||||||
| Outstanding at end of year | 628,642 | $ | 77.70 | 622,814 | $ | 70.19 | 566,447 | $ | 77.68 | ||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||
| Performance Share Awards | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||
| Outstanding at beginning of year | 379,226 | $ | 70.14 | 332,630 | $ | 73.40 | 374,180 | $ | 61.53 | ||||||||||||
| Granted | 79,423 | 98.97 | 172,024 | 51.01 | 106,411 | 75.77 | |||||||||||||||
| Released | (2,029 | ) | 62.70 | (111,325 | ) | 46.58 | (120,000 | ) | 38.67 | ||||||||||||
| Forfeited | (190,873 | ) | 73.09 | (14,103 | ) | 75.73 | (27,961 | ) | 73.45 | ||||||||||||
| Outstanding at end of year | 265,747 | $ | 77.04 | 379,226 | $ | 70.14 | 332,630 | $ | 73.40 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||
| Non-qualified Options | Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | Shares | Weighted- Average Exercise Price | ||||||||||||||
| Outstanding at beginning of year | 154,551 | $ | 35.96 | 204,434 | $ | 36.66 | 415,960 | $ | 40.19 | |||||||||||
| Granted | — | — | — | — | — | — | ||||||||||||||
| Exercised | (132,905 | ) | 36.86 | (47,393 | ) | 38.60 | (209,976 | ) | 43.53 | |||||||||||
| Forfeited | — | — | — | — | — | — | ||||||||||||||
| Expired | (5,941 | ) | 41.25 | (2,490 | ) | 43.35 | (1,550 | ) | 51.62 | |||||||||||
| Outstanding at end of year | 15,705 | $ | 26.34 | 154,551 | $ | 35.96 | 204,434 | $ | 36.66 | |||||||||||
| Exercisable at end of year | 15,705 | $ | 26.34 | 154,551 | $ | 35.96 | 204,434 | $ | 36.66 | |||||||||||
| Outstanding | Exercisable | ||||||
| Aggregate intrinsic value (in millions) | $ | 1 | $ | 1 | |||
| Weighted-average remaining contractual term (in years) | 0.70 | 0.70 | |||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| United States | $ | (152 | ) | $ | (120 | ) | $ | (288 | ) | ||
| Outside United States | 240 | (9 | ) | 108 | |||||||
| Total | $ | 88 | $ | (129 | ) | $ | (180 | ) | |||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Current: | |||||||||||
| Federal | $ | 10 | $ | 14 | $ | 84 | |||||
| State | 8 | 6 | 4 | ||||||||
| Foreign | 62 | 31 | 32 | ||||||||
| Total current | 80 | 51 | 120 | ||||||||
| Deferred: | |||||||||||
| Federal | 20 | (31 | ) | (117 | ) | ||||||
| State | (10 | ) | (6 | ) | (24 | ) | |||||
| Foreign | (19 | ) | (6 | ) | (1 | ) | |||||
| Total deferred | (9 | ) | (43 | ) | (142 | ) | |||||
| Total expense (benefit) | $ | 71 | $ | 8 | $ | (22 | ) | ||||
| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Provision computed at statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| U.S. Tax Reform - One-time transaction tax | 41.8 | 0.0 | 0.0 | |||||
| Remeasurement of Deferred Taxes | (56.0 | ) | 0.0 | 0.0 | ||||
| Change in valuation allowance | 96.4 | (1.0 | ) | (8.3 | ) | |||
| US impact of Enterprise acquisition | 12.9 | (14.1 | ) | (26.7 | ) | |||
| Change in contingent income tax reserves | 14.0 | (1.6 | ) | (3.3 | ) | |||
| Foreign earnings subject to U.S. taxation | 2.0 | (6.6 | ) | (3.9 | ) | |||
| Foreign rate differential | (29.1 | ) | (16.0 | ) | 13.9 | |||
| Intra-entity transactions | (18.8 | ) | 0.0 | 0.0 | ||||
| State income tax, net of federal tax benefit | (5.3 | ) | (1.0 | ) | 1.1 | |||
| Tax credits | (5.7 | ) | 9.5 | 6.1 | ||||
