UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 26, 2020~~October 2, 2021


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


			For the transition period from to

Commission File Number: 000-19406

Zebra Technologies Corporation

(Exact name of registrant as specified in its charter)


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

3 Overlook Point, Lincolnshire, IL 60069

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (847) 634-6700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Class A Common Stock, par value $.01 per share

ZBRA

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~27, 2020,~~26, 2021, there were ~~53,316,406~~53,441,491 shares of Class A Common Stock, $.01 par value, outstanding.

Table of Contents

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

QUARTER ENDED ~~SEPTEMBER 26, 2020~~OCTOBER 2, 2021

TABLE OF CONTENTS


		PAGE
PART I - FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets as of ~~September 26, 2020~~October 2, 2021 (unaudited) and December 31, ~~2019~~2020	3
	Consolidated Statements of Operations (unaudited) for the three and nine months ended October 2, 2021 and September 26,, 2020 ~~and~~ ~~September 28, 2019~~	4
	Consolidated Statements of Comprehensive Income (unaudited) for thethree and nine months ended October 2, 2021 and September 26,, 2020 ~~and~~ ~~September 28, 2019~~	5
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended October 2, 2021 and September 26,, 2020 ~~and~~ ~~September 28, 2019~~	6
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended October 2, 2021 and September 26,, 2020 ~~and~~ ~~September 28, 2019~~	8
	Notes to Consolidated Financial Statements (unaudited)	9
	Note 1: Description of Business and Basis of Presentation	9
	Note 2: Significant Accounting Policies	9
	Note 3: Revenues	10
	Note 4: Inventories	11
	Note 5: ~~Acquisition~~Business Acquisitions	11
	Note 6: ~~Investments~~Goodwill and Other Intangibles	1213
	Note 7: ~~Exit and Restructuring Costs~~Investments	1214
	Note 8: Fair Value Measurements	1314
	Note 9: Derivative Instruments	1316
	Note ~~10:~~10 : Long-Term Debt	1618
	Note 11: Commitments and Contingencies	1819
	Note 1 2 :12: Income Taxes	1820
	Note 1 3 :13: Earnings Per Share	1921
	Note 1 4 : Accumulated Other Comprehensive Income (Loss)	1921
	Note 1 5 : Accounts Receivable Factoring	2022
	Note 1 6 : Segment Information & Geographic Data	2123
	Note 17: Subsequent Event	24
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
	Overview	2324
	Results of Operations	2526
	Results of Operations by Segment	27
	~~New Accounting Pronouncements~~	3028
	Liquidity and Capital Resources	3031
	Significant Customers	3234
	Safe Harbor	3334
	New Accounting Pronouncements	35
	Non-GAAP Measures	3335
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3435
Item 4.	Controls and Procedures	3435
PART II - OTHER INFORMATION		3536
Item 1.	Legal Proceedings	3536
Item 1A.	Risk Factors	3536
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3637
Item 6.	Exhibits	3738
Signatures		3839

Table of Contents

PART I - FINANCIAL INFORMATION


Item 1.			Consolidated Financial Statements

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


		September 26, 2020		December 31, 2019			October 2, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	39	$	30	Cash and cash equivalents	$	307	$	168
Accounts receivable, net of allowances for doubtful accounts of $2 million as of September 26, 2020 and December 31, 2019		535		613
Accounts receivable, net of allowances for doubtful accounts of $1 million as of October 2, 2021 and December 31, 2020, respectively						Accounts receivable, net of allowances for doubtful accounts of $1 million as of October 2, 2021 and December 31, 2020, respectively	613		508
Inventories, net	Inventories, net	484		474		Inventories, net	438		511
Income tax receivable		59		32
Current income taxes						Current income taxes	72		16
Prepaid expenses and other current assets	Prepaid expenses and other current assets	75		46		Prepaid expenses and other current assets	94		70
Total Current assets	Total Current assets	1,192		1,195		Total Current assets	1,524		1,273
Property, plant and equipment, net	Property, plant and equipment, net	265		259		Property, plant and equipment, net	274		274
Right-of-use lease assets	Right-of-use lease assets	113		107		Right-of-use lease assets	130		135
Goodwill	Goodwill	2,998		2,622		Goodwill	3,194		2,988
Other intangibles, net	Other intangibles, net	427		275		Other intangibles, net	456		402
Deferred income taxes	Deferred income taxes	84		127		Deferred income taxes	106		139
Other long-term assets	Other long-term assets	166		126		Other long-term assets	181		164
Total Assets	Total Assets	$	5,245	$	4,711	Total Assets	$	5,865	$	5,375
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	481	$	197	Current portion of long-term debt	$	51	$	364
Accounts payable	Accounts payable	546		552		Accounts payable	609		601
Accrued liabilities	Accrued liabilities	443		379		Accrued liabilities	550		559
Deferred revenue	Deferred revenue	286		238		Deferred revenue	363		308
Income taxes payable	Income taxes payable	9		38		Income taxes payable	8		19
Total Current liabilities	Total Current liabilities	1,765		1,404		Total Current liabilities	1,581		1,851
Long-term debt	Long-term debt	1,086		1,080		Long-term debt	940		881
Long-term lease liabilities	Long-term lease liabilities	110		100		Long-term lease liabilities	120		129

Long-term deferred revenue	Long-term deferred revenue	248		221		Long-term deferred revenue	318		273
Other long-term liabilities	Other long-term liabilities	105		67		Other long-term liabilities	90		97
Total Liabilities	Total Liabilities	3,314		2,872		Total Liabilities	3,049		3,231
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; NaN issued		0		0
Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued						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	Class A common stock, $.01 par value; authorized 150,000,000 shares; issued 72,151,857 shares	1		1		Class A common stock, $.01 par value; authorized 150,000,000 shares; issued 72,151,857 shares	1		1
Additional paid-in capital	Additional paid-in capital	372		339		Additional paid-in capital	447		395
Treasury stock at cost, 18,853,395 and 18,148,925 shares as of September 26, 2020 and December 31, 2019, respectively		(917)		(689)
Treasury stock at cost, 18,697,788 and 18,689,775 shares as of October 2, 2021 and December 31, 2020, respectively						Treasury stock at cost, 18,697,788 and 18,689,775 shares as of October 2, 2021 and December 31, 2020, respectively	(986)		(919)
Retained earnings	Retained earnings	2,537		2,232		Retained earnings	3,382		2,736
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(62)		(44)		Accumulated other comprehensive loss	(28)		(69)
Total Stockholders’ Equity	Total Stockholders’ Equity	1,931		1,839		Total Stockholders’ Equity	2,816		2,144
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	5,245	$	4,711	Total Liabilities and Stockholders’ Equity	$	5,865	$	5,375

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share data)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net sales:	Net sales:									Net sales:
Tangible products	Tangible products	$	972	$	981	$	2,684	$	2,868	Tangible products	$	1,240	$	972	$	3,585	$	2,684
Services and software	Services and software	160		149		456		425		Services and software	196		160		575		456
Total Net sales	Total Net sales	1,132		1,130		3,140		3,293		Total Net sales	1,436		1,132		4,160		3,140
Cost of sales:	Cost of sales:									Cost of sales:
Tangible products	Tangible products	543		497		1,480		1,456		Tangible products	687		543		1,896		1,480
Services and software	Services and software	96		98		275		281		Services and software	103		96		305		275
Total Cost of sales	Total Cost of sales	639		595		1,755		1,737		Total Cost of sales	790		639		2,201		1,755
Gross profit	Gross profit	493		535		1,385		1,556		Gross profit	646		493		1,959		1,385
Operating expenses:	Operating expenses:									Operating expenses:
Selling and marketing	Selling and marketing	119		124		350		373		Selling and marketing	148		119		430		350
Research and development	Research and development	113		110		316		329		Research and development	141		113		422		316
General and administrative	General and administrative	71		78		219		244		General and administrative	85		71		259		219
Amortization of intangible assets	Amortization of intangible assets	20		26		52		84		Amortization of intangible assets	29		20		81		52
Acquisition and integration costs	Acquisition and integration costs	19		12		21		20		Acquisition and integration costs	6		19		11		21
Exit and restructuring costs	Exit and restructuring costs	1		0		7		2		Exit and restructuring costs	—		1		—		7
Total Operating expenses	Total Operating expenses	343		350		965		1,052		Total Operating expenses	409		343		1,203		965
Operating income	Operating income	150		185		420		504		Operating income	237		150		756		420
Other expenses:	Other expenses:									Other expenses:
Foreign exchange (loss) gain		(3)		2		(15)		(2)
Foreign exchange loss										Foreign exchange loss	(4)		(3)		(3)		(15)
Interest expense, net	Interest expense, net	(10)		(28)		(69)		(85)		Interest expense, net	(5)		(10)		(10)		(69)
Other, net		1		0		8		2
Other (expense) income, net										Other (expense) income, net	—		1		(1)		8
Total Other expenses, net	Total Other expenses, net	(12)		(26)		(76)		(85)		Total Other expenses, net	(9)		(12)		(14)		(76)
Income before income tax	Income before income tax	138		159		344		419		Income before income tax	228		138		742		344
Income tax expense	Income tax expense	22		23		39		44		Income tax expense	29		22		96		39
Net income	Net income	$	116	$	136	$	305	$	375	Net income	$	199	$	116	$	646	$	305
Basic earnings per share	Basic earnings per share	$	2.18	$	2.52	$	5.70	$	6.95	Basic earnings per share	$	3.72	$	2.18	$	12.08	$	5.70
Diluted earnings per share	Diluted earnings per share	$	2.16	$	2.50	$	5.65	$	6.87	Diluted earnings per share	$	3.69	$	2.16	$	11.98	$	5.65

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net income	Net income	$	116	$	136	$	305	$	375	Net income	$	199	$	116	$	646	$	305
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Changes in unrealized gains and losses on anticipated sales hedging transactions		(8)		15		(14)		7
Changes in unrealized gains and losses on forward interest rate swap hedging transactions		0		(1)		0		0
Changes in unrealized gains (losses) on anticipated sales hedging transactions										Changes in unrealized gains (losses) on anticipated sales hedging transactions	12		(8)		46		(14)

Foreign currency translation adjustment	Foreign currency translation adjustment	4		(5)		(4)		(3)		Foreign currency translation adjustment	(2)		4		(5)		(4)
Comprehensive income	Comprehensive income	$	112	$	145	$	287	$	379	Comprehensive income	$	209	$	112	$	687	$	287

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share data)

(Unaudited)

Class A Common Stock Shares Class A Common Stock Value Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total
Balance at December 31, 2019 54,002,932 $ 1 $ 339 $ (689) $ 2,232 $ (44) $ 1,839
Issuances of treasury shares related to share-based compensation plans, net of forfeitures 15,792 — — — — — —
Shares withheld to fund withholding tax obligations related to share-based compensation plans (4,361) — — (1) — — (1)
Share-based compensation — — 7 — — — 7
Repurchases of common stock (948,740) — — (200) — — (200)
Net income — — — — 89 — 89
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) — — — — — 2 2
Foreign currency translation adjustment — — — — — (9) (9)
Balance at March 28, 2020 53,065,623 $ 1 $ 346 $ (890) $ 2,321 $ (51) $ 1,727
Issuances of treasury shares related to share-based compensation plans, net of forfeitures 399,634 — (9) 13 — — 4
Shares withheld to fund withholding tax obligations related to share-based compensation plans (142,206) — — (34) — — (34)
Share-based compensation — — 13 — — — 13
Net income — — — — 100 — 100
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) — — — — — (8) (8)
Foreign currency translation adjustment — — — — — 1 1
Balance at June 27, 2020 53,323,051 $ 1 $ 350 $ (911) $ 2,421 $ (58) $ 1,803
Issuances of treasury shares related to share-based compensation plans, net of forfeitures (22,960) — 9 (6) — — 3
Shares withheld to fund withholding tax obligations related to share-based compensation plans (1,629) — — — — — —
Share-based compensation — — 13 — — — 13
Net income — — — — 116 — 116
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) — — — — — (8) (8)
Foreign currency translation adjustment — — — — — 4 4
Balance at September 26, 2020 53,298,462 $ 1 $ 372 $ (917) $ 2,537 $ (62) $ 1,931


	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, 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	48,584	—		(6)		—		—		—		(6)
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(400)	—		—		—		—		—		—
Share-based compensation	—	—		16		—		—		—		16
Repurchases of common stock	(100)	—		—		—		—		—		—
Net income	—	—		—		—		228		—		228
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—	—		—		—		—		32		32

Foreign currency translation adjustment	—	—		—		—		—		(3)		(3)
Balance at April 3, 2021	53,510,166	$	1	$	405	$	(919)	$	2,964	$	(40)	$	2,411

Issuances of treasury shares related to share-based compensation plans, net of forfeitures	27,226	—		—		—		—		—		—
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(81,810)	—		—		(40)		—		—		(40)
Share-based compensation	—	—		22		—		—		—		22
Repurchases of common stock	(52,289)	—		—		(25)		—		—		(25)
Net income	—	—		—		—		219		—		219
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—	—		—		—		—		2		2


Balance at July 3, 2021	53,403,293	$	1	$	427	$	(984)	$	3,183	$	(38)	$	2,589

Issuances of treasury shares related to share-based compensation plans, net of forfeitures	52,369	—		—		(1)		—		—		(1)
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(1,593)	—		—		(1)		—		—		(1)
Share-based compensation	—	—		20		—		—		—		20

Net income	—	—		—		—		199		—		199
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—	—		—		—		—		12		12

Foreign currency translation adjustment	—	—		—		—		—		(2)		(2)
Balance at October 2, 2021	53,454,069	$	1	$	447	$	(986)	$	3,382	$	(28)	$	2,816

Table of Contents

~~ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(In millions, except share data)~~

~~(Unaudited)~~


	Class A Common Stock Shares	Class A Common Stock Value		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at December 31, 2019	54,002,932	$	1	$	339	$	(689)	$	2,232	$	(44)	$	1,839

Issuances of treasury shares related to share-based compensation plans, net of forfeitures	15,792	—		—		—		—		—		—
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(4,361)	—		—		(1)		—		—		(1)
Share-based compensation	—	—		7		—		—		—		7
Repurchases of common stock	(948,740)	—		—		(200)		—		—		(200)
Net income	—	—		—		—		89		—		89
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—	—		—		—		—		2		2

Foreign currency translation adjustment	—	—		—		—		—		(9)		(9)
Balance at March 28, 2020	53,065,623	$	1	$	346	$	(890)	$	2,321	$	(51)	$	1,727

Issuances of treasury shares related to share-based compensation plans, net of forfeitures	399,634	—		(9)		13		—		—		4
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(142,206)	—		—		(34)		—		—		(34)
Share-based compensation	—	—		13		—		—		—		13

Net income	—	—		—		—		100		—		100
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—	—		—		—		—		(8)		(8)

Foreign currency translation adjustment	—	—		—		—		—		1		1
Balance at June 27, 2020	53,323,051	$	1	$	350	$	(911)	$	2,421	$	(58)	$	1,803

Issuances of treasury shares related to share-based compensation plans, net of forfeitures	(22,960)	—		9		(6)		—		—		3
Shares withheld to fund withholding tax obligations related to share-based compensation plans	(1,629)	—		—		—		—		—		—
Share-based compensation	—	—		13		—		—		—		13

Net income	—	—		—		—		116		—		116
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)	—	—		—		—		—		(8)		(8)

Foreign currency translation adjustment	—	—		—		—		—		4		4
Balance at September 26, 2020	53,298,462	$	1	$	372	$	(917)	$	2,537	$	(62)	$	1,931

