ZEBRA TECHNOLOGIES CORP - Quarter Report: 2022 July (Form 10-Q)
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 July 2, 2022
OR
| ☐ | 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 July 29, 2022, there were 51,789,941 shares of Class A Common Stock, $.01 par value, outstanding.
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
QUARTER ENDED JULY 2, 2022
TABLE OF CONTENTS
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| Item 3. | ||||||||
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| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
2
PART I - FINANCIAL INFORMATION
| Item 1. | Consolidated Financial Statements | ||||
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| July 2, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 98 | $ | 332 | |||||||
Accounts receivable, net of allowances for doubtful accounts of $1 million each as of July 2, 2022 and December 31, 2021 | 925 | 752 | |||||||||
| Inventories, net | 632 | 491 | |||||||||
| Income tax receivable | 20 | 8 | |||||||||
| Prepaid expenses and other current assets | 131 | 106 | |||||||||
| Total Current assets | 1,806 | 1,689 | |||||||||
| Property, plant and equipment, net | 265 | 272 | |||||||||
| Right-of-use lease assets | 174 | 131 | |||||||||
| Goodwill | 3,929 | 3,265 | |||||||||
| Other intangibles, net | 659 | 469 | |||||||||
| Deferred income taxes | 311 | 192 | |||||||||
| Other long-term assets | 241 | 197 | |||||||||
| Total Assets | $ | 7,385 | $ | 6,215 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 144 | $ | 69 | |||||||
| Accounts payable | 827 | 700 | |||||||||
| Accrued liabilities | 714 | 639 | |||||||||
| Deferred revenue | 413 | 380 | |||||||||
| Income taxes payable | 15 | 12 | |||||||||
| Total Current liabilities | 2,113 | 1,800 | |||||||||
| Long-term debt | 2,017 | 922 | |||||||||
| Long-term lease liabilities | 155 | 121 | |||||||||
| Deferred income taxes | 71 | 6 | |||||||||
| Long-term deferred revenue | 318 | 315 | |||||||||
| Other long-term liabilities | 198 | 67 | |||||||||
| Total Liabilities | 4,872 | 3,231 | |||||||||
| Stockholders’ Equity: | |||||||||||
Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued | — | — | |||||||||
Class A common stock, $.01 par value; authorized 150,000,000 shares; issued 72,151,857 shares | 1 | 1 | |||||||||
| Additional paid-in capital | 512 | 462 | |||||||||
Treasury stock at cost, 20,196,863 and 18,736,582 shares as of July 2, 2022 and December 31, 2021, respectively | (1,652) | (1,023) | |||||||||
| Retained earnings | 3,680 | 3,573 | |||||||||
| Accumulated other comprehensive loss | (28) | (29) | |||||||||
| Total Stockholders’ Equity | 2,513 | 2,984 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 7,385 | $ | 6,215 | |||||||
See accompanying Notes to Consolidated Financial Statements.
3
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Tangible products | $ | 1,259 | $ | 1,192 | $ | 2,466 | $ | 2,345 | |||||||||||||||
| Services and software | 209 | 185 | 434 | 379 | |||||||||||||||||||
| Total Net sales | 1,468 | 1,377 | 2,900 | 2,724 | |||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||
| Tangible products | 685 | 618 | 1,366 | 1,209 | |||||||||||||||||||
| Services and software | 109 | 101 | 223 | 202 | |||||||||||||||||||
| Total Cost of sales | 794 | 719 | 1,589 | 1,411 | |||||||||||||||||||
| Gross profit | 674 | 658 | 1,311 | 1,313 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling and marketing | 151 | 148 | 303 | 282 | |||||||||||||||||||
| Research and development | 148 | 141 | 285 | 281 | |||||||||||||||||||
| General and administrative | 97 | 92 | 196 | 174 | |||||||||||||||||||
| Settlement and related costs | 372 | — | 372 | — | |||||||||||||||||||
| Amortization of intangible assets | 35 | 26 | 68 | 52 | |||||||||||||||||||
| Acquisition and integration costs | 14 | 4 | 18 | 5 | |||||||||||||||||||
| Exit and restructuring costs | 2 | — | 2 | — | |||||||||||||||||||
| Total Operating expenses | 819 | 411 | 1,244 | 794 | |||||||||||||||||||
| Operating (loss) income | (145) | 247 | 67 | 519 | |||||||||||||||||||
| Other (loss) income, net: | |||||||||||||||||||||||
| Foreign exchange (loss) gain | (3) | (1) | 5 | 1 | |||||||||||||||||||