| Equity compensation deductions | (5.6 | ) | (0.4 | ) | 0.0 | |||
| Return to provision and other true ups | (3.2 | ) | (3.7 | ) | 0.0 | |||
| Other | 2.3 | (6.3 | ) | (1.7 | ) | |||
| Provision for income taxes | 80.7 | % | (6.2 | )% | 12.2 | % | ||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Deferred tax assets: | |||||||
| Capitalized research expenditures | $ | 32 | $ | 58 | |||
| Deferred revenue | 21 | 57 | |||||
| Tax credits | 31 | 33 | |||||
| Net operating loss carryforwards | 338 | 35 | |||||
| Other accruals | 20 | 31 | |||||
| Inventory items | 20 | 27 | |||||
| Capitalized software costs | 14 | 25 | |||||
| Sales return/rebate reserve | 33 | 27 | |||||
| Share-based compensation expense | 12 | 15 | |||||
| Accrued bonus | 1 | 11 | |||||
| Unrealized gains and losses on securities and investments | 8 | 4 | |||||
| Valuation allowance | (134 | ) | (47 | ) | |||
| Total deferred tax assets | 396 | 276 | |||||
| Deferred tax liabilities: | |||||||
| Depreciation and amortization | 275 | 165 | |||||
| Undistributed earnings | 2 | 1 | |||||
| Total deferred tax liabilities | $ | 277 | $ | 166 | |||
| Net deferred tax assets | $ | 119 | $ | 110 | |||
| One-Time Transition Tax - Payments Due for Calendar Year Tax Returns | |||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||||||||
| Unremitted Earnings Payments | $ | 2 | $ | 2 | $ | 2 | $ | 2 | $ | 2 | $ | 4 | $ | 5 | $ | 7 | |||||||||||||||
| Year ended December 31, | |||||||
| 2017 | 2016 | ||||||
| Balance at beginning of year | $ | 42 | $ | 40 | |||
| Additions for tax positions related to the current year | — | 2 | |||||
| Additions for tax positions related to prior years | 11 | 2 | |||||
| Reductions for tax positions related to prior years | (1 | ) | (2 | ) | |||
| Settlements for tax positions | (1 | ) | — | ||||
| Balance at end of year | $ | 51 | $ | 42 | |||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Basic: | |||||||||||
| Net income (loss) | $ | 17 | $ | (137 | ) | $ | (158 | ) | |||
Weighted-average shares outstanding(1) | 53,021,761 | 51,579,112 | 50,996,297 | ||||||||
| Basic earnings (loss) per share | $ | 0.33 | $ | (2.65 | ) | $ | (3.10 | ) | |||
| Diluted: | |||||||||||
| Net income (loss) | $ | 17 | $ | (137 | ) | $ | (158 | ) | |||
Weighted-average shares outstanding(1) | 53,021,761 | 51,579,112 | 50,996,297 | ||||||||
Dilutive shares(2) | 667,071 | — | — | ||||||||
| Diluted weighted-average shares outstanding | 53,688,832 | 51,579,112 | 50,996,297 | ||||||||
| Diluted earnings (loss) per share | $ | 0.32 | $ | (2.65 | ) | $ | (3.10 | ) | |||
| (1) In periods of net loss, restricted stock awards that are classified as participating securities are excluded from the weighted-average shares outstanding computation. | |||||||||||
| (2) In periods of net loss, options are anti-dilutive and therefore excluded from the earnings (loss) per share calculation. | |||||||||||
| Unrealized (loss) gain on sales hedging | Unrealized (loss) gain on forward interest rate swaps | Currency translation adjustments | Total | ||||||||||||
| Balance at December 31, 2014 | $ | 5 | $ | (8 | ) | $ | (6 | ) | $ | (9 | ) | ||||
| Other comprehensive income (loss) before reclassifications | 7 | (12 | ) | (11 | ) | (16 | ) | ||||||||