Class A Common Stock Shares Class A Common Stock Value Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Loss Total
Balance at December 31, 2018 53,871,184 $ 1 $ 294 $ (613) $ 1,688 $ (35) $ 1,335
Issuances of treasury shares related to share-based compensation plans, net of forfeitures 110,382 — 1 3 — — 4
Shares withheld to fund withholding tax obligations related to share-based compensation plans (5,829) — — (1) — — (1)
Share-based compensation — — 10 — — — 10
Net income — — — — 115 — 115
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) — — — — — 4 4
Balance at March 30, 2019 53,975,737 $ 1 $ 305 $ (611) $ 1,803 $ (31) $ 1,467
Issuances of treasury shares related to share-based compensation plans, net of forfeitures 345,067 — (5) 9 — — 4
Shares withheld to fund withholding tax obligations related to share-based compensation plans (212,975) — — (41) — — (41)
Share-based compensation — — 14 — — — 14
Net income — — — — 124 — 124
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) — — — — — (12) (12)
Changes in unrealized gains and losses on forward interest rate swap hedging transactions (net of income taxes) — — — — — 1 1
Foreign currency translation adjustment — — — — — 2 2
Balance at June 29, 2019 54,107,829 $ 1 $ 314 $ (643) $ 1,927 $ (40) $ 1,559
Issuances of treasury shares related to share-based compensation plans, net of forfeitures 44,215 — (2) 1 — — (1)
Shares withheld to fund withholding tax obligations related to share-based compensation plans (3,864) — — (1) — — (1)
Share-based compensation — — 12 — — — 12
Repurchases of common stock (101,062) — — (20) — — (20)
Net income — — — — 136 — 136
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) — — — — — 15 15
Changes in unrealized gains and losses on forward interest rate swap hedging transactions (net of income taxes) — — — — — (1) (1)
Foreign currency translation adjustment — — — — — (5) (5)
Balance at September 28, 2019 54,047,118 $ 1 $ 324 $ (663) $ 2,063 $ (31) $ 1,694

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Nine Months Ended					Nine Months Ended
		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	305	$	375	Net income	$	646	$	305
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	103		139		Depreciation and amortization	136		103

Amortization of debt issuance costs and discounts		2		6

Share-based compensation	Share-based compensation	33		36		Share-based compensation	58		33

Deferred income taxes	Deferred income taxes	(2)		0		Deferred income taxes	(6)		(2)
Unrealized loss on forward interest rate swaps		37		28
Unrealized (gain) loss on forward interest rate swaps						Unrealized (gain) loss on forward interest rate swaps	(17)		37
Other, net	Other, net	(5)		(4)		Other, net	1		(3)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	96		(73)		Accounts receivable, net	(107)		96
Inventories, net	Inventories, net	(7)		65		Inventories, net	75		(7)
Other assets	Other assets	3		(20)		Other assets	(25)		3
Accounts payable	Accounts payable	(7)		(51)		Accounts payable	(2)		(7)
Accrued liabilities	Accrued liabilities	(40)		(62)		Accrued liabilities	42		(40)
Deferred revenue	Deferred revenue	58		43		Deferred revenue	101		58
Income taxes	Income taxes	(58)		(58)		Income taxes	(67)		(58)
Other operating activities	Other operating activities	13		(4)		Other operating activities	1		13
Net cash provided by operating activities	Net cash provided by operating activities	531		420		Net cash provided by operating activities	836		531
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(548)		(255)		Acquisition of businesses, net of cash acquired	(307)		(548)
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(49)		(44)		Purchases of property, plant and equipment	(38)		(49)
Proceeds from sale of long-term investments	Proceeds from sale of long-term investments	6		10		Proceeds from sale of long-term investments	—		6
Purchases of long-term investments	Purchases of long-term investments	(32)		(21)		Purchases of long-term investments	(24)		(32)
Net cash used in investing activities	Net cash used in investing activities	(623)		(310)		Net cash used in investing activities	(369)		(623)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Payment of debt issuance costs and discounts	Payment of debt issuance costs and discounts	(1)		(5)		Payment of debt issuance costs and discounts	—		(1)
Payments of long-term debt	Payments of long-term debt	(103)		(661)		Payments of long-term debt	(277)		(103)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	389		593		Proceeds from issuance of long-term debt	21		389
Payments of debt extinguishment costs		0		(1)

Payments for repurchases of common stock	Payments for repurchases of common stock	(200)		(20)		Payments for repurchases of common stock	(25)		(200)
Net payments related to share-based compensation plans	Net payments related to share-based compensation plans	(28)		(36)		Net payments related to share-based compensation plans	(48)		(28)
Change in unremitted cash collections from servicing factored receivables	Change in unremitted cash collections from servicing factored receivables	73		8		Change in unremitted cash collections from servicing factored receivables	(22)		73
Other financing activities	Other financing activities	1		2		Other financing activities	—		1
Net cash provided by (used in) financing activities		131		(120)
Net cash (used in) provided by in financing activities						Net cash (used in) provided by in financing activities	(351)		131
Effect of exchange rate changes on cash and cash equivalents, including restricted cash	Effect of exchange rate changes on cash and cash equivalents, including restricted cash	(1)		(1)		Effect of exchange rate changes on cash and cash equivalents, including restricted cash	—		(1)
Net increase (decrease) in cash and cash equivalents, including restricted cash		38		(11)
Net increase in cash and cash equivalents, including restricted cash						Net increase in cash and cash equivalents, including restricted cash	116		38
Cash and cash equivalents, including restricted cash, at beginning of period	Cash and cash equivalents, including restricted cash, at beginning of period	30		44		Cash and cash equivalents, including restricted cash, at beginning of period	192		30
Cash and cash equivalents, including restricted cash, at end of period	Cash and cash equivalents, including restricted cash, at end of period	$	68	$	33	Cash and cash equivalents, including restricted cash, at end of period	$	308	$	68
Less restricted cash, included in Prepaid expenses and other current assets	Less restricted cash, included in Prepaid expenses and other current assets	(29)		0		Less restricted cash, included in Prepaid expenses and other current assets	(1)		(29)
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	39	$	33	Cash and cash equivalents at end of period	$	307	$	39
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Income taxes paid	Income taxes paid	$	100	$	102	Income taxes paid	$	169	$	100
Interest paid	Interest paid	$	28	$	49	Interest paid	$	25	$	28

See accompanying Notes to Consolidated Financial Statements.

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ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 subscriptions, that capture and move data. We also provide a full range of services, including maintenance, technical support, repair, managed and ~~managed services, including cloud-based subscriptions and solutions.~~professional services. End-users of our products, solutions and services include those in retail and e-commerce, manufacturing, transportation and logistics, ~~manufacturing,~~ healthcare, ~~hospitality, warehouse~~public sector, and ~~distribution, energy and utilities, and education~~other industries around the world. We provide our products, solutions and services globally through a direct sales force and an extensive network of channel partners.

Management prepared these unaudited interim consolidated financial statements according to the rules and regulations of the Securities and Exchange Commission for interim financial information and notes. As permitted under Article 10 of Regulation S-X and the instructions of Form 10-Q, these consolidated financial statements do not include all the information and notes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements, although management believes that the disclosures made are adequate to make the information not misleading. These ~~consolidated~~interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020.

In the opinion of the Company, these interim financial statements include all adjustments (of a normal, recurring nature) necessary to fairly present its Consolidated Balance Sheet as of ~~September 26, 2020,~~October 2, 2021, the Consolidated Statements of Operations, Comprehensive Income, and Stockholders’ Equity for the three and nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ and the Consolidated Statements of Cash Flows for the nine months ended October 2, 2021 and September 26, ~~2020 and September 28, 2019.~~2020. These results, however, are not necessarily indicative of the results expected for the full fiscal year ending December 31, ~~2020.~~2021.

Effective January 1, 2021, Retail Solutions, which provides a range of physical inventory management solutions with application in the retail industry, including solutions for full store physical inventories, cycle counts and analytics, 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. Prior period results have been reclassified to conform to the current period’s presentation. This change does not have an impact on the Consolidated Financial Statements. See Note 16, Segment Information & Geographic Data for additional information related to each segment’s results.

Note 2 Significant Accounting Policies

~~Recently Adopted Accounting Pronouncements~~

~~On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments~~ ~~(“ASU 2016-13”). ASU 2016-13 requires the measurement and recognition of expected credit losses for financialassets held at amortized cost. It replaces the existing incurred loss impairment model with an expected loss methodology, which~~will result in more timely recognition of credit losses. With respect to the Company’s financial assets, including trade receivables and contract assets, a cumulative effect transition approach was applied. In order to determine the transition impact of ASU 2016-13, the Company considered historical loss experience, the short duration of its trade receivables and durations of other financial assets, and expectations of the future economic environment. The adoption of ASU 2016-13 did not have a significant impact to the Company’s financial statements upon transition or for the nine months ended September 26, 2020.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board issued ~~ASU~~Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). Subject to meeting certain criteria, ASU 2020-04 provides optional expedients and exceptions to applying contract modification accounting under existing generally accepted accounting principles for contracts that are modified to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) ~~by the end of 2021.~~. Some of the Company’s contracts with respect to its borrowings and interest rate swap contracts already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR, while for others, the Company anticipates negotiating comparable replacement rates with its counterparties. At this stage of its contract assessment, the Company does not expect ASU 2020-04 to have a material impact toon its consolidated financial statements.

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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.

~~We recognize revenue arising from performance obligations outlined in contracts with our customers that~~Revenues for products are ~~satisfied at a point in time and over time. Substantially all revenue for tangible products is~~generally recognized ~~at a point in time, whereby revenue~~upon shipment, whereas revenues for services and solutions offerings are generally recognized 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 using a time-based method, depending upon how control is ~~predominantly recognized over time.~~transferred to the customer. In cases where a bundle of products, services, 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, ~~Asset Intelligence & Tracking (“AIT”)~~AIT and ~~Enterprise Visibility & Mobility (“EVM”),~~EVM, for the three and nine months ended October 2, 2021 and September 26, 2020 ~~and September 28, 2019~~ (in millions):

Three Months Ended
September 26, 2020 September 28, 2019
Segment Tangible Products Services and Software Total Tangible Products Services and Software Total
AIT $ 314 $ 32 $ 346 $ 337 $ 36 $ 373
EVM 658 130 788 644 113 757
Corporate, eliminations(1)
0 (2) (2) 0 0 0
Total $ 972 $ 160 $ 1,132 $ 981 $ 149 $ 1,130


		Nine Months Ended													Three Months Ended
		September 26, 2020						September 28, 2019							October 2, 2021						September 26, 2020
Segment	Segment	Tangible Products		Services and Software		Total		Tangible Products		Services and Software		Total		Segment	Tangible Products		Services and Software		Total		Tangible Products		Services and Software		Total
AIT	AIT	$	898	$	94	$	992	$	1,001	$	99	$	1,100	AIT	$	358	$	28	$	386	$	314	$	25	$	339
EVM	EVM	1,786		364		2,150		1,867		326		2,193		EVM	882		168		1,050		658		137		795
Corporate, eliminations(1)	Corporate, eliminations(1)	0		(2)		(2)		0		0		0		Corporate, eliminations(1)	—		—		—		—		(2)		(2)
Total	Total	$	2,684	$	456	$	3,140	$	2,868	$	425	$	3,293	Total	$	1,240	$	196	$	1,436	$	972	$	160	$	1,132

															Nine Months Ended
															October 2, 2021						September 26, 2020
Segment														Segment	Tangible Products		Services and Software		Total		Tangible Products		Services and Software		Total
AIT														AIT	$	1,161	$	82	$	1,243	$	898	$	69	$	967
EVM														EVM	2,424		499		2,923		1,786		389		2,175
Corporate, eliminations(1)														Corporate, eliminations(1)	—		(6)		(6)		—		(2)		(2)
Total														Total	$	3,585	$	575	$	4,160	$	2,684	$	456	$	3,140

(1)Amounts included in Corporate, eliminations consist of purchase accounting adjustments.

In addition, refer to Note 16, 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 solutions offerings. The aggregated transaction price allocated to remaining performance obligations for ~~these types of~~ arrangements with an original term exceeding one year was ~~$874~~$1,019 million and ~~$724~~$974 million, inclusive of deferred revenue, as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, respectively. On average, remaining performance obligations as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019~~2020 are expected to be recognized over a period of approximately two years.

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Contract Balances

Progress on satisfying performance obligations under contracts with customers related to billed revenues is ~~recorded~~reflected on the Consolidated Balance Sheets in Accounts receivable, ~~net for billed revenues.~~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 12twelve months, and Other long-term assets for revenues expected to be billed thereafter. The total contract asset balances were ~~$13~~$11 million and $8$10 million as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, respectively. These contract assets result from timing differences between the billing and delivery schedules of products, services and software, as well as the impact from the allocation of the transaction price among performance obligations for contracts that include multiple performance obligations. Contract assets are evaluated for impairment and no impairment losses have been recognized during the three and nine months ended October 2, 2021 and September 26, ~~2020 and September 28, 2019.~~2020.

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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 ~~$534~~$681 million and ~~$459~~$581 million as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, respectively. During the three and nine months ended October 2, 2021, the Company recognized $74 million and $259 million in revenue, respectively, which was previously included in the beginning balance of deferred revenue as of December 31, 2020. During the three and nine months ended September 26, 2020, the Company recognized $47 million and $204 million in revenue, respectively, which was previously included in the beginning balance of deferred revenue as of December 31, 2019. During the three and nine months ended September 28, 2019, the Company recognized $41 million and $168 million in revenue, respectively, which was previously included in the beginning balance of deferred revenue as of December 31, 2018.

Note 4 Inventories

The components of Inventories, net are as follows (in millions):


		September 26, 2020		December 31, 2019			October 2, 2021		December 31, 2020
Raw material		$	120	$	128
Raw materials						Raw materials	$	144	$	117
Work in process	Work in process	4		4		Work in process	3		4
Finished goods	Finished goods	360		342		Finished goods	291		390
Total Inventories, net	Total Inventories, net	$	484	$	474	Total Inventories, net	$	438	$	511

Note 5 ~~Acquisition~~Business Acquisitions

Fetch

On ~~September 1, 2020,~~August 9, 2021, the Company acquired ~~all of the equity interests in Reflexis Systems,~~Fetch Robotics, Inc. (“~~Reflexis”~~Fetch”), a provider of ~~task and workforce management, execution, and communication~~autonomous mobile robot solutions for customers who operate in the ~~retail, food service, hospitality,~~manufacturing and ~~banking industries.~~warehousing markets. Through its acquisition of ~~Reflexis,~~Fetch, the Company intends to ~~enhance~~expand its automation solution offerings to customers in ~~those industries by combining Reflexis’ platform with its existing software solutions.~~the manufacturing, distribution, and fulfillment industries.

The ~~Reflexis~~ acquisition was accounted for under the acquisition method of accounting for business combinations. The ~~Company’s cash~~total purchase consideration was ~~$548~~$301 million, which consisted of $290 million in cash paid, net of ~~Reflexis’~~ cash ~~on-hand.~~

~~In connection with its acquisition of Reflexis,~~on-hand, and ~~in exchange for~~ the cancellation of unvested Reflexis stock options, the Company granted replacement share-based compensation awards to certain Reflexis employees in the form of Zebra incentive stock options. A total of 38,228 replacement incentive stock options were granted, with a weighted average acquisition-date fair value per option of $230. The total fair value of ~~approximately $9~~the Company’s existing ownership interest in Fetch of $11 million, is primarily attributable to service to be rendered subsequent to acquisition and will be expensed over the remaining service period. As of the acquisition date, the weighted average future service period associated with the replacement options was 1.7 years, and the weighted average remaining contractual life was 7.7 years.

~~The Company incurred approximately $19~~as remeasured upon acquisition. This remeasurement resulted in a $1 million of acquisition-related costs during the third quarter of 2020, which primarily consisted of payments to settle certain existing Reflexis share-based compensation awards whose vesting was accelerated at the discretion of Reflexis contemporaneously with the acquisition. Those payments, as well as $5 million of other acquisition-related costs primarily related to third-party transaction and advisory fees, are included within Acquisition and integration costsgain reflected in Other (expense) income, net on the Consolidated Statements of Operations.

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

The Company utilized estimated fair values as of ~~September 1, 2020~~August 9, 2021 to allocate the total purchase consideration to the identifiable assets acquired and liabilities assumed. The fair value of the net assets acquired was based on ~~a number of~~several estimates and assumptions, as well as customary valuation ~~procedures and~~ techniques, primarily ~~income-based methodologies such as~~ the excess earnings method for technology and patent intangible ~~assets, as well as exit cost methodologies for liabilities such as deferred revenues.~~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 October 2, 2021 include intangible assets and income tax-related items.

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

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Identifiable intangible assets

~~204~~114

~~Accounts receivable~~Right-of-use lease asset

2011

~~Property, plant and equipment~~Inventories

106

Other assets acquired

~~Deferred revenue~~

~~(16)~~5

Deferred tax liabilities

(27)

Lease liability

~~(49)~~(11)

Other liabilities assumed

~~(14)~~(4)

Net assets acquired

~~172~~94

Goodwill on acquisition

~~376~~207

Total purchase ~~consideration~~price

~~548~~301

The ~~$376~~$207 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 preliminary 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 replacement awards for unvested Fetch stock options, in the form of stock-settled restricted stock units (“stock-settled RSUs”). A total of 40,837 stock-settled RSUs were granted, each with a grant-date fair value of $563.98. The total fair value of approximately $23 million is attributable to service to be rendered subsequent to acquisition and will generally be expensed over a 3-year service period.