| Interest (expense) income, net | (3) | (7) | 27 | (5) | |||||||||||||||||||
| Other (expense) income, net | (2) | (1) | (2) | (1) | |||||||||||||||||||
| Total Other (expense) income, net | (8) | (9) | 30 | (5) | |||||||||||||||||||
| (Loss) income before income tax | (153) | 238 | 97 | 514 | |||||||||||||||||||
| Income tax (benefit) expense | (55) | 19 | (10) | 67 | |||||||||||||||||||
| Net (loss) income | $ | (98) | $ | 219 | $ | 107 | $ | 447 | |||||||||||||||
| Basic (loss) earnings per share | $ | (1.87) | $ | 4.10 | $ | 2.04 | $ | 8.36 | |||||||||||||||
| Diluted (loss) earnings per share | $ | (1.87) | $ | 4.07 | $ | 2.02 | $ | 8.29 | |||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
4
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | ||||||||||||||||||||
| Net (loss) income | $ | (98) | $ | 219 | $ | 107 | $ | 447 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Changes in unrealized gains on anticipated sales hedging transactions | 7 | 2 | 12 | 34 | |||||||||||||||||||
| Foreign currency translation adjustment | (6) | — | (11) | (3) | |||||||||||||||||||
| Comprehensive (loss) income | $ | (97) | $ | 221 | $ | 108 | $ | 478 | |||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
5
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, 2021 | 53,415,275 | $ | 1 | $ | 462 | $ | (1,023) | $ | 3,573 | $ | (29) | $ | 2,984 | |||||||||||||||||||||||||||||||
| Issuances of treasury shares related to share-based compensation plans, net of forfeitures | 20,082 | — | 8 | (2) | — | — | 6 | |||||||||||||||||||||||||||||||||||||
| Shares withheld to fund withholding tax obligations related to share-based compensation plans | (1,639) | — | — | (1) | — | — | (1) | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 17 | — | — | — | 17 | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (648,875) | — | — | (305) | — | — | (305) | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 205 | — | 205 | |||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | 5 | 5 | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (5) | (5) | |||||||||||||||||||||||||||||||||||||
| Balance at April 2, 2022 | 52,784,843 | $ | 1 | $ | 487 | $ | (1,331) | $ | 3,778 | $ | (29) | $ | 2,906 | |||||||||||||||||||||||||||||||
| Issuances of treasury shares related to share-based compensation plans, net of forfeitures | 70,821 | — | — | 1 | — | — | 1 | |||||||||||||||||||||||||||||||||||||
| Shares withheld to fund withholding tax obligations related to share-based compensation plans | (56,431) | — | — | (22) | — | — | (22) | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 25 | — | — | — | 25 | |||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (844,239) | — | — | (300) | — | — | (300) | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (98) | — | (98) | |||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes) | — | — | — | — | — | 7 | 7 | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (6) | (6) | |||||||||||||||||||||||||||||||||||||
| Balance at July 2, 2022 | 51,954,994 | $ | 1 | $ | 512 | $ | (1,652) | $ | 3,680 | $ | (28) | $ | 2,513 | |||||||||||||||||||||||||||||||
6
| 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 | |||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
7
ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Six Months Ended | |||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 107 | $ | 447 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 103 | 88 | |||||||||
| Share-based compensation | 42 | 38 | |||||||||
| Deferred income taxes | (124) | (5) | |||||||||
| Unrealized gain on forward interest rate swaps | (52) | (13) | |||||||||
| Other, net | 3 | 1 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | (170) | (59) | |||||||||
| Inventories, net | (108) | 26 | |||||||||
| Other assets | (52) | (22) | |||||||||
| Accounts payable | 121 | (10) | |||||||||
| Accrued liabilities | (77) | 2 | |||||||||
| Deferred revenue | 34 | 67 | |||||||||
| Income taxes | (9) | (23) | |||||||||
| Settlement and related costs, net | 320 | — | |||||||||
| Other operating activities | 16 | 2 | |||||||||
| Net cash provided by operating activities | 154 | 539 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of businesses, net of cash acquired | (875) | (17) | |||||||||