Amounts reclassified from AOCI(1) | (15 | ) | 1 | (15 | ) | (29 | ) | ||||||||
| Tax benefit | 2 | 4 | — | 6 | |||||||||||
| Other comprehensive loss | (6 | ) | (7 | ) | (26 | ) | (39 | ) | |||||||
| Balance at December 31, 2015 | (1 | ) | (15 | ) | (32 | ) | (48 | ) | |||||||
| Other comprehensive income (loss) before reclassifications | 1 | (1 | ) | (4 | ) | (4 | ) | ||||||||
Amounts reclassified from AOCI(1) | 7 | 2 | — | 9 | |||||||||||
| Tax expense | (1 | ) | (1 | ) | — | (2 | ) | ||||||||
| Other comprehensive income (loss) | 7 | — | (4 | ) | 3 | ||||||||||
| Balance at December 31, 2016 | 6 | (15 | ) | (36 | ) | (45 | ) | ||||||||
| Other comprehensive income (loss) before reclassifications | (26 | ) | 1 | 2 | (23 | ) | |||||||||
Amounts reclassified from AOCI(1) | 8 | 8 | — | 16 | |||||||||||
| Tax benefit (expense) | 3 | (3 | ) | — | — | ||||||||||
| Other comprehensive (loss) income | (15 | ) | 6 | 2 | (7 | ) | |||||||||
| Balance at December 31, 2017 | $ | (9 | ) | $ | (9 | ) | $ | (34 | ) | $ | (52 | ) | |||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net sales: | |||||||||||
| AIT | $ | 1,311 | $ | 1,247 | $ | 1,286 | |||||
| EVM | 2,414 | 2,337 | 2,380 | ||||||||
| Total segment net sales | 3,725 | 3,584 | 3,666 | ||||||||
Corporate, eliminations(1) | (3 | ) | (10 | ) | (16 | ) | |||||
| Total net sales | $ | 3,722 | $ | 3,574 | $ | 3,650 | |||||
| Operating income: | |||||||||||
| AIT | $ | 260 | $ | 240 | $ | 258 | |||||
| EVM | 315 | 286 | 236 | ||||||||
| Total segment operating income | 575 | 526 | 494 | ||||||||
Corporate, eliminations(2) | (253 | ) | (446 | ) | (457 | ) | |||||
| Total operating income | $ | 322 | $ | 80 | $ | 37 | |||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Europe, Middle East, and Africa | $ | 1,221 | $ | 1,138 | $ | 1,194 | |||||
| Latin America | 235 | 214 | 219 | ||||||||
| Asia-Pacific | 468 | 483 | 463 | ||||||||
| Total International | 1,924 | 1,835 | 1,876 | ||||||||
| North America | 1,798 | 1,739 | 1,774 | ||||||||
| Total net sales | $ | 3,722 | $ | 3,574 | $ | 3,650 | |||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Europe, Middle East, and Africa | $ | 14 | $ | 13 | $ | 10 | |||||
| Latin America | 3 | 3 | 3 | ||||||||
| Asia-Pacific | 9 | 9 | 10 | ||||||||
| Total International | 26 | 25 | 23 | ||||||||
| North America | 238 | 267 | 275 | ||||||||
| Total long-lived assets | $ | 264 | $ | 292 | $ | 298 | |||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| United States | $ | 1,984 | $ | 1,950 | $ | 2,045 | |||||
| United Kingdom | 1,196 | 1,065 | 1,102 | ||||||||
| Singapore | 454 | 362 | 175 | ||||||||
| Other | 88 | 197 | 328 | ||||||||
| Total net sales | $ | 3,722 | $ | 3,574 | $ | 3,650 | |||||
| Year Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||
| AIT | EVM | Total | AIT | EVM | Total | AIT | EVM | Total | ||||||||||||
| Customer A | 6.3 | % | 15.0 | % | 21.3 | % | 5.9 | % | 14.2 | % | 20.1 | % | 5.5 | % | 13.9 | % | 19.4 | % | ||
| Customer B | 5.3 | % | 8.9 | % | 14.2 | % | 5.0 | % | 8.2 | % | 13.2 | % | 4.6 | % | 8.1 | % | 12.7 | % | ||
| Customer C | 6.2 | % | 7.0 | % | 13.2 | % | 5.3 | % | 7.1 | % | 12.4 | % | 5.2 | % | 6.4 | % | 11.6 | % | ||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Accounts receivable | $ | 482 | $ | 628 | |||