The Company has not included unaudited pro forma results, as if Fetch had been acquired as of January 1, 2020, as doing so would not yield materially different results.

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. 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 goodwill, which will be non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned ~~integration~~expansion of ~~Reflexis’ solution~~the Adaptive Vision technologies into new product offerings ~~with the Company’s existing solution offerings~~and markets. The Company has not included unaudited pro forma results, as ~~well~~if Adaptive Vision had been acquired as ~~the expansion in current and new markets and industries.~~of January 1, 2020, as doing so would not yield materially different results.

~~The preliminary~~Reflexis

During the third quarter of 2021, the Company finalized the purchase price allocation related to ~~identifiable~~its September 1, 2020 acquisition of Reflexis Systems, Inc. (“Reflexis”). Before finalizing the purchase price allocation, during the second quarter of 2021, the Company recorded measurement period adjustments consisting of a $9 million increase to the trade name intangible assets ~~acquired was:~~and a $4 million increase to deferred tax liabilities. During the third quarter of 2021, the Company recorded its final measurement period adjustment consisting of a $2 million decrease to deferred tax liabilities. These adjustments, relating to facts and circumstances existing as of the acquisition date, resulted in a $7 million reduction of goodwill.

Fair Value (in millions) Useful Life (in years)
Technology and patents $ 160 8
Customer and other relationships 43 2
Trade names 1 2
Total identifiable intangible assets $ 204

During the second quarter of 2021, the Company also received escrow proceeds of $1 million related to resolution of contractual items resulting from the Reflexis acquisition. These proceeds were reflected as a reduction in purchase price with a corresponding decrease of goodwill.

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Acquisition and integration costs

We incurred approximately $6 million and $11 million of acquisition-related costs, primarily related to third-party transaction and advisory fees, during the three and nine months ended October 2, 2021, respectively, associated with our business acquisitions. These costs are included within Acquisition and integration costs on the Consolidated Statements of Operations.

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		—
Fetch acquisition	—		207		207
Adaptive Vision acquisition	—		7		7
Reflexis purchase price allocation adjustments	—		(7)		(7)
Reflexis purchase price reduction	—		(1)		(1)

Goodwill as of October 2, 2021	$	169	$	3,025	$	3,194

Other Intangibles, net

The balances in Other Intangibles, net consisted of the following (in millions):


	As of October 2, 2021						As of December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:
Technology and patents	$	851	$	(553)	$	298	$	739	$	(527)	$	212
Customer and other relationships	624		(484)		140		620		(431)		189
Trade names	63		(45)		18		44		(43)		1
Total	$	1,538	$	(1,082)	$	456	$	1,403	$	(1,001)	$	402

During the three months ended October 2, 2021 and September 26, 2020, the Company recognized amortization expense of $29 million and $20 million, respectively. During the nine months ended October 2, 2021 and September 26, 2020, the Company recognized amortization expense of $81 million and $52 million, respectively.

As of October 2, 2021, estimated future intangible asset amortization expense is as follows (in millions):


2021 (remaining 3 months)	$	31
2022	110
2023	64
2024	62
2025	62
Thereafter	127
Total	$	456

See Note 5, Business Acquisitions for further details related to the Company’s acquisitions and purchase price allocation adjustments.

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Note 7 Investments

The carrying value of the Company’s venture investments was ~~$80~~$91 million and ~~$45~~$77 million as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, respectively, which are included in Other long-term assets on the Consolidated ~~Balances~~Balance Sheets.

During the three and nine months ended October 2, 2021, the Company paid $7 million and $24 million for the purchases of new long-term investments, respectively. Comparatively, during the nine months ended September 26, 2020, the Company paid $32 million for the purchases of ~~long-term~~long term investments, which primarily related to the acquisition of additional shares in an existing investment in the second quarter of 2020. In connection with ~~this~~that additional investment, induring the second quarter of 2020, the Company identified an observable price change that resulted in a $7 million ~~gain on its existing investment. During the nine months ended September 26, 2020, the Company also received cash proceeds of $6 million related to the sale of a long-term investment.~~gain.

Net gains and losses related to the Company’s investments are included within Other (expense) income, net on the Consolidated Statements of Operations. ~~During~~The Company recognized net gains of $1 million each during the three ~~and nine~~ months ended October 2, 2021 and September 26, 2020, ~~the~~respectively. The Company recognized net ~~investment~~ gains of $1 million and $8 million ~~respectively. During~~during the ~~three and~~ nine months ended October 2, 2021 and September ~~28, 2019, the Company recognized net investment gains of $0 million and $3 million,~~26, 2020, respectively.

~~Note 7 Exit and Restructuring Costs~~

In the fourth quarter of 2019, the Company committed to certain organizational changes designed to generate operational efficiencies (collectively referred to as the “2019 Productivity Plan”). The organizational design changes under the 2019 Productivity Plan have principally occurred within the North America and Europe, Middle East, and Africa (“EMEA”) regions, relate primarily to employee severance and related benefits, and are expected to be substantially completed by the end of 2020. Exit and restructuring charges for the 2019 Productivity Plan were $1 million and $7 million during the three and nine months ended September 26, 2020, respectively, and $15 million cumulatively through the quarter ended September 26, 2020. Estimated remaining costs to be incurred in the fourth quarter of 2020 under the 2019 Productivity Plan are expected to be up to $3 million.

As of September 26, 2020, the Company’s total remaining obligations under its exit and restructuring programs were $4 million, which are expected to be mostly settled within the next year and are reflected within Accrued liabilities on the Consolidated Balance Sheets.

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Note 8 Fair Value Measurements

Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy in accordance with Accounting Standards Codification (“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 a liability in an orderly transaction between market participants at the measurement date. It establishes 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 onin 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.

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The Company’s financial assets and liabilities carried at fair value as of ~~September 26, 2020,~~October 2, 2021, are classified below (in millions):


		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Foreign exchange contracts (1)										Foreign exchange contracts (1)	$	—	$	22	$	—	$	22

Money market investments related to the deferred compensation plan		$	26	$	0	$	0	$	26
Money market investments related to deferred compensation plan										Money market investments related to deferred compensation plan	35		—		—		35
Total Assets at fair value	Total Assets at fair value	$	26	$	0	$	0	$	26	Total Assets at fair value	$	35	$	22	$	—	$	57
Liabilities:	Liabilities:									Liabilities:
Foreign exchange contracts (1)	Foreign exchange contracts (1)	$	0	$	14	$	0	$	14	Foreign exchange contracts (1)	$	1	$	—	$	—	$	1
Forward interest rate swap contracts (2)	Forward interest rate swap contracts (2)	0		50		0		50		Forward interest rate swap contracts (2)	—		29		—		29
Liabilities related to the deferred compensation plan	Liabilities related to the deferred compensation plan	26		0		0		26		Liabilities related to the deferred compensation plan	35		—		—		35
Total Liabilities at fair value	Total Liabilities at fair value	$	26	$	64	$	0	$	90	Total Liabilities at fair value	$	36	$	29	$	—	$	65

The Company’s financial assets and liabilities carried at fair value as of December 31, ~~2019,~~2020, are classified below (in millions):


		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Foreign exchange contracts (1)		$	0	$	3	$	0	$	3

Money market investments related to the deferred compensation plan		24		0		0		24

Money market investments related to deferred compensation plan										Money market investments related to deferred compensation plan	$	30	$	—	$	—	$	30
Total Assets at fair value	Total Assets at fair value	$	24	$	3	$	0	$	27	Total Assets at fair value	$	30	$	—	$	—	$	30
Liabilities:	Liabilities:									Liabilities:
Foreign exchange contracts (1)										Foreign exchange contracts (1)	$	3	$	34	$	—	$	37
Forward interest rate swap contracts (2)	Forward interest rate swap contracts (2)	$	0	$	13	$	0	$	13	Forward interest rate swap contracts (2)	—		46		—		46
Liabilities related to the deferred compensation plan	Liabilities related to the deferred compensation plan	24		0		0		24		Liabilities related to the deferred compensation plan	30		—		—		30
Total Liabilities at fair value	Total Liabilities at fair value	$	24	$	13	$	0	$	37	Total Liabilities at fair value	$	33	$	80	$	—	$	113

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

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

b.•Fair value of hedges against net assets is calculated at the period-end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at ~~period~~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.

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Note 9 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

~~Table of Contents~~

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.

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
	Balance Sheet Classification	October 2, 2021		December 31, 2020
Derivative instruments designated as hedges:
Foreign exchange contracts	Prepaid expenses and other current assets	$	22	$	—
Foreign exchange contracts	Accrued liabilities	—		(34)


Total derivative instruments designated as hedges		$	22	$	(34)

Derivative instruments not designated as hedges:



Foreign exchange contracts	Accrued liabilities	$	(1)	$	(3)
Forward interest rate swaps	Accrued liabilities	(17)		(17)
Forward interest rate swaps	Other long-term liabilities	(12)		(29)
Total derivative instruments not designated as hedges		$	(30)	$	(49)
Total net derivative liability		$	(8)	$	(83)

(Liability) Asset
Fair Values as of
Balance Sheet Classification September 26,
2020 December 31,
2019
Derivative instruments designated as hedges:
    Foreign exchange contracts Prepaid expenses and other current assets $ 0 $ 3
    Foreign exchange contracts Accrued liabilities (14) 0
Total derivative instruments designated as hedges $ (14) $ 3
Derivative instruments not designated as hedges:
    Forward interest rate swaps Accrued liabilities (17) (5)
    Forward interest rate swaps Other long-term liabilities (33) (8)
Total derivative instruments not designated as hedges $ (50) $ (13)
Total net derivative liability $ (64) $ (10)

The following table presents the ~~losses~~net gains (losses) from changes in fair values of derivatives that are not designated as hedges (in millions):

Losses Recognized in Income
Three Months Ended Nine Months Ended
Statements of Operations Classification September 26,
2020 September 28,
2019 September 26,
2020 September 28,
2019
Derivative instruments not designated as hedges:
Foreign exchange contracts Foreign exchange (loss) gain $ (1) $ (1) $ (9) $ (4)
Forward interest rate swaps Interest expense, net (4) (4) (46) (27)
Total losses recognized in income $ (5) $ (5) $ (55) $ (31)


	Gains (Losses) Recognized in Income
		Three Months Ended				Nine Months Ended
	Statements of Operations Classification	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Derivative instruments not designated as hedges:
Foreign exchange contracts	Foreign exchange loss	$	1	$	(1)	$	1	$	(9)
Forward interest rate swaps	Interest expense, net	(1)		(4)		4		(46)
Total gains (losses) recognized in income		$	—	$	(5)	$	5	$	(55)

Activities related to derivative instruments are reflected within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.

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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.

~~Table of Contents~~

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 each would have been ~~increased by $3 million~~unchanged as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019.~~2020.

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 to the fullest extent possible 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 $5 million of gains and $8 million of losses for the three months ended October 2, 2021 and ~~$10~~September 26, 2020, respectively. Realized amounts reclassified to Net sales were $15 million of losses and $6 million of gains for the ~~three~~nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019, respectively. For the nine months ended September 26, 2020 and September 28, 2019, realized gains were $6 million and $32 million,~~ respectively. As of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, the notional amounts of the Company’s foreign exchange cash flow hedges were ~~€543~~€637 million and ~~€564~~€585 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 value of these outstanding contracts are as follows (in millions):

September 26,
2020 December 31,
2019
Notional balance of outstanding contracts:
British Pound/U.S. Dollar £ 11 £ 14
Euro/U.S. Dollar € 24 € 36
Canadian Dollar/U.S. Dollar $ 1 $ 1
Australian Dollar/U.S. Dollar A$ 4 A$ 42
Japanese Yen/U.S. Dollar ¥ 233 ¥ 264
Singapore Dollar/U.S. Dollar S$ 14 S$ 19
Mexican Peso/U.S. Dollar Mex$ 114 Mex$ 115
Chinese Yuan/U.S. Dollar ¥ 46 ¥ 0
South African Rand/U.S. Dollar R 46 R 42
Net fair value of assets of outstanding contracts $ 0 $ 0

The Company’s use of non-designated forward contracts to manage Euro currency exposure is limited, as Euro-denominated borrowings under the Revolving Credit Facility naturally hedge part of such risk. See Note 10, ~~Long-Term Debt~~ ~~for further discussion of Euro-denominated borrowings.~~


	October 2, 2021		December 31, 2020
Notional balance of outstanding contracts:
British Pound/U.S. Dollar	£	2	£	10
Euro/U.S. Dollar	€	91	€	123


Euro/Czech Koruna	€	17	€	—



Japanese Yen/U.S. Dollar	¥	—	¥	354
Singapore Dollar/U.S. Dollar	S$	15	S$	12
Mexican Peso/U.S. Dollar	Mex$	85	Mex$	36


Polish Zloty/U.S. Dollar	zł	96	zł	—
Net fair value of liabilities of outstanding contracts	$	1	$	3

Table of Contents

Interest Rate Risk Management

The Company’s debt consists of borrowings under a term ~~loans~~loan (“Term Loan A” ~~and the “2020 Term Loan”~~), 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 10, Long-Term Debt for further details about these borrowings.

~~Table of Contents~~

The Company manages its exposure to changes in interest rates by utilizing 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.

In December 2017, the Company entered into a long-term forward interest rate swap agreement with a notional amount of $800 million to lock into a fixed LIBOR interest rate base for its debt facilities subject to monthly interest payments. Under the terms of the agreement, $800 million in variable-rate debt will be swapped for a fixed interest rate with net settlement terms starting in December 2018 and ending in December 2022. During the third quarter of 2019, the Company entered into additional long-term forward interest rate swap agreements with a total notional amount of $800 million, containing net settlement terms, ~~starting~~which start in December 2022 and ~~ending~~end in August 2024. The additional interest rate swap agreements effectively extend the risk management initiative of the Company to coincide with the maturities of Term Loan A and the Revolving Credit Facility. These interest rate swaps are not designated as hedges and changes in fair value are recognized immediately as Interest expense, net on the Consolidated Statements of Operations.

Note 10 Long-Term Debt

The following table shows the carrying value of the Company’s debt (in millions):


		September 26, 2020		December 31, 2019			October 2, 2021		December 31, 2020
Term Loan A	Term Loan A	$	917	$	917	Term Loan A	$	888	$	917
Revolving Credit Facility		194		103
2020 Term Loan						2020 Term Loan	—		100

Receivables Financing Facilities	Receivables Financing Facilities	264		266		Receivables Financing Facilities	108		235
2020 Term Loan		200		0

Total debt	Total debt	$	1,575	$	1,286	Total debt	$	996	$	1,252
Less: Debt issuance costs	Less: Debt issuance costs	(5)		(6)		Less: Debt issuance costs	(3)		(5)
Less: Unamortized discounts	Less: Unamortized discounts	(3)		(3)		Less: Unamortized discounts	(2)		(2)
Less: Current portion of debt	Less: Current portion of debt	(481)		(197)		Less: Current portion of debt	(51)		(364)
Total long-term debt	Total long-term debt	$	1,086	$	1,080	Total long-term debt	$	940	$	881

As of ~~September 26, 2020,~~October 2, 2021, the future maturities of debt ~~excluding debt discounts and issuance costs, were~~are as follows (in millions):


2020		$	78
2021	2021	416		2021	$	—
2022	2022	56		2022	70
2023	2023	81		2023	81
2024	2024	944		2024	845

Total future debt maturities	Total future debt maturities	$	1,575	Total future debt maturities	$	996

All borrowings as of ~~September 26, 2020~~October 2, 2021 were denominated in U.S. ~~Dollars, except for €72 million under the Revolving Credit Facility that was borrowed in Euros.~~

Dollars.

The estimated fair value of the Company’s debt approximated ~~$1.6~~$1.0 billion and $1.3 billion as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, 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 the debt ~~will~~may 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.