| Purchases of property, plant and equipment | (31) | (25) | |||||||||
| Purchases of long-term investments | (6) | (17) | |||||||||
| Net cash used in investing activities | (912) | (59) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payment of debt issuance costs, extinguishment costs and discounts | (8) | — | |||||||||
| Payments of long-term debt | (119) | (264) | |||||||||
| Proceeds from issuance of long-term debt | 1,294 | 8 | |||||||||
| Payments for repurchases of common stock | (605) | (25) | |||||||||
| Net payments related to share-based compensation plans | (16) | (46) | |||||||||
| Change in unremitted cash collections from servicing factored receivables | (28) | (2) | |||||||||
| Net cash provided by (used in) financing activities | 518 | (329) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents, including restricted cash | (6) | (4) | |||||||||
| Net (decrease) increase in cash and cash equivalents, including restricted cash | (246) | 147 | |||||||||
| Cash and cash equivalents, including restricted cash, at beginning of period | 344 | 192 | |||||||||
| Cash and cash equivalents, including restricted cash, at end of period | $ | 98 | $ | 339 | |||||||
| Less restricted cash, included in Prepaid expenses and other current assets | — | (21) | |||||||||
| Cash and cash equivalents at end of period | $ | 98 | $ | 318 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Income taxes paid | $ | 120 | $ | 94 | |||||||
| Interest paid | $ | 15 | $ | 17 | |||||||
8
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 software subscriptions, that capture and move data. We also provide a full range of services, including maintenance, technical support, repair, managed and professional services. End-users of our products, solutions and services include those in retail and e-commerce, manufacturing, transportation and logistics, healthcare, public sector, and other industries. We provide our products, solutions and services globally through a direct sales force and an extensive network of channel partners.
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 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, 2021.
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 July 2, 2022, the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and six months ended July 2, 2022 and July 3, 2021, and the Consolidated Statement of Cash Flows for the six months ended July 2, 2022 and July 3, 2021. These results, however, are not necessarily indicative of the results expected for the full fiscal year ending December 31, 2022.
Effective January 1, 2022, the location solutions offering, which provides a range of real-time location systems (“RTLS”) and services that generate on-demand information about the physical location and status of assets, equipment, and people, moved from our Asset Intelligence & Tracking (“AIT”) segment into our Enterprise Visibility & Mobility (“EVM”) segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change does not have an impact to the Consolidated Financial Statements. See Note 18, Segment Information & Geographic Data for additional information related to each segment’s results.
Note 2 Significant Accounting Policies
For a discussion of our significant accounting policies, see Note 2, Significant Accounting Policies within Part II, Item 8. “Financial Statements and Supplementary Data” in the Annual Report on Form 10-K for the year ended December 31, 2021. There have been no changes to our significant accounting policies since our Annual Report on Form 10-K for the year ended December 31, 2021.
9
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.
Revenues for products are generally recognized upon shipment, whereas revenues for services and solution offerings are generally recognized over time by using an output or time-based method, assuming all other criteria for revenue recognition have been met. Revenues for software are recognized either upon delivery or over time using a time-based method, depending upon how control is transferred to the customer. In cases where a bundle of products, services, solutions and/or software are delivered to the customer, judgment is required to select the method of progress which best reflects the transfer of control.