| Allowance for doubtful accounts | (3 | ) | (3 | ) | |||
| Accounts receivable, net | $ | 479 | $ | 625 | |||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Foreign Exchange Contracts | $ | — | $ | 23 | |||
| Other | 24 | 41 | |||||
| Prepaid expenses and other current assets | $ | 24 | $ | 64 | |||
| December 31, | |||||||
| 2017 | 2016 | ||||||
| Accrued incentive compensation | $ | 101 | $ | 52 | |||
| Customer reserves | 41 | 50 | |||||
| Accrued payroll | 50 | 51 | |||||
| Interest payable | 15 | 20 | |||||
| Accrued other expenses | 130 | 150 | |||||
| Accrued liabilities | $ | 337 | $ | 323 | |||
| 2017 | |||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total Year | |||||||||||||||
| Total Net sales | $ | 865 | $ | 896 | $ | 935 | $ | 1,026 | $ | 3,722 | |||||||||
| Gross profit | 401 | 411 | 429 | 469 | 1,710 | ||||||||||||||
| Net income (loss) | 8 | 17 | (12 | ) | 4 | 17 | |||||||||||||
| Net earnings per common share: | |||||||||||||||||||
| Basic earnings (loss) per share: | $ | 0.16 | $ | 0.33 | $ | (0.23 | ) | $ | 0.07 | $ | 0.33 | ||||||||
| Diluted earnings (loss) per share: | 0.16 | 0.32 | (0.23 | ) | 0.07 | 0.32 | |||||||||||||
| 2016 | |||||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total Year | |||||||||||||||
| Total Net sales | $ | 849 | $ | 879 | $ | 904 | $ | 942 | $ | 3,574 | |||||||||
| Gross profit | 390 | 406 | 414 | 432 | 1,642 | ||||||||||||||
| Net (loss) income | (26 | ) | (45 | ) | (83 | ) | 17 | (137 | ) | ||||||||||
| Net earnings per common share: | |||||||||||||||||||
| Basic (loss) earnings per share: | $ | (0.50 | ) | $ | (0.88 | ) | $ | (1.61 | ) | $ | 0.34 | $ | (2.65 | ) | |||||
| Diluted (loss) earnings per share: | (0.50 | ) | (0.88 | ) | (1.61 | ) | 0.34 | (2.65 | ) | ||||||||||
| Description | Balance at Beginning of Period | Charged to Costs and Expenses | Deductions | Balance at End of Period | |||||||||||
| Valuation account for accounts receivable: | |||||||||||||||
| Year ended December 31, 2017 | $ | 3 | $ | 1 | $ | 1 | $ | 3 | |||||||
| Year ended December 31, 2016 | 6 | — | 3 | 3 | |||||||||||
| Year ended December 31, 2015 | 1 | 5 | — | 6 | |||||||||||
| Valuation account for deferred tax assets: | |||||||||||||||
| Year ended December 31, 2017 | $ | 47 | $ | 91 | $ | 4 | $ | 134 | |||||||
| Year ended December 31, 2016 | 48 | 18 | 19 | 47 | |||||||||||
| Year ended December 31, 2015 | 57 | 5 | 14 | 48 | |||||||||||
| 3.1(i) | (3 | ) | |||
| 3.1(ii) | (13 | ) | |||
| 4.1 | |||||
| 10.1 | (5 | ) | |||
| 10.2 | (4 | ) | |||
| 10.3 | (18 | ) | |||
| 10.4 | (4 | ) | |||
| 10.5 | (18 | ) | |||
| 10.6 | (11 | ) | |||
| 10.7 | (12 | ) | |||
| 10.8 | (8 | ) | |||
| 10.9 | (12 | ) | |||
| 10.10 | (15 | ) | |||
| 10.11 | |||||
| 10.12 | |||||
| 10.13 | (10 | ) | |||
| 10.14 | (7 | ) | |||
| 10.15 | (9 | ) | |||
| 10.16 | (9 | ) | |||
| 10.17 | (9 | ) | |||
| 10.18 | (6 | ) | |||
| 10.19 | (16 | ) | |||
| 10.20 | (19 | ) | |||
| 10.21 | (9 | ) | |||
| 10.22 | (6 | ) | |||
| 10.23 | (16 | ) | |||
| 10.24 | (19 | ) | |||
| 10.25 | (9 | ) | |||
| 10.26 | (9 | ) | |||
| 10.27 | (1 | ) | |||
| 10.28 | (6 | ) | |||
| 10.29 | (2 | ) | |||
| 10.30 | (14 | ) | |||
| 10.31 | (16 | ) | |||
| 10.32 | (14 | ) | |||
| 10.33 | (17 | ) | |||