~~2020 Term Loan~~

In September 2020, the Company entered into a new term loan (“2020 Term Loan”) with a principal of $200 million, with the proceeds used to partly fund the acquisition of Reflexis. Principal on the 2020 Term Loan is due to be repaid in quarterly installments starting in December 2020, with the majority of principal due upon the August 31, 2021 maturity date. The Company may make prepayments against the 2020 Term Loan, in whole or in part, without premium or penalty. The Company would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of September 26, 2020, the 2020 Term Loan interest rate was 2.25%. Interest payments are made monthly and are subject to a variable rate plus an applicable margin. Costs associated with issuing the 2020 Term Loan were approximately $1 million, which were capitalized and will be amortized over the term of the loan.

~~Table of Contents~~

~~Uncommitted Short-Term Credit Facility~~

The Company also entered into an uncommitted short-term credit facility (“Uncommitted Facility”) in August 2020. The Uncommitted Facility matures on August 26, 2021 and allows for borrowings of up to $20 million. Each borrowing must be repaid within 90 days, or earlier if the facility matures beforehand, and bears interest at a variable rate plus an applicable margin. Along with the Company’s Revolving Credit Facility, the Uncommitted Facility is available for working capital and other general business purposes. As of September 26, 2020, the Company had 0 outstanding borrowings under the Uncommitted Facility.

~~Long-Term Credit Facilities~~

~~In addition to the 2020 Term Loan, the Company’s long-term credit facilities consist of~~ Term Loan A ~~and the Revolving Credit Facility, both of which have a maturity of August 9, 2024.~~

The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in ~~June 2021~~March 2022 and the majority due upon ~~maturity.~~the August 9, 2024 maturity date. The Company may make prepayments, ~~against Term Loan A,~~ in whole or in part, without premium or ~~penalty. The Company~~penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of ~~September 26, 2020,~~October 2, 2021, the Term Loan A interest rate was ~~1.40%~~1.33%. Interest payments are made monthly and are subject to variable rates plus an applicable margin.

~~The Revolving Credit Facility is available for working capital and other general business purposes, including letters~~

Table of ~~credit. As of~~Contents

2020 Term Loan

In September ~~26,~~ 2020, the Company had letters of credit totaling $4 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1 billion to $996 million. As of September 26, 2020, the Revolving Credit Facility had an average interest rate of 1.34%. Interest payments are made monthly and are subject to variable rates plus an applicable margin. All remaining principal is due upon maturity.

~~During the third quarter of 2019,~~ the Company entered into ~~its second amendment~~a new $200 million term loan (“2020 Term Loan”), with the proceeds used to partly fund the ~~Amended and Restated Credit Agreement (“Amendment No. 2”). Amendment No. 2 increased~~acquisition of Reflexis. The Company repaid $100 million of principal in the Company’s borrowing under Term Loan A from $608 million to $1 billion and increased the Company’s borrowing capacity under the Revolving Credit Facility from $800 million to $1 billion. Amendment No. 2 also extended the maturities of Term Loan A and the Revolving Credit Facility to August 9, 2024. Additionally, in conjunction with entering into Amendment No. 2, a payment of $445 million was made to fully pay off the Company’s Term Loan B.

~~The refinancing of the Company’s long-term credit facilities during the third~~fourth quarter of ~~2019 resulted in non-cash accelerated amortization of debt discount~~2020 and debt issuance costs of $4 million and one-time charges of $3 million, which included certain third party fees and the accelerated amortization of losses on terminated interest rate swaps released from AOCI. These items are included in Interest Expense, net on the Consolidated Statements of Operations. Additionally, issuance costs of $6 million incurred related to this debt refinancing were capitalized and will be amortized overrepaid the remaining ~~term~~$100 million of ~~Term Loan A and~~principal in the ~~Revolving Credit Facility.~~first quarter of 2021.

Receivables Financing Facilities

The Company has 2 Receivables Financing Facilities with financial institutions ~~carrying~~that have a combined total borrowing ~~limits~~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 ~~which was originally entered into in December 2017 and was amended in May 2019,~~ allows for borrowings of up to $180 million and ~~will mature~~matures on March ~~29, 2021.~~19, 2024. The Company’s second Receivable Financing Facility ~~which was entered into in May 2019 and was amended in May 2020,~~ allows for borrowings of up to $100 million and ~~will mature~~matures on May ~~17, 2021.~~16, 2022.

As of ~~September 26, 2020,~~October 2, 2021, the Company’s Consolidated Balance Sheets included ~~$494~~$605 million of receivables that were pledged under the 2 Receivables Financing Facilities. As of ~~September 26, 2020, $264~~October 2, 2021, $108 million had been borrowed, ~~all~~ of which $13 million was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of ~~September 26, 2020,~~October 2, 2021, the Receivables Financing Facilities had an average interest rate of ~~1.04%~~0.96%. Interest is paid on these borrowings on a monthly basis.

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 October 2, 2021, the Company had letters of credit totaling $7 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1 billion to $993 million. No borrowings were outstanding under the Revolving Credit Facility as of October 2, 2021. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility matures on August 9, 2024.

Uncommitted Short-Term Credit Facility

The Company had also entered into an uncommitted short-term credit facility (“Uncommitted Facility”) in August 2020 allowing for borrowings of up to $20 million. The Uncommitted Facility matured on August 26, 2021 and was not utilized by the Company.

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 9, Derivative Instruments for further information.

~~Table of Contents~~

As of ~~September 26, 2020,~~October 2, 2021, the Company was in compliance with all debt covenants.

Note 11 Commitments and Contingencies

Warranties

The following table is a summary of the Company’s accrued warranty obligations, which are included in Accrued liabilities on the Consolidated Balance Sheets (in millions):


		Nine Months Ended					Nine Months Ended
		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020
Balance at the beginning of the period	Balance at the beginning of the period	$	21	$	22	Balance at the beginning of the period	$	24	$	21
Warranty expense	Warranty expense	22		18		Warranty expense	25		22
Warranties fulfilled	Warranties fulfilled	(20)		(18)		Warranties fulfilled	(23)		(20)
Balance at the end of the period	Balance at the end of the period	$	23	$	22	Balance at the end of the period	$	26	$	23

Table of Contents

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.

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 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. During the nine months ended October 2, 2021, the Company recorded recoveries of $16 million, of which $9 million related to our AIT segment and $7 million related to our EVM segment. Recoveries during the three months ended October 2, 2021 were not significant. 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 ~~establishes an accrued liability for loss contingencies when~~believes that it has recovered substantially all of the ~~loss is both probable~~import duties that it expects to receive on previously paid amounts. The final amounts and ~~estimable.~~the timings of any additional recoveries remain uncertain and, therefore, the Company has not recorded any amounts related to potential future recoveries in its financial statements as of October 2, 2021.

Note 12 Income Taxes

The Company’s effective tax ~~rates~~rate for the three and nine months ended ~~September 26, 2020 were~~October 2, 2021 was 12.7% and 12.9%, respectively, compared to 15.9% and 11.3%, ~~respectively. The variances~~respectively, for the comparable periods ended September 26, 2020. In both the current and prior year periods, the variance from the 21% federal statutory rate was attributable to the benefits of ~~lower tax rates on foreign earnings and U.S. tax credits.These benefits were partially offset by the impacts of foreign earnings and deemed royalties taxed in the U.S.The Company’s effective tax rate also benefited from certain discrete items, primarily related to~~ share-based ~~compensation.~~

The Company’s effective tax rates for the three and nine months ended September 28, 2019 were 14.5% and 10.5%, respectively. The variances from the 2019 federal statutory rate of 21% were each attributable to the benefits ofcompensation deductions, lower tax rates on foreign earnings, and U.S. tax credits. ~~These benefits were partially offset by~~In addition, the ~~impacts~~three and nine months ended October 2, 2021 include the benefit of ~~foreign earnings and deemed royalties taxed~~a foreign-derived intangible income deduction in the U.S. The ~~Company’s effective tax rate~~nine month period ended October 2, 2021 also benefited from ~~certain discrete items, primarily related to share-based compensation.~~the remeasurement of deferred tax assets associated with the enactment of a corporate tax rate increase in the U.K. during the second quarter of 2021.

~~On March 27, 2020,~~The Company is continually monitoring the ~~President~~provisions of the ~~United States~~American Rescue Plan Act, signed into ~~tax~~ 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, ~~(“CARES Act”).~~signed into law on March 27, 2020. The ~~Company does~~provisions of these laws did not ~~believe any of the provisions will materially~~have a significant impact ~~its 2020~~to our effective tax ~~rate.~~rate in either the current or prior year. Management continues to monitor guidance regarding these laws and developments ~~and guidance on the CARES Act and~~related to other coronavirus tax relief throughout the world for potential impacts.

The Company earns a significant amount of its operating income outside of the ~~U.S. Pre-tax earnings outside~~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 ~~primarily generated~~the U.K. and Singapore. During the second quarter of 2021, the U.K. government enacted a change in law that increases the corporate tax rate from 19% to 25%, with such rate change becoming effective in April 2023. Upon enactment, we remeasured our deferred tax assets to reflect the 25% statutory rate to the extent such tax benefits are expected to be realized in the ~~United Kingdom, Singapore, and Luxembourg, with~~future at the amended statutory ~~rates of 19%, 17%, and 25%, respectively. The~~rate. In addition, the Company has received an incentivized tax rate byfrom the Singapore Economic Development Board, which reduces the income tax rate ~~to 10.5% from the statutory rate of 17%, and is~~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 2022. 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.

The Company is not permanently reinvested with respect to its U.S. directly-owned foreign subsidiaries. ~~For periods after 2017, the~~The Company is subject to U.S. income tax on substantially all foreign earnings under the Global Intangible Low-Taxed Income provisions of the Tax Cuts and Jobs Act (the “Act”) ~~enacted in December 2017,~~, while any remaining foreign earnings are eligible for a dividends received deduction under the Act. As a result, future ~~repatriations~~repatriation of earnings will ~~no longer~~not be subject to 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.

~~Table of Contents~~

Management evaluates all jurisdictions based on historical pre-tax earnings and taxable income to determine the need for valuation allowances on a quarterly basis. Based on this analysis, a valuation allowance has been recorded for any jurisdictions where, in the Company’s judgment, tax benefits are not expected to be realized. There were no changes to our valuation allowance during the three and nine months ended October 2, 2021.

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Uncertain Tax Positions

The Company is currently undergoing U.S. federal income tax audits for tax years 2017 and 2018. ~~The U.S. federal income tax audit for tax year 2016 concluded during the third quarter of 2020 and did not have a material impact to the financial statements.~~Additionally, fiscal years 2004 through 2018 remain open to examination by multiple foreign and U.S. state taxing jurisdictions. As of ~~September 26, 2020,~~October 2, 2021, 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.

Note 13 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 shares assuming dilution. Dilutive 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 ~~stock options~~share-based compensation awards were ~~exercised for~~converted into common shares during the period.

Earnings per share (in millions, except share data):


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Basic:	Basic:									Basic:
Net income	Net income	$	116	$	136	$	305	$	375	Net income	$	199	$	116	$	646	$	305
Weighted-average shares outstanding	Weighted-average shares outstanding	53,300,036		54,085,500		53,460,891		53,999,044		Weighted-average shares outstanding	53,418,055		53,300,036		53,449,239		53,460,891
Basic earnings per share	Basic earnings per share	$	2.18	$	2.52	$	5.70	$	6.95	Basic earnings per share	$	3.72	$	2.18	$	12.08	$	5.70

Diluted:	Diluted:									Diluted:
Net income	Net income	$	116	$	136	$	305	$	375	Net income	$	199	$	116	$	646	$	305
Weighted-average shares outstanding	Weighted-average shares outstanding	53,300,036		54,085,500		53,460,891		53,999,044		Weighted-average shares outstanding	53,418,055		53,300,036		53,449,239		53,460,891
Dilutive shares	Dilutive shares	416,270		552,323		486,895		611,047		Dilutive shares	448,504		416,270		462,574		486,895
Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	53,716,306		54,637,823		53,947,786		54,610,091		Diluted weighted-average shares outstanding	53,866,559		53,716,306		53,911,813		53,947,786
Diluted earnings per share	Diluted earnings per share	$	2.16	$	2.50	$	5.65	$	6.87	Diluted earnings per share	$	3.69	$	2.16	$	11.98	$	5.65

Anti-dilutive ~~options to purchase common shares~~share-based compensation awards are excluded from diluted earnings per share calculations. There were ~~74,588~~25,355 and ~~92,014~~8,391 shares that were anti-dilutive for the three and nine months ended ~~September 26, 2020 and September 28, 2019, respectively.~~October 2, 2021. There were ~~105,219~~74,588 and ~~53,356~~105,219 shares that were anti-dilutive for the three and nine months ended September 26, 2020, ~~and September 28, 2019,~~ respectively.

Note 14 Accumulated Other Comprehensive Income (Loss)

Stockholders’ equity includes certain items classified as AOCI, including:

•Unrealized gain (loss) ~~gain~~ on anticipated sales hedging transactions relates to derivative instruments used to hedge the exposure related to currency exchange rates for forecasted Euro sales. These hedges are designated as cash flow hedges, and the Company defers income statement recognition of gains and losses until the hedged transaction occurs.See Note 9, Derivative Instruments for more details.

•~~Unrealized loss on forward interest rate swaps hedging transactions~~ relates to certain interest rate swaps that the Company previously entered into as part of its strategy to mitigate interest rate risk exposure associated with its variable rate debt. These particular interest rate swaps, which were designated as cash flow hedges, were terminated

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prior to 2019, with remaining losses being reclassified out of AOCI through the third quarter of 2019. Pre-tax losses were reclassified into Interest expense, net on the Consolidated Statements of Operations.

•Foreign currency translation adjustmentsrelate 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 components of AOCI for the nine months ended October 2, 2021 and September 26, 2020 ~~and September 28, 2019~~ are as follows (in millions):


		Unrealized (loss) gain on sales hedging		Unrealized gain (loss) on forward interest rate swaps		Foreign currency translation adjustments		Total			Unrealized gain (loss) on sales hedging		Foreign currency translation adjustments		Total
Balance at December 31, 2018		$	12	$	0	$	(47)	$	(35)
Balance at December 31, 2019										Balance at December 31, 2019	$	2	$	(46)	$	(44)
Other comprehensive income (loss) before reclassifications										Other comprehensive income (loss) before reclassifications	(11)		(4)		(15)
Amounts reclassified from AOCI(1)										Amounts reclassified from AOCI(1)	(6)		—		(6)
Tax effect										Tax effect	3		—		3
Other comprehensive loss, net of tax										Other comprehensive loss, net of tax	(14)		(4)		(18)
Balance at September 26, 2020										Balance at September 26, 2020	$	(12)	$	(50)	$	(62)

Balance at December 31, 2020										Balance at December 31, 2020	$	(28)	$	(41)	$	(69)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	41		0		(3)		38		Other comprehensive income (loss) before reclassifications	41		(5)		36
Amounts reclassified from AOCI(1)	Amounts reclassified from AOCI(1)	(32)		2		0		(30)		Amounts reclassified from AOCI(1)	15		—		15
Tax effect	Tax effect	(2)		(2)		0		(4)		Tax effect	(10)		—		(10)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	7		0		(3)		4		Other comprehensive income (loss), net of tax	46		(5)		41
Balance at September 28, 2019		$	19	$	0	$	(50)	$	(31)

Balance at December 31, 2019		$	2	$	0	$	(46)	$	(44)
Other comprehensive loss before reclassifications		(11)		0		(4)		(15)
Amounts reclassified from AOCI(1)		(6)		0		0		(6)
Tax effect		3		0		0		3
Other comprehensive loss, net of tax		(14)		0		(4)		(18)
Balance at September 26, 2020		$	(12)	$	0	$	(50)	$	(62)
Balance at October 2, 2021										Balance at October 2, 2021	$	18	$	(46)	$	(28)

(1) See Note 9, Derivative Instruments regarding timing of reclassifications to operating results.

Note 15 Accounts Receivable Factoring

The Company has ~~multiple~~ 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 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) provided by financing activities on the Consolidated Statements of Cash Flows.

~~In May 2020,~~During the ~~Company entered into a new~~second quarter of 2021, 1 of the Company’s Receivables Factoring arrangements that was no longer actively utilized expired.The Company currently has 2 remaining active Receivables Factoring arrangements. One arrangement ~~with a bank, which~~allows for the factoring of up to $50 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. ~~The~~With respect to the second arrangement, the Company is 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 ~~$29~~$1 million and $24 million as of ~~September 26,~~October 2, 2021 and December 31, 2020, respectively, and is classified within Prepaid expenses and other current assets on the Consolidated Balance Sheets.