Disaggregation of Revenue
The following table presents our Net sales disaggregated by product category for each of our segments, AIT and EVM, for the three and six months ended July 2, 2022 and July 3, 2021 (in millions):
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||||||||||||||||||||||||||
| Segment | Tangible Products | Services and Software | Total | Tangible Products | Services and Software | Total | |||||||||||||||||||||||||||||
| AIT | $ | 422 | $ | 24 | $ | 446 | $ | 390 | $ | 24 | $ | 414 | |||||||||||||||||||||||
| EVM | 837 | 185 | 1,022 | 802 | 164 | 966 | |||||||||||||||||||||||||||||
Corporate, eliminations(1) | — | — | — | — | (3) | (3) | |||||||||||||||||||||||||||||
| Total | $ | 1,259 | $ | 209 | $ | 1,468 | $ | 1,192 | $ | 185 | $ | 1,377 | |||||||||||||||||||||||
| Six Months Ended | |||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||||||||||||||||||||||||||
| Segment | Tangible Products | Services and Software | Total | Tangible Products | Services and Software | Total | |||||||||||||||||||||||||||||
| AIT | $ | 792 | $ | 48 | $ | 840 | $ | 797 | $ | 46 | $ | 843 | |||||||||||||||||||||||
| EVM | 1,674 | 386 | 2,060 | 1,548 | 339 | 1,887 | |||||||||||||||||||||||||||||
Corporate, eliminations(1) | — | — | — | — | (6) | (6) | |||||||||||||||||||||||||||||
| Total | $ | 2,466 | $ | 434 | $ | 2,900 | $ | 2,345 | $ | 379 | $ | 2,724 | |||||||||||||||||||||||
(1)Amounts included in Corporate, eliminations consist of purchase accounting adjustments.
In addition, refer to Note 18, Segment Information & Geographic Data for Net sales to customers by geographic region.
Performance Obligations
The Company’s remaining performance obligations primarily relate to repair and support services, as well as solution offerings. The aggregated transaction price allocated to remaining performance obligations for arrangements with an original term exceeding one year was $1,055 million and $1,033 million, inclusive of deferred revenue, as of July 2, 2022 and December 31, 2021, respectively. On average, remaining performance obligations as of July 2, 2022 and December 31, 2021 are expected to be recognized over a period of approximately two years.
10
Contract Balances
Progress on satisfying performance obligations under contracts with customers related to billed revenues is reflected on the Consolidated Balance Sheets in Accounts receivable, net. Progress on satisfying performance obligations under contracts with customers related to unbilled revenues (“contract assets”) is reflected on the Consolidated Balance Sheets as Prepaid expenses and other current assets for revenues expected to be billed within the next twelve months, and Other long-term assets for revenues expected to be billed thereafter. The total contract asset balances were $12 million and $10 million as of July 2, 2022 and December 31, 2021, respectively. These contract assets result from timing differences between billing and satisfying performance obligations, as well as the impact from the allocation of the transaction price among performance obligations for contracts that include multiple performance obligations. Contract assets are evaluated for impairment and no impairment losses have been recognized during the three and six months ended July 2, 2022 and July 3, 2021, respectively.
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 $731 million and $695 million as of July 2, 2022 and December 31, 2021, respectively. During the three and six months ended July 2, 2022, the Company recognized $108 million and $237 million in revenue, which was previously included in the beginning balance of deferred revenue as of December 31, 2021. During the three and six months ended July 3, 2021, the Company recognized $75 million and $185 million in revenue, which was previously included in the beginning balance of deferred revenue as of December 31, 2020.
Note 4 Inventories
The components of Inventories, net are as follows (in millions):
| July 2, 2022 | December 31, 2021 | ||||||||||
| Raw materials | $ | 275 | $ | 196 | |||||||
| Work in process | 3 | 3 | |||||||||
| Finished goods | 354 | 292 | |||||||||
| Total Inventories, net | $ | 632 | $ | 491 | |||||||
Note 5 Business Acquisitions
Matrox
On June 3, 2022, the Company acquired Matrox Electronic Systems Ltd. (“Matrox”), a developer of advanced machine vision components and software. Through its acquisition of Matrox, the Company intends to expand its machine vision products and software offerings.
The acquisition was accounted for under the acquisition method of accounting for business combinations. The Company’s total purchase consideration was $878 million comprised of $875 million in cash paid at closing, net of Matrox’s cash on-hand and an additional $3 million of cash that will be paid in the third quarter of 2022.
The Company utilized estimated fair values as of the acquisition date to allocate the total purchase consideration to the identifiable assets acquired and liabilities assumed. The fair value of the net assets acquired was based on several estimates and assumptions, as well as customary valuation techniques, primarily the excess earnings method for customer relationships as well as the relief from royalty method for technology and patent intangible assets. While we believe these estimates provide a reasonable basis to record the net assets acquired, the purchase price allocation is considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date. The primary fair value estimates still considered preliminary as of July 2, 2022 include intangible assets and income tax-related items.