The Company’s other active Receivable Factoring arrangements, which were entered into prior to 2020, also allow for the factoring of up to $125 million of uncollected receivables originated from the EMEA region.

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During the nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ the Company received cash proceeds of ~~$857~~$1,161 million and ~~$248~~$857 million, respectively, from the sales of accounts receivables under its factoring arrangements. As of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, there were a total of ~~$92~~$23 million and ~~$60~~$70 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 ~~$106~~$120 million and ~~$33~~$142 million of obligations that were not yet remitted to banks as of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019,~~2020, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash (used in) provided by ~~(used in)~~ financing activities on the Consolidated Statements of Cash Flows.

Fees incurred in connection with these arrangements were not significant.

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Note 16 Segment Information & Geographic Data

The Company’s operations consist of 2 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, and product sourcing diversification costs. Segment assets are not reviewed by the Company’s CODM and therefore are not disclosed below.

Effective January 1, 2021, Retail Solutions moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. Prior period results have been revised to conform to the current segment presentation. This change does not have an impact on the Consolidated Financial Statements.

Financial information by segment is presented as follows (in millions):


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Net sales:	Net sales:									Net sales:
AIT	AIT	$	346	$	373	$	992	$	1,100	AIT	$	386	$	339	$	1,243	$	967
EVM	EVM	788		757		2,150		2,193		EVM	1,050		795		2,923		2,175
Total segment Net sales	Total segment Net sales	1,134		1,130		3,142		3,293		Total segment Net sales	1,436		1,134		4,166		3,142
Corporate, eliminations(1)	Corporate, eliminations(1)	(2)		0		(2)		0		Corporate, eliminations(1)	—		(2)		(6)		(2)
Total Net sales	Total Net sales	$	1,132	$	1,130	$	3,140	$	3,293	Total Net sales	$	1,436	$	1,132	$	4,160	$	3,140
Operating income:	Operating income:									Operating income:
AIT(2)	AIT(2)	$	79	$	93	$	216	$	269	AIT(2)	$	77	$	78	$	283	$	212
EVM(2)	EVM(2)	120		133		301		347		EVM(2)	195		121		571		305
Total segment operating income	Total segment operating income	199		226		517		616		Total segment operating income	272		199		854		517
Corporate, eliminations(1)	Corporate, eliminations(1)	(49)		(41)		(97)		(112)		Corporate, eliminations(1)	(35)		(49)		(98)		(97)
Total Operating income	Total Operating income	$	150	$	185	$	420	$	504	Total Operating income	$	237	$	150	$	756	$	420

(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, and product sourcing diversification costs.

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

Information regarding the Company’s operations by geographic area is contained in the following table. Net sales amounts are attributed to geographic area based on customer location. We manage our business based on regions rather than by individual countries.

Geographic data for Net sales is as follows (in millions):


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
North America	$	728	$	629	$	2,108	$	1,650
EMEA	504		340		1,458		1,034
Asia-Pacific	135		115		392		322
Latin America	69		48		202		134
Total Net sales	$	1,436	$	1,132	$	4,160	$	3,140

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Three Months Ended Nine Months Ended
September 26,
2020 September 28,
2019 September 26,
2020 September 28,
2019
North America $ 629 $ 591 $ 1,650 $ 1,641
EMEA 340 346 1,034 1,082
Asia-Pacific 115 133 322 399
Latin America 48 60 134 171
Total Net sales $ 1,132 $ 1,130 $ 3,140 $ 3,293
Note 17 Subsequent Event

~~Table~~On October 7, 2021, the Company acquired Antuit Holdings Pte. Ltd. (“Antuit”), a provider of ~~Contents~~

demand-sensing and pricing optimization software solutions for retail and consumer products companies. The purchase consideration was approximately $145 million, net of cash acquired, which was funded with cash on hand. The acquired business will become part of the EVM segment.


Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Zebra Technologies Corporation and its subsidiaries (“Zebra” or the “Company”) is a global leader respected for 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 subscriptions, that capture and move ~~data, including:~~data. These products and solutions include mobile computers; barcode scanners and imagers; radio frequency identification device (“RFID”) readers; specialty printers for barcode labeling and personal identification; real-time location ~~systems;~~systems (“RTLS”); related accessories and supplies, such as self-adhesive labels 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 and solutions.~~services. End-users of our products, solutions and services include those in the retail and e-commerce, manufacturing, transportation and logistics, ~~manufacturing,~~ healthcare, ~~hospitality, warehouse~~public sector, and ~~distribution, energy and utilities, government, and education enterprises~~other industries around the world.

Our customers have traditionally benefited from proven solutions that increase productivity and improve asset efficiency and ~~asset~~ utilization. The Company is poised to drive, and capitalize on, the evolution of the data capture industry into the broader EAI industry, ~~based on important~~supported by technology trends ~~like~~including the Internet of Things (“IoT”), ubiquitous mobility, automation, cloud computing, and ~~cloud computing.~~the increasingly on-demand global economy. EAI solutions offer additional benefits to our customers including real-time, data-driven insights that improve operational visibility and drive workflow optimization.

The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”).

•The AIT segment is an industry leader in barcode printing and asset tracking technologies. Its major product lines include barcode and card printers, supplies, services, ~~location solutions,~~ and ~~retail~~location solutions. Industries served include retail and e-commerce, manufacturing, transportation and logistics, ~~manufacturing,~~ healthcare, public sector, and other end markets within the following regions: North America; Europe, Middle East, and Africa (“EMEA”); Asia-Pacific; and Latin America.

•The EVM segment is an industry leader in automatic information and data capture solutions. Its major product lines include mobile computing, data capture, RFID, services, software-based workflow optimization solutions, and ~~services and~~retail solutions. Industries served include retail and e-commerce, manufacturing, transportation and logistics, ~~manufacturing,~~ healthcare, public sector, and other end markets within the following regions: North America; EMEA; Asia-Pacific; and Latin America.

In the first quarter of 2021, Retail Solutions, which provides a range of physical inventory management solutions with application in the retail industry, including solutions for full store physical inventories, cycle counts and analytics, 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 does not have an impact to the Consolidated Financial Statements.

Recent Developments

~~Acquisition of Reflexis~~

On September 1, 2020, the Company acquired all of the equity interests in Reflexis Systems, Inc. (“Reflexis”), a provider of task and workforce management, execution, and communication solutions for customers in the retail, food service, hospitality, and banking industries. Through its acquisition of Reflexis, the Company intends to enhance its solution offerings to customers in those industries by combining Reflexis’ platform with its existing software solutions, further empowering front line workers to execute the next best action using real time data. The operating results of Reflexis are included within the EVM segment.

The Company’s cash purchase consideration was $548 million, net of cash acquired. In connection with its acquisition of Reflexis and in exchange for the cancellation of unvested Reflexis stock options, the Company granted replacement share-based compensation awards to certain Reflexis employees in the form of Zebra incentive stock options with a fair value of approximately $9 million. This fair value will be expensed over the weighted average future service period of 1.7 years.

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

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COVID-19 Outbreak

~~In December 2019, a strain of the~~The global coronavirus (“COVID-19”or the “pandemic” ) ~~surfaced in Wuhan, China. During the first quarter of 2020, COVID-19 spread~~situation continues to be complex and rapidly across nearly every region of the world and was declared a pandemic by the World Health Organization in March 2020. By the second quarter of 2020, we saw a broad number of governmental and commercial impacts, resulting in business slowdowns or shutdowns and significant travel restrictions. By the third quarter, most businesses have resumed operations and certain restrictions have been lifted. These events have resulted in significant declines in both global economic activity and significant volatility in financial market valuations, the duration of which is not reasonably estimable. Net sales and profitability have been negatively impacted by the direct and indirect effects of the pandemic.

We serve a diverse mix of customers. Some of our customers have experienced significant declines or suspensions to their operations, whereas others have experienced increases in their business volume. While many of our supply chain partners in China temporarily suspended or modified their business operations in early 2020 as a consequence of COVID-19, we have substantially mitigated the impact of supply chain disruptions by taking exceptional actions, including alternative modes of product delivery and fulfillment, as well as providing protective equipment and hazard pay premiums for our front-line employees.

~~The federal, state, and local governments as well as foreign governments,~~evolving. Governmental agencies, to varying degrees, have imposed, and continue to impose, several protocols and regulations restricting the physical movement or other activities of individuals in an effort to limit the spread of COVID-19. We have implemented a number of measures in an effort to protect our employees’ health and well-being over the course of the pandemic tailored to address the local impacts, including having the majority of office workers work remotely during the height of the pandemic and gradually re-introducing office workers to a return to office, limiting employee travel, and ~~withdrawing from~~implementing more strenuous health and safety measures for hosting and attending in-person industry events. In addition, as governments continue to ease their restrictions and we continue to allow our employees to come back to work in our offices in a controlled approach, we have modified our business practices, including implementing social distancing protocols, office capacity restrictions, health screening, provision of personal protective equipment, tracking and tracing protocols, and extensively and frequently disinfecting our workspaces. Throughout the pandemic, distribution centers and repair centers have remained open at varying capacity levels to ensure continued support to our customers, many of whom provide essential goods and services to communities.

During the first three quarters of 2020, we considered the potential impacts of the global pandemic in qualitative impairment assessments of our long-lived assets, including goodwill and intangible assets, property, plant and equipment and right-of-use lease assets. We concluded that it is not more likely than not that any of our long-lived assets are impaired. Our analysis considered, among other factors:

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

•~~our highly variable cost structure;~~

•~~the assumption that the impact of COVID-19 will be temporary; and that~~

•~~the Company will continue generating strong positive operating cash flows over the long-term.~~

We have also considered the adequacy of our capital resources, inclusive of available borrowing capacity on debt and other financing facilities; the results of our most recent quantitative goodwill impairment assessment, as disclosed in our Form 10-K for the year ended December 31, 2019; and that our market capitalization as of the end of the third quarter still far exceeded total net assets. Finally, while we may experience an increase in working capital levels, we do not anticipate a material impact to the realizability of current assets, such as accounts receivable or inventories, at this time.

The situation related to the pandemic continues to be complex and rapidly evolving. There may be further external developments, such as restrictions imposed by government authorities or guidance issued by public health authorities, that are beyond our control and may impact our operating plans. Parts of our business have experienced, and may As governments continue to ~~experience, operational disruption~~ease their restrictions and ~~customer demand impacts. Since the onset of the pandemic,~~ we ~~have taken certain cost reduction actions~~continue to ~~mitigate the impact to profitability and cash flow. We cannot reasonably estimate the duration of the pandemic or fully ascertain its long-term impact to our business.~~

~~Product Sourcing Diversification Initiative~~

The Company commenced efforts in 2019 to diversify its product sourcing footprint to include sourcing products from Taiwan, Vietnam, and Malaysia, thereby reducing its reliance on Chinese-based manufacturing and the impacts of related customs duties (“tariffs”) on U.S imports from China. In conjunction with this initiative, the Company has incurred total one-time costs of $20 million, including $7 million and $15 million during the three and nine months ended September 26, 2020, respectively, which are primarily reflected within Operating expenses on the Consolidated Statements of Operations. The Company also made $7 million of incremental equipment purchases during the nine months ended September 26, 2020. The Company anticipates incurring additional one-time operating costs of up to $5 million, as well as making additional equipment purchases of up to $3

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~~million~~allow our employees to come back to work in our offices in a controlled approach, we have modified our business practices, including masking and social distancing protocols consistent with government regulations, vaccine verification, health screening, office capacity restrictions and tracking and tracing protocols where applicable, increasing air exchange/ventilation and extensively and frequently disinfecting our workspaces.

The negative impacts to Net sales from the pandemic, including declines in customer demand and supply chain disruptions, were most pronounced in the first half of 2020 and lessened later in 2020 as the global economic recovery took shape. While the ultimate duration of the pandemic and timing of recovery in each region remains highly uncertain, the Company’s 2021 sales and profitability, particularly in the first half of the year, have benefited from pent-up demand from customers who we believe had delayed purchases in 2020 due to the pandemic, as well as the resulting acceleration of the underlying trend to digitize and automate workflows. The level of demand for certain product components has resulted in lengthened lead times and higher input costs in the current year, including freight, which have become more significant during the ~~fourth quarter~~year and, in some cases, have impacted our ability to meet customer demand. The Company expects input costs to remain elevated for some period of ~~2020. We have substantially completed~~time. The availability of certain component parts may include the ~~primary actions~~potential for product shortages which could negatively impact our ability to meet forecasted customer demand should suppliers of ~~this initiative and began sourcing some products from these alternative locations~~necessary parts no longer be able to provide such parts or sufficiently allocate supply among their customers, including the Company.

Fetch Acquisition

On August 9, 2021, the Company acquired Fetch Robotics, Inc. (“Fetch”), a provider of autonomous mobile robot solutions for customers who operate in the ~~second quarter. As~~manufacturing and warehousing markets. Through this acquisition, the Company can help customers, primarily in the manufacturing, distribution, and fulfillment industries, optimize workflows through robotics automation. The operating results of Fetch are included within the EVM segment.

Adaptive Vision Acquisition

Reflexis Acquisition

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 this acquisition, the Company has enhanced its solutions offerings to customers in these industries by

combining Reflexis’ platform with its existing software solutions and product offerings, further empowering front line workers to execute the next best action using real time data. The operating results of Reflexis are included within the EVM segment.

Antuit Acquisition

Subsequent to the end of the third quarter, ~~these actions, along with certain U.S.~~on October 7, 2021, the Company acquired Antuit Holdings Pte. Ltd. (“Antuit”), a provider of demand-sensing and pricing ~~actions, have substantially mitigated~~optimization software solutions for retail and consumer products companies. Through this acquisition, the ~~ongoing financial impacts~~Company further expands its portfolio of ~~Chinese import tariffs. We expect~~software solution offerings to ~~fully complete this initiative by~~ the retail end market, as well as expands its offerings to consumer products companies. The operating results of ~~this fiscal year.~~Antuit will be included in the EVM segment.

~~Restructuring Programs~~

~~In the fourth quarter~~Table of 2019, the Company committed to certain organizational changes designed to generate operational efficiencies (collectively referred to as the “2019 Productivity Plan”). The organizational design changes under the 2019 Productivity Plan have principally occurred within the North America and EMEA regions, relate primarily to employee severance and related benefits, and are expected to be substantially completed by the end of 2020. Exit and restructuring charges for the 2019 Productivity Plan were $1 million and $7 million during the three and nine months ended September 26, 2020, respectively, and $15 million cumulatively through the quarter ended September 26, 2020. Estimated remaining costs to be incurred in the fourth quarter of 2020 under the 2019 Productivity Plan are expected to be up to $3 million. See Note 7, ~~Exit and Restructuring Costs~~ ~~in the Notes to Consolidated Financial Statements.~~Contents

Results of Operations

Consolidated Results of Operations

(amounts in millions, except percentages)

~~The following tables present key statistics for the Company’s operations for the three and nine months ended September 26, 2020 and September 28, 2019, respectively:~~


		Three Months Ended										Nine Months Ended											Three Months Ended										Nine Months Ended
		September 26, 2020			September 28, 2019			$ Change		% Change		September 26, 2020			September 28, 2019			$ Change		% Change			October 2, 2021			September 26, 2020			$ Change		% Change		October 2, 2021			September 26, 2020			$ Change		% Change
Net sales		$	1,132		$	1,130		$	2	0.2	%	$	3,140		$	3,293		$	(153)	(4.6)	%
Net sales:																						Net sales:
Tangible products																						Tangible products	$	1,240		$	972		$	268	27.6	%	$	3,585		$	2,684		$	901	33.6	%
Services and software																						Services and software	196			160			36		22.5	%	575			456			119		26.1	%
Total Net sales																						Total Net sales	1,436			1,132			304		26.9	%	4,160			3,140			1,020		32.5	%
Gross profit	Gross profit	493			535			(42)		(7.9)	%	1,385			1,556			(171)		(11.0)	%	Gross profit	646			493			153		31.0	%	1,959			1,385			574		41.4	%
Gross margin	Gross margin	43.6		%	47.3		%			(370) bps		44.1		%	47.3		%			(320) bps		Gross margin	45.0		%	43.6		%			140 bps		47.1		%	44.1		%			300 bps
Operating expenses	Operating expenses	343			350			(7)		(2.0)	%	965			1,052			(87)		(8.3)	%	Operating expenses	409			343			66		19.2	%	1,203			965			238		24.7	%
Operating income	Operating income	$	150		$	185		$	(35)	(18.9)	%	$	420		$	504		$	(84)	(16.7)	%	Operating income	$	237		$	150		$	87	58.0	%	$	756		$	420		$	336	80.0	%

Net sales to customers by geographic region were as follows (amounts(in millions, except percentages):


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
		September 26, 2020		September 28, 2019		$ Change		% Change		September 26, 2020		September 28, 2019		$ Change		% Change			October 2, 2021		September 26, 2020		$ Change		% Change		October 2, 2021		September 26, 2020		$ Change		% Change
North America	North America	$	629	$	591	$	38	6.4	%	$	1,650	$	1,641	$	9	0.5	%	North America	$	728	$	629	$	99	15.7	%	$	2,108	$	1,650	$	458	27.8	%
EMEA	EMEA	340		346		(6)		(1.7)	%	1,034		1,082		(48)		(4.4)	%	EMEA	504		340		164		48.2	%	1,458		1,034		424		41.0	%
Asia-Pacific	Asia-Pacific	115		133		(18)		(13.5)	%	322		399		(77)		(19.3)	%	Asia-Pacific	135		115		20		17.4	%	392		322		70		21.7	%
Latin America	Latin America	48		60		(12)		(20.0)	%	134		171		(37)		(21.6)	%	Latin America	69		48		21		43.8	%	202		134		68		50.7	%
Total net sales		$	1,132	$	1,130	$	2	0.2	%	$	3,140	$	3,293	$	(153)	(4.6)	%
Total Net sales																		Total Net sales	$	1,436	$	1,132	$	304	26.9	%	$	4,160	$	3,140	$	1,020	32.5	%

Operating expenses are summarized below ~~(in~~(amounts in millions, except percentages):


	Three Months Ended								Nine Months Ended
	October 2, 2021		September 26, 2020		As a % of Net sales				October 2, 2021		September 26, 2020		As a % of Net sales
					2021		2020						2021		2020
Selling and marketing	$	148	$	119	10.3	%	10.5	%	$	430	$	350	10.3	%	11.1	%
Research and development	141		113		9.8	%	10.0	%	422		316		10.1	%	10.1	%
General and administrative	85		71		5.9	%	6.3	%	259		219		6.2	%	7.0	%
Amortization of intangible assets	29		20		NM		NM		81		52		NM		NM
Acquisition and integration costs	6		19		NM		NM		11		21		NM		NM
Exit and restructuring costs	—		1		NM		NM		—		7		NM		NM
Total Operating expenses	$	409	$	343	28.5	%	30.3	%	$	1,203	$	965	28.9	%	30.7	%

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Three Months Ended Nine Months Ended
September 26,
2020 September 28,
2019 As a % of Net sales September 26,
2020 September 28,
2019 As a % of Net sales
2020 2019 2020 2019
Selling and marketing $ 119 $ 124 10.5 % 11.0 % $ 350 $ 373 11.1 % 11.3 %
Research and development 113 110 10.0 % 9.7 % 316 329 10.1 % 10.0 %
General and administrative 71 78 6.3 % 6.9 % 219 244 7.0 % 7.4 %
Amortization of intangible assets 20 26 NM NM 52 84 NM NM
Acquisition and integration costs 19 12 NM NM 21 20 NM NM
Exit and restructuring costs 1 — NM NM 7 2 NM NM
Total operating expenses $ 343 $ 350 30.3 % 31.0 % $ 965 $ 1,052 30.7 % 31.9 %

Consolidated Organic Net sales growth:

Three Months Ended Nine Months Ended
September 26, 2020 September 26, 2020
Reported GAAP Consolidated Net sales growth 0.2 % (4.6) %
Adjustments:
Impact of foreign currency translation (1)
0.4 % 0.9 %
Impact of acquisitions (2)
(0.3) % (0.5) %
Consolidated Organic Net sales growth 0.3 % (4.2) %

~~Consolidated Organic Net sales growth is a non-GAAP financial measure. See the~~ ~~Non-GAAP Measures~~ ~~section at the end of this item.~~


	Three Months Ended		Nine Months Ended
	October 2, 2021		October 2, 2021
Reported GAAP Consolidated Net sales growth	26.9	%	32.5	%
Adjustments:
Impact of foreign currency translation (1)	(2.4)	%	(2.3)	%
Impact of acquisitions (2)	(1.3)	%	(1.4)	%
Consolidated Organic Net sales growth (3)	23.2	%	28.8	%

(1)Operating results reported in U.S. Dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. Dollar. This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

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

(3)Consolidated Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.

Third quarter ~~2020~~2021 compared to third quarter ~~2019~~2020

Total Net sales increased $2$304 million or ~~0.2%~~26.9% compared ~~with~~to the prior year ~~reflecting~~primarily due to broad-based customer demand to digitize and automate their businesses across both of our segments and all our regions. EVM Net sales growth ~~in North America that~~ was ~~largely offset by continued declines in our Asia-Pacific~~32.1% and ~~Latin America regions.~~AIT Net sales growth was 13.9% compared to the prior year. Excluding the effects of ~~acquisitions~~favorable currency changes and ~~unfavorable currency changes,~~acquisitions, the increase in Consolidated Organic Net sales was 0.3%, primarily due to higher sales of mobile computing products and our service and software offerings, which were largely offset by lower sales of printing and data capture products reflecting continued customer demand declines resulting from the COVID-19 pandemic.23.2%.

Gross margin ~~decreased~~increased to ~~43.6%~~45.0% for the current quarter compared to ~~47.3%~~43.6% for the prior year. Gross margins were ~~lower in both~~higher than the ~~AIT and EVM segments reflecting unfavorable~~prior year primarily due to favorable business mix ~~including larger deal size,~~ and ~~premium freight costs.~~volume leverage, higher support service margins, and favorable currency changes. These ~~declines~~benefits were partially offset by ~~productivity gains within our service and software offerings.~~higher premium freight costs.

Operating expenses for the quarter ended October 2, 2021 and September 26, 2020, were $409 million and ~~September 28, 2019, were~~ $343 million, or 28.5% and ~~$350 million, or~~ 30.3% ~~and 31.0%~~ of Net sales, respectively. ~~As a percentage of Net sales, operating costs continue to trend favorably.~~ The

~~decrease~~ increase in Operating expenses over the prior ~~period is~~year was primarily due to higher employee compensation costs associated with higher incentive-based compensation related to improved financial performance in the current year, as well as prior year temporary salary reductions that began late in the second quarter; the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses; and increased investment in research and development program projects, principally within our EVM segment. These increases were partially offset by lower Acquisition and integration costs in the current year, as well as the prior year including costs associated with the diversification of the Company’s product sourcing footprint.

Operating income increased 58.0% to $237 million for the current quarter compared to $150 million for the prior year. The increase was due to higher Gross profit, which was partially offset by higher Operating expenses.

Net income increased 72% compared to the prior year due to higher Operating income and favorability in Other expenses, net, partially offset by higher income tax expense detailed as follows:

•Other expenses, net was $9 million in the current year compared to $12 million in the prior year primarily due to lower ~~discretionary spending,~~interest expense in the current year. The current year interest expense benefited from lower ~~employee compensation costs resulting from temporary salary reductions, expiring late~~interest rates and average outstanding debt levels, as well as lower interest rate swaps losses compared to the prior year.

•The Company’s effective income tax rate for the three months ended October 2, 2021 and September 26, 2020 was 12.7% and 15.9%, respectively. The decrease in the effective tax rate was primarily due to a higher foreign-derived intangible income deduction in the third quarter of 2021, partially offset by increases in pre-tax income in jurisdictions with higher tax rates.

Diluted earnings per share increased to $3.69 as compared to $2.16 in the prior year primarily due to higher Net income.

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Year to date 2021 compared to Year to date 2020

Total Net Sales increased $1,020 million or 32.5% compared to the prior year primarily due to broad-based customer demand to digitize and ~~lower intangible asset amortization expense.~~automate their businesses. Net sales growth across both of our segments and all of our regions included pent-up demand from customers who we believe had delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Net sales for the prior year included the negative impacts of supply chain disruptions within our EVM segment resulting from the temporary closure of a key distribution center supplying the Americas late in the first quarter. EVM Net sales growth was 34.4% and AIT Net sales growth was 28.5% compared to the prior year. Excluding the effects of favorable currency changes and acquisitions, the increase in Consolidated Organic Net sales was 28.8%.

Gross margin increased to 47.1% for the current year compared to 44.1% for the prior year. Gross margins were higher than the prior year primarily due to favorable business mix and volume leverage, higher support service margins, favorable currency changes, partial recovery of Chinese import tariffs in the current year, the mitigation of Chinese import tariffs as of the fourth quarter of 2020, and contributions from our recent higher margin EVM acquisitions. These ~~reductions~~benefits were partially offset by higher premium freight costs.

Operating expenses for the period ended October 2, 2021 and September 26, 2020, were $1,203 million and $965 million, or 28.9% and 30.7% of Net sales, respectively. The increase in Operating expenses over the prior year was primarily due to higher employee compensation costs associated with higher incentive-based compensation related to improved financial performance in the current year, as well as prior year temporary salary reductions that began late in the second quarter; the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses; and increased investment in research and development program projects, principally within our EVM segment. These increases were partially offset by lower Acquisition and integration costs ~~higher~~in the current year, as well as the prior year including costs associated with the diversification of the Company’s product sourcing footprint ~~as well as the inclusion of costs associated with business acquisitions.~~and our 2019 Productivity Plan.

~~Table of Contents~~

Operating income ~~decreased 18.9%~~increased 80.0% to ~~$150~~$756 million for the current ~~quarter~~year compared to ~~$185~~$420 million for the prior year. The ~~decrease~~increase was due to ~~lower~~higher Gross profit, which was partially offset by ~~the benefits of lower~~higher Operating expenses.

Net income increased 112% compared to the prior year due to higher Operating income and favorability in Other expenses, net, partially offset by higher income tax expense detailed as follows:

~~Total~~

•Other expenses, net was ~~$12~~$14 million ~~for~~in the current ~~quarter~~year compared to ~~$26~~$76 million ~~for~~in the prior ~~year. The decline from the prior~~ year ~~was~~ primarily due to lower foreign exchange losses and lower interest expense in the current year. The current year interest expense benefited from a $4 million gain on interest rate swaps compared to a $46 million loss in the prior year, lower interest rates and lower average outstanding debt ~~levels and interest rates, and~~levels. The current year also included a $1 million net investment gain compared to $8 million in the prior ~~year quarter including $7 million of debt refinancing costs.~~year.

•The Company’s effective income tax ~~rates~~rate for the ~~three~~nine months ended October 2, 2021 and September 26, 2020 was 12.9% and ~~September 28, 2019 were 15.9% and 14.5%~~11.3%, respectively. The increase in the effective tax rate compared to the prior year ~~period~~ was primarily due to increases in pre-tax income in jurisdictions with higher tax rates, partially offset by a higher foreign-derived intangible income deduction in the ~~reduction in~~third quarter of 2021, higher share-based compensation deductions, and the benefit of ~~discrete items. These items were primarily related~~the enacted U.K. corporate tax rate increase from 19% to 25% on the ~~favorable release of uncertain~~Company’s deferred tax ~~position reserves in the prior year.~~

~~Year to date 2020 compared to year to date 2019~~assets.

Net sales decreased $153 million or 4.6% compared with the prior year, reflecting continued declines in our Asia-Pacific, Latin America and EMEA regions, that were partially offset by growth in North America. Excluding the effects of acquisitions and unfavorable currency changes, the decrease in Consolidated Organic Net sales was 4.2%, primarily dueDiluted earnings per share increased to continued customer demand declines resulting from the COVID-19 pandemic. Declines were broad-based across the majority of our tangible product offerings and most pronounced within our printing and data capture businesses, partially offset by higher sales of our service and software offerings.

~~Gross margin decreased to 44.1% for the current period~~$11.98 as compared to 47.3% for the prior year. Gross margins were lower in both the AIT and EVM segments reflecting unfavorable business mix, including larger deal size, premium freight costs, and Chinese import tariffs. These declines were partially offset by productivity gains within our service and software offerings.

Operating expenses for the period ended September 26, 2020 and September 28, 2019, were $965 million and $1,052 million, or 30.7% and 31.9% of Net sales, respectively. As a percentage of Net sales, operating costs continue to trend favorably. The

decrease in Operating expenses over the prior period was primarily due to lower discretionary spending, lower employee compensation costs resulting from temporary salary reductions, expiring late in the third quarter, as well as lower incentive-based compensation, and lower intangible asset amortization expense. These reductions were partially offset by the inclusion of operating expenses associated with business acquisitions, costs associated with the diversification of the Company’s product sourcing footprint, and higher Exit and restructuring costs.

Operating income decreased 16.7% to $420 million for the current period compared to $504 million for the prior year. The decrease was due to lower Net sales and Gross profit, partially offset by the benefits of lower Operating expenses.

Total Other expenses, net was $76 million for the current period compared to $85 million for the prior year. The increase in foreign exchange and interest rate swap losses in the current period were more than offset by lower interest expense, net driven by lower average outstanding debt levels and interest rates, and the prior year period including $7 million of debt refinancing costs. The current period also included higher gains in our investment portfolio.

The Company’s effective tax rates for the nine months ended September 26, 2020 and September 28, 2019 were 11.3% and 10.5%, respectively. The increase in the effective tax rate compared to the prior year period was primarily due to the reduction in the benefit of discrete items. These items were primarily related to the favorable release of uncertain tax position reserves$5.65 in the prior year ~~and a decrease in share-based compensation from the prior year.~~primarily due to higher Net income.

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 16, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements. To the extent applicable, segment results exclude purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, and product sourcing diversification costs.

Table of Contents

Asset Intelligence & Tracking Segment (“AIT”)

(in millions, except percentages)

~~Table of Contents~~


		Three Months Ended										Nine Months Ended											Three Months Ended										Nine Months Ended
		September 26, 2020			September 28, 2019			$ Change		% Change		September 26, 2020			September 28, 2019			$ Change		% Change			October 2, 2021			September 26, 2020			$ Change		% Change		October 2, 2021			September 26, 2020			$ Change		% Change
Net sales		$	346		373			$	(27)	(7.2)	%	$	992		$	1,100		$	(108)	(9.8)	%
Net sales:																						Net sales:
Tangible products																						Tangible products	$	358		$	314		$	44	14.0	%	$	1,161		$	898		$	263	29.3	%
Services and software																						Services and software	28			25			3		12.0	%	82			69			13		18.8	%
Total Net sales																						Total Net sales	386			339			47		13.9	%	1,243			967			276		28.5	%
Gross profit	Gross profit	162			187			(25)		(13.4)	%	466			553			(87)		(15.7)	%	Gross profit	168			158			10		6.3	%	579			454			125		27.5	%
Gross margin	Gross margin	46.8		%	50.1		%			(330) bps		47.0		%	50.3		%			(330) bps		Gross margin	43.5		%	46.6		%			(310) bps		46.6		%	46.9		%			(30) bps
Operating expenses	Operating expenses	83			94			(11)		(11.7)	%	250			284			(34)		(12.0)	%	Operating expenses	91			80			11		13.8	%	296			242			54		22.3	%
Operating income	Operating income	$	79		$	93		$	(14)	(15.1)	%	$	216		$	269		$	(53)	(19.7)	%	Operating income	$	77		$	78		$	(1)	(1.3)	%	$	283		$	212		$	71	33.5	%

AIT Organic Net sales growth:

Three Months Ended Nine Months Ended
September 26, 2020 September 26, 2020
AIT Reported GAAP Net sales growth (7.2) % (9.8) %
Adjustments:
Impact of foreign currency translation (1)
0.1 % 0.6 %
Impact of acquisition (2)
— % (0.6) %
AIT Organic Net sales growth (7.1) % (9.8) %

~~AIT Organic Net sales growth is a non-GAAP financial measure. See the~~ ~~Non-GAAP Measures~~ ~~section at the end of this item.~~


	Three Months Ended		Nine Months Ended
	October 2, 2021		October 2, 2021
AIT Reported GAAP Net sales growth	13.9	%	28.5	%
Adjustments:
Impact of foreign currency translation (1)	(1.8)	%	(1.9)	%

AIT Organic Net sales growth (2)	12.1	%	26.6	%

(2)~~For purposes of computing~~ AIT Organic Net sales growth ~~amounts directly attributable to~~is a non-GAAP financial measure. See the ~~acquisition~~Non-GAAP Measures section at the end of ~~Temptime Corporation (“Temptime”) are excluded for twelve months following the February 21, 2019 acquisition date.~~this item.