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The preliminary purchase price allocation to assets acquired and liabilities assumed was as follows (in millions):
| Identifiable intangible assets | $ | 257 | |||
| Inventory | 33 | ||||
| Other assets acquired | 13 | ||||
| Deferred tax liabilities | (68) | ||||
| Other liabilities assumed | (21) | ||||
| Net assets acquired | $ | 214 | |||
| Goodwill on acquisition | 664 | ||||
| Total purchase price | $ | 878 | |||
The $664 million of goodwill, which is non-deductible for tax purposes, has been allocated to the EVM segment and principally relates to the planned global expansion and integration of Matrox into the Company’s machine vision offerings.
The preliminary purchase price allocation to identifiable intangible assets acquired was as follows:
| Fair Value (in millions) | Useful Life (in years) | ||||||||||
| Customer and other relationships | $ | 196 | 11 | ||||||||
| Technology and patents | 59 | 7 | |||||||||
| Trade names | 2 | 2 | |||||||||
| Total identifiable intangible assets | $ | 257 | |||||||||
In connection with the acquisition of Matrox, the Company granted $13 million of cash-settled RSUs to certain employees, which are attributable to service to be rendered subsequent to the acquisition and will generally be expensed over a 3-year service period.
The Company has not included unaudited pro forma results, as if Matrox had been acquired as of January 1, 2021, as doing so would not yield materially different results.
The Company incurred approximately $14 million of acquisition-related costs during the second quarter of 2022, primarily related to third-party transaction and advisory fees associated with the Matrox acquisition. These costs are included within Acquisition and integration costs on the Consolidated Statement 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, 2021 | $ | 169 | $ | 3,096 | $ | 3,265 | |||||||||||
| Matrox acquisition | — | 664 | 664 | ||||||||||||||
| Goodwill as of July 2, 2022 | $ | 169 | $ | 3,760 | $ | 3,929 | |||||||||||
See Note 5, Business Acquisitions for further details related to the Company’s acquisitions and purchase price allocation adjustments.
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Other Intangibles, net
The balances in Other Intangibles, net consisted of the following (in millions):
| As of July 2, 2022 | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||
| Technology and patents | $ | 948 | $ | (592) | $ | 356 | $ | 889 | $ | (566) | $ | 323 | |||||||||||||||||||||||
| Customer and other relationships | 826 | (541) | 285 | 631 | (503) | 128 | |||||||||||||||||||||||||||||
| Trade names | 66 | (48) | 18 | 64 | (46) | 18 | |||||||||||||||||||||||||||||
| Total | $ | 1,840 | $ | (1,181) | $ | 659 | $ | 1,584 | $ | (1,115) | $ | 469 | |||||||||||||||||||||||
Amortization expense was $35 million and $26 million during the three months ended July 2, 2022 and July 3, 2021, respectively, and $68 million and $52 million during the six months ended July 2, 2022 and July 3, 2021, respectively.
As of July 2, 2022, estimated future intangible asset amortization expense is as follows (in millions):
| 2022 (remaining 6 months) | $ | 66 | |||
| 2023 | 99 | ||||
| 2024 | 94 | ||||
| 2025 | 93 | ||||
| 2026 | 89 | ||||
| Thereafter | 218 | ||||
| Total | $ | 659 | |||
Note 7 Investments
The carrying value of the Company’s venture investments was $107 million and $101 million as of July 2, 2022 and December 31, 2021, respectively, which are included in Other long-term assets on the Consolidated Balance Sheets.
During the three and six months ended July 2, 2022, the Company paid $1 million and $6 million for the purchases of long-term investments, respectively. Comparatively, during the three and six months ended July 3, 2021, the Company paid $4 million and $17 million for the purchases of new long-term investments, respectively.
Net gains and losses related to the Company’s investments are included within Other (expense) income, net on the Consolidated Statements of Operations. The Company recognized net losses of $0 million and $1 million during the three months ended July 2, 2022 and July 3, 2021, respectively. The Company did not recognize any net gains or losses in the six months ended July 2, 2022 or July 3, 2021.