Third quarter ~~2020~~2021 compared to third quarter ~~2019~~2020

Total Net sales for AIT ~~decreased $27~~increased $47 million or ~~7.2%~~13.9% compared to the prior year ~~including the impacts of unfavorable currency changes. AIT Organic Net sales decline of 7.1% was~~ primarily due to ~~lower~~higher sales of printing products and supplies ~~across all regions associated with continued COVID-19 induced~~reflecting broad-based customer demand ~~declines.~~across most of our regions, as well as favorable currency changes. Excluding the impact of foreign currency changes, AIT Organic Net sales growth was 12.1%.

Gross margin decreased to ~~46.8% in~~43.5% for the current quarter compared to ~~50.1% in~~46.6% for the prior year, primarily due to ~~unfavorable product mix, lower sales volumes, and~~higher premium freight ~~costs.~~costs, which were partially offset by favorable business mix and volume leverage, and favorable foreign currency changes.

Operating income decreased ~~15.1%~~1.3% in the current quarter compared to the prior ~~year.~~year period. The decrease was due to ~~lower Net sales and Gross profit,~~higher Operating expenses, partially offset by ~~the benefits of lower Operating expenses.~~higher Gross profit.

Year to date ~~2020~~2021 compared to ~~year~~Year to date ~~2019~~2020

Total Net sales for AIT ~~decreased $108~~increased $276 million or ~~9.8%~~28.5% compared to the prior year ~~including the impacts of the Temptime acquisition and unfavorable currency changes. AIT Organic Net sales decline of 9.8% was~~ primarily due to ~~lower~~higher sales of printing products and supplies reflecting broad-based customer demand across all of our regions, ~~associated with~~inclusive of pent-up demand from customers who we believe had delayed purchases in fiscal 2020 due to the COVID-19 ~~induced customer demand declines.~~pandemic, as well as favorable currency changes. Excluding the impact of foreign currency changes, AIT Organic Net sales growth was 26.6%.

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Gross margin decreased to ~~47.0% in~~46.6% for the current ~~period~~year compared to ~~50.3% in~~46.9% for the prior year, primarily due to ~~unfavorable product mix, lower sales volumes,~~higher premium freight costs, partially offset by favorable business mix and volume leverage, favorable currency changes, partial recovery of Chinese ~~tariffs.~~import tariffs in the current year, and the mitigation of Chinese import tariffs as of the fourth quarter of 2020.

Operating income ~~decreased 19.7%~~increased 33.5% in the current ~~period~~year compared to the prior year. The ~~decrease~~increase was due to ~~lower Net sales and~~higher Gross profit, which was partially offset by ~~the benefits of lower~~higher Operating expenses.

Enterprise Visibility & Mobility Segment (“EVM”)

(in millions, except percentages)

~~Table of Contents~~


		Three Months Ended										Nine Months Ended											Three Months Ended										Nine Months Ended
		September 26, 2020			September 28, 2019			$ Change		% Change		September 26, 2020			September 28, 2019			$ Change		% Change			October 2, 2021			September 26, 2020			$ Change		% Change		October 2, 2021			September 26, 2020			$ Change		% Change
Net sales		$	788		$	757		$	31	4.1	%	$	2,150		$	2,193		$	(43)	(2.0)	%
Net sales:																						Net sales:
Tangible products																						Tangible products	$	882		$	658		$	224	34.0	%	$	2,424		$	1,786		$	638	35.7	%
Services and software																						Services and software	168			137			31		22.6	%	499			389			110		28.3	%
Total Net sales																						Total Net sales	1,050			795			255		32.1	%	2,923			2,175			748		34.4	%
Gross profit	Gross profit	334			351			(17)		(4.8)	%	925			1,009			(84)		(8.3)	%	Gross profit	478			338			140		41.4	%	1,386			937			449		47.9	%
Gross margin	Gross margin	42.4		%	46.4		%			(400) bps		43.0		%	46.0		%			(300) bps		Gross margin	45.5		%	42.5		%			300 bps		47.4		%	43.1		%			430 bps
Operating expenses	Operating expenses	214			218			(4)		(1.8)	%	624			662			(38)		(5.7)	%	Operating expenses	283			217			66		30.4	%	815			632			183		29.0	%
Operating income	Operating income	$	120		$	133		$	(13)	(9.8)	%	$	301		$	347		$	(46)	(13.3)	%	Operating income	$	195		$	121		$	74	61.2	%	$	571		$	305		$	266	87.2	%

EVM Organic Net sales growth:

Three Months Ended Nine Months Ended
September 26, 2020 September 26, 2020
EVM Reported GAAP Net sales growth 4.1 % (2.0) %
Adjustments:
Impact of foreign currency translation (1)
0.6 % 1.1 %
Impact of acquisitions (2)
(0.7) % (0.5) %
EVM Organic Net sales growth 4.0 % (1.4) %

~~EVM Organic Net sales growth is a non-GAAP financial measure. See the~~ ~~Non-GAAP Measures~~ ~~section at the end of this item.~~


	Three Months Ended		Nine Months Ended
	October 2, 2021		October 2, 2021
EVM Reported GAAP Net sales growth	32.1	%	34.4	%
Adjustments:
Impact of foreign currency translation (1)	(2.6)	%	(2.5)	%
Impact of acquisitions (2)	(1.6)	%	(2.1)	%
EVM Organic Net sales growth (3)	27.9	%	29.8	%

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

(3)EVM Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of ~~May 31, 2019, November 5, 2019, and September 1, 2020.~~this item.

Third quarter ~~2020~~2021 compared to third quarter ~~2019~~2020

Total Net sales for EVM increased ~~$31~~$255 million or ~~4.1%~~32.1% compared to the prior year ~~including unfavorable foreign currency changes and the benefit of acquisitions. EVM Organic Net Sales growth of 4.0% was~~ primarily due to higher sales of mobile computing products and support services ~~partially offset by lower sales of data capture products in most regions associated with continued COVID-19 induced~~reflecting broad-based customer demand ~~declines.~~across all of our regions. In addition, our recent acquisitions contributed to the growth of Services and software Net sales in the current year. Excluding the impacts of foreign currency changes and acquisitions, EVM Organic Net sales growth was 27.9%.

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Gross margin ~~decreased~~increased to ~~42.4%~~45.5% in the current quarter compared to ~~46.4%~~42.5% in the prior year, primarily due to ~~unfavorable~~favorable business mix ~~including larger deal size,~~ and ~~premium freight costs.~~volume leverage, higher support service margins, and favorable currency changes. These ~~declines~~benefits were partially offset by ~~productivity gains within our service and software offerings.~~higher premium freight costs.

Operating income for the current quarter ~~decreased 9.8% primarily~~increased 61.2% compared to the prior year period. The increase was due to ~~lower~~higher Gross profit, ~~despite higher Net sales,~~which was partially offset by ~~the benefits of lower~~higher Operating expenses.

Year to date ~~2020~~2021 compared to ~~year~~Year to date ~~2019~~2020

Total Net sales for EVM ~~decreased $43~~increased $748 million or ~~2.0%~~34.4% compared to the prior year ~~including unfavorable~~primarily due to higher sales of mobile computing and data capture products, as well as support services reflecting broad-based customer demand across all of our regions, inclusive of pent-up demand from customers who we believe had delayed purchases in fiscal 2020 due to the COVID-19 pandemic. In addition, our recent acquisitions contributed to the growth of Services and software Net sales in the current year. Net Sales for the prior year included the negative impacts of supply chain disruptions that primarily impacted our North America mobile computing business late in the first quarter. Excluding the impacts of favorable foreign currency changes and ~~the benefit of acquisitions.~~acquisitions, EVM Organic Net Sales ~~decline of 1.4%~~growth was ~~primarily due to lower sales of data capture and mobile computing products in most regions associated with COVID-19 induced customer demand declines, partially offset by growth in support services.~~29.8%.

Gross margin ~~decreased~~increased to ~~43.0%~~47.4% in the current ~~period~~year compared to ~~46.0%~~43.1% in the prior year, primarily due to ~~unfavorable~~favorable business mix ~~including larger deal size, premium freight costs,~~ and volume leverage, higher support service margins, favorable currency changes, partial recovery of Chinese ~~tariffs.~~import tariffs in the current year, the mitigation of Chinese import tariffs as of the fourth quarter of 2020, and contributions from our recent higher margin acquisitions. These ~~declines~~benefits were partially offset by ~~productivity gains within our service and software offerings.~~higher premium freight costs.

~~Table of Contents~~

Operating income for the current ~~quarter decreased 13.3% primarily~~year increased 87.2% compared to the prior year period. The increase was due to ~~lower Net sales and~~higher Gross profit, which ~~were~~was partially offset by ~~the benefits of lower~~higher Operating expenses.

~~New Accounting Pronouncements~~

~~On January 1, 2020, the Company adopted Accounting Standards Update 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which did not have a significant impact to the Company’s consolidated financial statements. See Note 2,~~ ~~Significant Accounting Policies~~ ~~in the Notes to Consolidated Financial Statements for further information related to the Company’s adoption of this new accounting pronouncement.~~

Liquidity and Capital Resources

The primary factors that influence our liquidity include the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, repatriation of foreign cash, ~~and investments,~~ acquisitions, and share repurchases. While the effects of the COVID-19 pandemic have had a negative impact on our operating results and cash flows, cash flows from operations are higher on a year-to-date basis and are expected to remain strong for the full fiscal year based on Management’s current business plans and operational expectations. 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 periods indicated (in millions):

Nine Months Ended
Cash flows provided by (used in) from: September 26,
2020 September 28,
2019 $ Change
Operating activities $ 531 $ 420 $ 111
Investing activities (623) (310) (313)
Financing activities 131 (120) 251
Effect of exchange rates on cash (1) (1) —
Net increase (decrease) in cash and cash equivalents, including restricted cash $ 38 $ (11) $ 49


	Nine Months Ended
Cash flows provided by (used in):	October 2, 2021		September 26, 2020		$ Change
Operating activities	$	836	$	531	$	305
Investing activities	(369)		(623)		254
Financing activities	(351)		131		(482)
Effect of exchange rates on cash balances	—		(1)		1
Net increase in cash and cash equivalents, including restricted cash	$	116	$	38	$	78

The change in our cash and cash equivalents balance during the nine months ended ~~September 26, 2020~~October 2, 2021 compared to the prior year period is reflective of the following:

•The increase in cash provided by operating activities compared to the prior year was primarily ~~due~~attributed to higher operating income, lower inventory levels and lower employee incentive compensation payments. These benefits were partially offset by higher accounts receivable balances reflecting the ~~favorable~~ timing of ~~collections on accounts receivables, in part due to~~customer transactions within the period and reduced benefits from our accounts receivable factoring programs, as well as ~~favorable timing~~higher payments of ~~vendor payments. Those increases were partially offset by an increase in inventory levels and lower net income.~~income taxes.

•The ~~increase~~decrease in ~~net~~ cash used in investing activities compared to the prior year was primarily due to ~~the Company’s acquisition of Reflexis in the current quarter, which consisted of $548 million~~lower cash paid ~~net of cash acquired, as well as $32 million in cash paid in the~~for acquisitions. The current year ~~for additional long-term investments. The prior year’s~~includes cash ~~used in investing activities primarily included cash paid~~payments of $290 million and $18 million for the acquisitions of ~~Temptime~~Fetch and ~~Profitect totaling $255~~Adaptive Vision, respectively, whereas the prior year includes a $548 million ~~as well as $21 million in~~ cash ~~paid~~payment for ~~long-term investments.~~the acquisition of Reflexis.

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•~~Net~~The Company had a net usage of cash ~~provided by~~in financing activities during the nine months ended September 26, 2020 was primarily due to net borrowings of $286 million and favorable timing of unremitted cash collections from the servicing of factored receivables of $73 million, partially offset by common stock repurchases of $200 million. Net cash used by financing activities during the nine months ended September 28, 2019 wascurrent year primarily due to net debt repayments of ~~$68~~$256 million, net payments related to share-based compensation plans of ~~$36~~$48 million, share repurchases of $25 million and a $22 million use of cash associated with the timing of factored receivables servicing activities. In the prior year, the Company had net cash provided by financing activities primarily due to net borrowings of $286 million that, in part, funded our acquisition of Reflexis, as well as a $73 million source of cash associated with the timing of factored receivables servicing activities. The Company’s net cash provided by financing activities in the prior year were partially offset by common stock repurchases of ~~$20~~$200 million and net payments related to share-based compensation plans of $28 million.

Company Debt

The following table shows the carrying value of the Company’s debt (in millions):

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		September 26, 2020		December 31, 2019			October 2, 2021		December 31, 2020
Term Loan A	Term Loan A	$	917	$	917	Term Loan A	$	888	$	917
Revolving Credit Facility		194		103
2020 Term Loan						2020 Term Loan	—		100

Receivables Financing Facilities	Receivables Financing Facilities	264		266		Receivables Financing Facilities	108		235
2020 Term Loan		200		—

Total debt	Total debt	$	1,575	$	1,286	Total debt	$	996	$	1,252
Less: Debt issuance costs	Less: Debt issuance costs	(5)		(6)		Less: Debt issuance costs	(3)		(5)
Less: Unamortized discounts	Less: Unamortized discounts	(3)		(3)		Less: Unamortized discounts	(2)		(2)
Less: Current portion of debt	Less: Current portion of debt	(481)		(197)		Less: Current portion of debt	(51)		(364)
Total long-term debt	Total long-term debt	$	1,086	$	1,080	Total long-term debt	$	940	$	881

~~New Borrowing Arrangements~~

~~During the third quarter of 2020, the Company entered into two new borrowing arrangements, a $200 million term loan (the “2020~~ Term ~~Loan”) with a maturity of August 31, 2021, and a $20 million uncommitted credit facility (the “Uncommitted Facility”) with a maturity of August 26, 2021.~~

Loan A

The ~~2020 Term Loan was used to partially fund the Company’s acquisition of Reflexis, along with cash available from the Company’s operations and Revolving Credit Facility. Principal payments~~principal on the 2020 Term Loan are due starting in December 2020, with the majority of principal due upon maturity. The 2020 Term Loan bears interest at a variable rate plus an applicable margin, which was 2.25% as of September 26, 2020. Costs associated with issuing the 2020 Term Loan were approximately $1 million, which were capitalized and will be amortized over the term of the loan.

~~The Uncommitted Facility is available for working capital and other general business purposes. As of September 26, 2020, the Company had no outstanding debt under the Uncommitted Facility.~~

~~See Note 10,~~ ~~Long-Term Debt~~ ~~in the Notes to Consolidated Financial Statements for further details related to the 2020 Term Loan and Uncommitted Facility.~~

~~Long-Term Credit Facilities~~

~~The Company also has long-term credit facilities consisting of~~ Term Loan A is due in quarterly installments, with the next quarterly installment due in March 2022 and the ~~Revolving Credit Facility, both of which have a maturity of~~majority due upon the August 9, 2024. Borrowings under these facilities bear interest at a variable rate plus an applicable margin, for which the Company has entered into interest rate swap contracts to manage interest rate risk exposure.

All borrowings under the credit facilities as of September 26, 2020 were denominated in U.S. Dollars, except for €72 million in Euro-denominated borrowings under the Revolving Credit Facility. The average interest rates as of September 26, 2020 for Term Loan A and the Revolving Credit Facility were 1.40% and 1.34%, respectively. Interest is paid for each instrument on a monthly basis.2024 maturity date. The Company ismay 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. ~~Also,~~As of October 2, 2021, the ~~Company may make prepayments against~~ Term Loan A ~~in whole or in part, without premium or penalty.~~interest rate was 1.33%. Interest payments are made monthly and are subject to variable rates plus an applicable margin.