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 in active markets but corroborated by market data.
•Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
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In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs to the extent possible. In addition, the Company considers counterparty credit risk in the assessment of fair value.
The Company’s financial assets and liabilities carried at fair value as of July 2, 2022, are classified below (in millions):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Foreign exchange contracts (1) | $ | 3 | $ | 37 | $ | — | $ | 40 | |||||||||||||||
Forward interest rate swap contracts (2) | — | 36 | — | 36 | |||||||||||||||||||
| Money market investments related to deferred compensation plan | 33 | — | — | 33 | |||||||||||||||||||
| Total Assets at fair value | $ | 36 | $ | 73 | $ | — | $ | 109 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Liabilities related to the deferred compensation plan | 33 | — | — | 33 | |||||||||||||||||||
| Total Liabilities at fair value | $ | 33 | $ | — | $ | — | $ | 33 | |||||||||||||||
The Company’s financial assets and liabilities carried at fair value as of December 31, 2021, are classified below (in millions):
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Foreign exchange contracts (1) | $ | — | $ | 23 | $ | — | $ | 23 | |||||||||||||||
| Money market investments related to deferred compensation plan | 37 | — | — | 37 | |||||||||||||||||||
| Total Assets at fair value | $ | 37 | $ | 23 | $ | — | $ | 60 | |||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Forward interest rate swap contracts (2) | $ | — | $ | 16 | $ | — | $ | 16 | |||||||||||||||
| Liabilities related to the deferred compensation plan | 37 | — | — | 37 | |||||||||||||||||||
| Total Liabilities at fair value | $ | 37 | $ | 16 | $ | — | $ | 53 | |||||||||||||||
(1)The fair value of the foreign exchange contracts is calculated as follows:
•Fair value of regular forward contracts associated with forecasted sales hedges is calculated using the period-end exchange rate adjusted for current forward points.
•Fair value of hedges against net assets is calculated at the period-end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at year end (Level 2). If this is the case, the fair value is calculated at the rate at which the hedge is being settled (Level 1).
(2)The fair value of forward interest rate swaps is based upon a valuation model that uses relevant observable market inputs at the quoted intervals, such as forward yield curves, and is adjusted for the Company’s credit risk and the interest rate swap terms.
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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 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 | July 2, 2022 | December 31, 2021 | |||||||||||||||
| Derivative instruments designated as hedges: | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | 37 | $ | 23 | ||||||||||||
| Total derivative instruments designated as hedges | $ | 37 | $ | 23 | |||||||||||||
| Derivative instruments not designated as hedges: | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | 3 | $ | — | ||||||||||||
| Forward interest rate swaps | Prepaid expenses and other current assets | 8 | — | ||||||||||||||
| Forward interest rate swaps | Other long-term assets | 28 | — | ||||||||||||||
| Forward interest rate swaps | Accrued liabilities | — | (15) | ||||||||||||||
| Forward interest rate swaps | Other long-term liabilities | — | (1) | ||||||||||||||
| Total derivative instruments not designated as hedges | $ | 39 | $ | (16) | |||||||||||||
| Total net derivative asset | $ | 76 | $ | 7 | |||||||||||||
The following table presents the net gains (losses) from changes in fair values of derivatives that are not designated as hedges (in millions):
| Gains (Losses) Recognized in Income | |||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
| Statements of Operations Classification | July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | |||||||||||||||||||||||||
| Derivative instruments not designated as hedges: | |||||||||||||||||||||||||||||
| Foreign exchange contracts | Foreign exchange (loss) gain | $ | 9 | $ | (6) | $ | 8 | $ | — | ||||||||||||||||||||
| Forward interest rate swaps | Interest (expense) income, net | 11 | (3) | 45 | 5 | ||||||||||||||||||||||||
| Total gain (loss) recognized in income | $ | 20 | $ | (9) | $ | 53 | $ | 5 | |||||||||||||||||||||
Activities related to derivative instruments are reflected within Net cash provided by operating activities on the Consolidated Statements of Cash Flows.