~~During the third quarter of 2019,~~2020 Term Loan

In September 2020, the Company entered into ~~its second amendment~~a new $200 million term loan (“2020 Term Loan”), with the proceeds used to partly fund the ~~Amended and Restated Credit Agreement (“Amendment No. 2”). Amendment No. 2 increased the Company’s borrowing under Term Loan A from $608~~acquisition of Reflexis. The Company repaid $100 million ~~to $1 billion and increased the Company’s borrowing capacity under the Revolving Credit Facility from $800 million to $1 billion. Amendment No. 2 also extended the maturities~~ of Term Loan A and the Revolving Credit Facility to August 9, 2024. Additionally, in conjunction with entering into Amendment No. 2, a payment of $445 million was made to fully pay off the Company’s Term Loan B. This refinancing reduced the Company’s ongoing interest cost while meeting anticipated capital requirements.

~~See Note 10,~~ ~~Long-Term Debt~~principal in the ~~Notes to Consolidated Financial Statements for further details related to~~fourth quarter of 2020 and repaid the ~~Company’s long-term credit facilities.~~remaining $100 million of principal in the first quarter of 2021.

Receivables Financing Facilities

The Company has two Receivables Financing Facilities with financial institutions ~~carrying~~that have a combined total borrowing ~~limits~~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 16, 2022.

As of ~~September 26, 2020, $494~~October 2, 2021, the Company’s Consolidated Balance Sheets included $605 million of receivables that were pledged ~~as collateral,~~under the two Receivables Financing Facilities. As of October 2, 2021, $108 million had been borrowed, of which ~~$264~~$13 million ~~were~~

~~Table~~was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of ~~Contents~~

~~borrowed against. The~~October 2, 2021, the Receivables Financing Facilities had an average interest rate ~~associated with these borrowings as~~ of ~~September 26, 2020 was 1.04%~~0.96%. Interest is paid on these borrowings on a monthly basis.

Revolving Credit Facility

The ~~first Receivables Financing~~Company has a Revolving Credit Facility that is available for working capital and other general business purposes, including letters of credit. As of October 2, 2021, the Company had letters of credit totaling $7 million, which ~~was originally~~reduced funds available for borrowings under the Revolving Credit Facility from $1 billion to $993 million. No borrowings were outstanding under the Revolving Credit Facility as of October 2, 2021. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility matures on August 9, 2024.

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Uncommitted Short-Term Credit Facility

The Company had also entered into an uncommitted short-term credit facility (“Uncommitted Facility”) in ~~December 2017 and was amended in May 2019, allows~~August 2020 allowing for borrowings of up to ~~$180 million~~$20 million. The Uncommitted Facility matured on August 26, 2021 and ~~will mature on March 29, 2021. The second Receivable Financing Facility, which~~ was ~~entered into in May 2019 and amended in May 2020, allows for borrowings of up to $100 million and will mature on May 17, 2021. Both~~not utilized by the Revolving Credit Facility and Receivables Financing Facilities include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels.Company.

See Note 10, Long-Term Debt in the Notes to Consolidated Financial Statements for further details related to the Company’s ~~Receivables Financing Facilities.~~debt instruments.

Receivables 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 Accounting Standards Codifications 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) provided by ~~(used in)~~ financing activities on the Consolidated Statements of Cash Flows.

In May ~~2020,~~2021, one of the Company’s Receivables Factoring arrangements that was no longer actively utilized expired. As of October 2, 2021, the Company ~~entered into a new~~has two remaining active Receivables Factoring arrangements. One arrangement ~~with a bank, which~~allows for the factoring of up to $50 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. This new Receivables Factoring arrangement expands upon the Company’s existing Receivables Factoring arrangements, which allow for the factoring of up to $125 million of uncollected receivables originated from the EMEA region.

As of ~~September 26, 2020~~October 2, 2021 and December 31, ~~2019~~2020 there were a total of ~~$92~~$23 million and ~~$60~~$70 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.

See Note 15, Accounts Receivable Factoring in the Notes to Consolidated Financial Statements for further details.

Share Repurchases

On July 30, 2019, the Company announced that its Board of Directors authorized a share repurchase program for up to an aggregate amount of $1 billion of its outstanding shares of common stock. The share repurchase program ~~supersedes the Company’s prior share repurchase program, which was authorized in November 2011, and~~ 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 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. During the first ~~quarter~~nine months of ~~2020,~~2021, the Company repurchased 52,389 shares of common stock for $25 million, primarily in the second quarter. Comparatively, the Company repurchased 948,740 shares of common stock for $200 million ~~under this program. The Company did not repurchase any shares~~ during the ~~second or third quarters~~first nine months of 2020. As of ~~September 26, 2020,~~October 2, 2021, the Company has cumulatively repurchased 1,239,015 shares of common stock for $272 million under the plan, resulting in a remaining amount of share repurchases authorized under the plan ~~was $753~~of $728 million.

~~Significant Customers~~

~~The Net sales to significant customers as a percentage of the Company’s total Net sales, by segment, were as follows:~~

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Nine Months Ended
September 26, 2020 September 28, 2019
AIT EVM Total AIT EVM Total
Customer A 4.8 % 11.6 % 16.4 % 5.5 % 13.1 % 18.6 %
Customer B 4.6 % 7.6 % 12.2 % 4.8 % 9.1 % 13.9 %
Customer C 6.1 % 12.6 % 18.7 % 6.3 % 10.2 % 16.5 %
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 for the periods presented. In the aggregate, the approximate percentage of our segment and Company total Net sales was as follows:


	Nine Months Ended
	October 2, 2021						September 26, 2020
	AIT		EVM		Total		AIT		EVM		Total
Significant customers as a % of Net sales	15.9	%	33.6	%	49.5	%	15.5	%	31.8	%	47.3	%

These customers accounted for ~~16.5%, 5.1%, and 24.6%~~55.1% of ~~outstanding~~ accounts receivable ~~respectively,~~ as of ~~September 26, 2020.~~October 2, 2021. No other customer accounted for more than 10% of total Net sales during the periods ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ or more than 10% of total outstanding accounts receivables as of ~~September 26, 2020. All three of the above customers are distributors of the Company’s products and not end users.~~October 2, 2021.

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 full year of ~~2020.~~2021. 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 and solution offerings and competitors’ offerings and the potential effects of technological changes,

•The effect of global market conditions, including the North America; EMEA; Latin America; and Asia-Pacific regions in which we do business,

•The impact of foreign exchange rates due to the large percentage of our sales and operations being outside the 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 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,

•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 Part II, 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.

~~Non-GAAP Measures~~

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New Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material impact to our consolidated financial statements.

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.


Item 3.			Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in the Company’s market risk during the quarter ended ~~September 26, 2020.~~October 2, 2021. For additional information on market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.


Item 4.			Controls and Procedures

Management’s Report on Disclosure Controls

Our management is responsible for establishing and maintaining adequate disclosure controls as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management assessed the effectiveness of our disclosure controls as of ~~September 26, 2020.~~October 2, 2021. Based on this assessment and those criteria, our management believes that, as of ~~September 26, 2020,~~October 2, 2021, our disclosure controls ~~are~~were effective.

Changes in Internal Controls over Financial Reporting

During the quarter ended ~~September 26, 2020,~~October 2, 2021, there have been no changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitations on the Effectiveness of Controls

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure controls and procedures or the internal controls over financial reporting will prevent 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 all control issues and instances of fraud, if any, within the Company have been 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.

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PART II - OTHER INFORMATION


Item 1.			Legal Proceedings

See Note 11, Commitments and Contingencies in the Notes to Consolidated Financial Statements included in this report.


Item 1A.			Risk Factors

In addition to the other information included in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, and the factors identified under “Safe Harbor” ~~at the end of~~in Part I, Item 2 of this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, cash flows, or results of operations. The risks described in the Annual Report are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently considers immaterial also may materially adversely affect its business, financial condition, and/or operating results. There have been no material changes to the risk factors included in our Annual Report for the year ended December 31, ~~2019,~~2020, other than as described below.

The effectsof the COVID-19 pandemic have and may continue to adversely affect our business, financial results, and results of operations. ~~In December 2019, a strain of the~~The coronavirus (“COVID-19”) ~~surfaced in Wuhan, China,~~pandemic has been, and over the course of the first quarter 2020, the World Health Organization escalated its assessment of the COVID-19 threat, finally characterizing it as a pandemic on March 11, 2020. The situation relatingcontinues to ~~the COVID-19 pandemic is~~be, complex and rapidly ~~evolving. By the second quarter of 2020, we saw a broad number of governmental~~evolving, and ~~commercial efforts to contain the spread of COVID-19 globally. In the second and third quarters of fiscal 2020, the COVID-19 pandemic~~has adversely impacted our business, most recently, primarily related to ~~lower customer demand and~~supply chain disruption (including higher fulfillment ~~costs.~~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 cannot be accurately predicted at this time, such as the severity and transmission rate of COVID-19, the extent and effectiveness of containment actions, the ~~likelihood of a resurgence of COVID-19,~~extent to which vaccines and/or other medical treatments are developed and made available to and accepted by the public, and the impact of these and other factors on our employees, customers, industry partners, transportation providers, suppliers and third party dealers, distributors, and resellers.

The U.S. federal, state, and local governments as well as ~~foreign~~non-U.S. governments, to varying degrees, have imposed, and continue to impose, several protocols and regulations restricting the physical movement or other activities of individuals in an effort to limit the spread of COVID-19. WeOver the course of the pandemic we have implemented a number of measures in an effort to protect ~~our employees’~~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, and ~~withdrawing from~~implementing more strenuous health and safety measures for hosting and attending in-person industry events. ~~In addition, as~~The extent and duration of ongoing workplace restrictions and limitations, particularly in sites with significant headcount, could adversely impact our operations and our ability to execute on strategic imperatives for our business. As governments ~~continue to~~ ease their restrictions and we ~~continue to~~ allow our employees to come back to work in our offices in a controlled approach, we have modified our business practices, including implementing social distancing protocols consistent with government regulations, vaccine verification, health screening, office capacity restrictions ~~health screening,~~and tracking and tracing protocols where applicable, provision of personal protective equipment, ~~tracking and tracing protocols,~~increasing air exchange/ventilation and extensively and frequently disinfecting our workspaces. However, there is no guarantee that such protocols will be successful in preventing the spread of COVID-19 amongst our employees. AsIn late 2020, certain vaccines were authorized by major regulatory bodies to help fight the infection of COVID-19, and certain other vaccines are in the late stages of development to provide such treatment. Vaccine and testing mandates may be announced in jurisdictions in which our businesses operate. Our implementation of these mandates may result in attrition, including attrition of critically skilled labor, and may cause difficulty securing future labor needs, which could have a ~~result~~material adverse effect on our business, financial condition, and results of ~~concerns over the pandemic,~~operations. Further, we have experienced higher than normal employee absentee rates for employees who are unable to work from home, 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 potential negative effects to our operations, including reductions in production levels, research and development activities, and increased ~~costs resulting from our~~ efforts to mitigate the impact of COVID-19, may adversely affect our ability to ~~provide~~deliver our ~~services~~products, solutions and ~~solutions.~~services.

~~Similarly, many of our suppliers, customers, distributors, and resellers~~Further, the conditions caused by COVID-19 have temporarily suspended or modified their business operations as a result of the continued spread of the COVID-19. We have experienced disruptions and delays in our supply chain and such disruptions and delays may resume or worsen, which could decrease our sales, earnings and liquidity or otherwise adversely affect our business and result in increased costs. In addition, we have also experienced,affected, and may continue to ~~experience, unpredictable reductions or increases in~~affect, the overall demand environment for our products, solutions and services. The level of demand for certain ~~of our products. Moreover, existing travel restrictions, prolonged quarantines and other government orders have,~~product components has resulted in, and may continue to ~~significantly~~result in, lengthened lead times and higher input costs, including freight. This has impacted, and may continue to impact, our ability to ~~support our sites and service customers in impacted locations. Our customers, distributors, and resellers~~meet customer demand as well as profitability. An inability to meet customer demand may be limited in their abilities to make timely payments or they may seek to suspend or terminate existing agreements, and prospective customers may experience delays in their purchasing decisions. A decrease in demand or pricing for our products could materiallyalso adversely affect our ~~business, financial condition, and results of operations.~~customers’ ability or willingness to purchase our products, solutions or services.

In addition, the continued spread of COVID-19 has led to disruption and volatility in the worldwide credit and financial markets, which could limit our ability to obtain external financing and result in a higher rate of losses on our accounts receivables due to credit defaults, adversely affecting our liquidity. While the COVID-19 pandemic has not materially impacted our liquidity and capital resources to date, the duration and severity of any further economic or market impact of the

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~~pandemic remains uncertain and there can be no assurance that it will not have an adverse effect on our liquidity and capital resources, including our ability to access capital markets, in the future.~~

Certain known consequences from the COVID-19 pandemic on our business and operations are disclosed in the financial statements contained in this Form 10-Q and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” If COVID-19 ~~becomes~~or its variants become more prevalent in the locations where our customers, suppliers, or we conduct business, we may experience more pronounced disruptions in our operations. If we are not able to respond 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, operational and cybersecurity as well as similar risks relating to our suppliers and customers, any of which could have a material adverse effect on our business.

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 costs to transport, 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. 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. In addition, such volatility in customer demand, product availability, and costs to transport products, may result in increased operating input costs. Credit constraints at our suppliers could cause us to accelerate payment of accounts payable by us, impacting our cash flow.


Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to repurchases of the Company’s common stock for the three months ended ~~September 26, 2020:~~October 2, 2021:

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)

~~June 28, 2020~~July 4, 2021 - July ~~25, 2020~~31, 2021

—

~~753~~728

~~July 26, 2020~~August 1, 2021 - August ~~22, 2020~~28, 2021

—

~~753~~728

August ~~23, 2020~~29, 2021 - ~~September 26, 2020~~October 2, 2021

—

~~753~~728

Total

—

~~753~~728

(1)On July 30, 2019, the Company announced that its Board of Directors authorized a share repurchase program for up to an aggregate amount of $1 billion of its outstanding shares of common stock. ~~The share repurchase program supersedes the Company’s prior share repurchase program, which was authorized in November 2011 and under which the Company had not repurchased any shares.~~ 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. ~~During the third quarter of 2020, the Company did not make any share repurchases under the~~The program ~~which~~ does not have a stated expiration date.

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Item 6.			Exhibits




10			~~364-Day Credit Agreement dated September 1, 2020, by and among, Zebra, the lenders party thereto, and JPMorgan Chase Bank, N.A.~~

31.1			Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2			Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1			Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101			The following financial information from Zebra Technologies Corporation Quarterly Report on Form 10-Q, for the quarter ended ~~September 26, 2020,~~October 2, 2021, 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 Quarterly Report on Form 10-Q for the quarter ended ~~September 26, 2020,~~October 2, 2021, formatted in Inline XBRL (included in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ZEBRA TECHNOLOGIES CORPORATION

Date: November ~~3, 2020~~2, 2021	By:	/s/ Anders Gustafsson
		Anders Gustafsson
		Chief Executive Officer



Date: November ~~3, 2020~~2, 2021	By:	/s/ Nathan Winters
		Nathan Winters
		~~Acting~~ Chief Financial Officer

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	(Liability) Asset
		Fair Values as of
	Balance Sheet Classification	September 26, 2020		December 31, 2019
Derivative instruments designated as hedges:
Foreign exchange contracts	Prepaid expenses and other current assets	$	0	$	3
Foreign exchange contracts	Accrued liabilities	(14)		0


Total derivative instruments designated as hedges		$	(14)	$	3

Derivative instruments not designated as hedges:




Forward interest rate swaps	Accrued liabilities	(17)		(5)
Forward interest rate swaps	Other long-term liabilities	(33)		(8)
Total derivative instruments not designated as hedges		$	(50)	$	(13)
Total net derivative liability		$	(64)	$	(10)


	Losses Recognized in Income
		Three Months Ended				Nine Months Ended
	Statements of Operations Classification	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Derivative instruments not designated as hedges:
Foreign exchange contracts	Foreign exchange (loss) gain	$	(1)	$	(1)	$	(9)	$	(4)
Forward interest rate swaps	Interest expense, net	(4)		(4)		(46)		(27)
Total losses recognized in income		$	(5)	$	(5)	$	(55)	$	(31)


	Nine Months Ended
Cash flows provided by (used in) from:	September 26, 2020		September 28, 2019		$ Change
Operating activities	$	531	$	420	$	111
Investing activities	(623)		(310)		(313)
Financing activities	131		(120)		251
Effect of exchange rates on cash	(1)		(1)		—
Net increase (decrease) in cash and cash equivalents, including restricted cash	$	38	$	(11)	$	49