Credit and Market Risk Management
Financial instruments, including derivatives, expose the Company to counterparty credit risk of nonperformance and to market risk related to currency exchange rate and interest rate fluctuations. The Company manages its exposure to counterparty credit risk by establishing minimum credit standards, diversifying its counterparties, and monitoring its concentrations of credit. The Company’s counterparties are commercial banks with expertise in derivative financial instruments. The Company evaluates the impact of market risk on the fair value and cash flows of its derivative and other financial instruments by considering
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reasonably possible changes in interest rates and currency exchange rates. The Company continually monitors the creditworthiness of the customers to which it grants credit terms in the normal course of business. The terms and conditions of the Company’s credit policies are designed to mitigate concentrations of credit risk.
The Company’s master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. We present the assets and liabilities of our derivative financial instruments, for which we have net settlement agreements in place, on a net basis on the Consolidated Balance Sheets. If the derivative financial instruments had been presented gross on the Consolidated Balance Sheets, the asset and liability positions would have been unchanged as of July 2, 2022 and increased by $1 million as of December 31, 2021.
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 $27 million of gains and $8 million of losses for the three months ended July 2, 2022 and July 3, 2021, respectively. Realized amounts reclassified to Net sales were $43 million of gains and $20 million of losses for the six months ended July 2, 2022 and July 3, 2021, respectively. As of July 2, 2022 and December 31, 2021, the notional amounts of the Company’s foreign exchange cash flow hedges were €459 million and €675 million, respectively. The Company has reviewed its cash flow hedges for effectiveness and determined that they are highly effective.
The Company uses forward contracts, which are not designated as hedging instruments, to manage its exposures related to net assets denominated in foreign currencies. These forward contracts typically mature within one month after execution. Monetary gains and losses on these forward contracts are recorded in income and are generally offset by the transaction gains and losses related to their net asset positions. The notional values and the net fair values of these outstanding contracts were as follows (in millions):
| July 2, 2022 | December 31, 2021 | ||||||||||
| Notional balance of outstanding contracts: | |||||||||||
| British Pound/U.S. Dollar | £ | 21 | £ | 13 | |||||||
| Euro/U.S. Dollar | € | 123 | € | 142 | |||||||
| Euro/Czech Koruna | € | 16 | € | 16 | |||||||
| Singapore Dollar/U.S. Dollar | S$ | 12 | S$ | 16 | |||||||
| Mexican Peso/U.S. Dollar | Mex$ | 113 | Mex$ | 64 | |||||||
| Polish Zloty/U.S. Dollar | zł | 14 | zł | 103 | |||||||
| Net fair value of assets of outstanding contracts | $ | 3 | $ | — | |||||||
Interest Rate Risk Management
The Company’s debt consists of borrowings under a term loan (“Term Loan A”), Revolving Credit Facility, and Receivables Financing Facilities, which bear interest at variable rates plus applicable margins. As a result, the Company is exposed to market risk associated with the variable interest rate payments on these borrowings. See Note 10, Long-Term Debt for further details about these borrowings.
The Company manages its exposure to changes in interest rates by utilizing long-term forward interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus floating-rate debt, based on current and projected market conditions.
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The Company has one active long-term forward interest rate swap agreement with a notional amount of $800 million to lock into a fixed LIBOR interest rate base, which is subject to monthly net cash settlements effective through December 2022.
The Company also previously held fixed LIBOR interest rate swaps with an $800 million total notional amount that were subject to net cash settlements effective between December 2022 and August 2024. In the first quarter of 2022, the Company terminated those interest rate swaps and entered into new interest rate swap agreements that contain a total notional amount of $800 million to lock into a fixed SOFR interest rate base and will be subject to monthly net cash settlements effective in December 2022 and ending in October 2027.
The Company’s interest rate swaps are not designated as hedges and changes in fair value are recognized immediately as Interest (expense) income, 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):
| July 2, 2022 | December 31, 2021 | ||||||||||
| Term Loan A | $ | 1,750 | $ | 888 | |||||||
| Revolving Credit Facility | 235 | — | |||||||||
| Receivables Financing Facilities | 186 | 108 | |||||||||
| Total debt | $ | 2,171 | $ | 996 | |||||||
| Less: Debt issuance costs | (5) | (3) | |||||||||
| Less: Unamortized discounts | (5) | (2) | |||||||||
| Less: Current portion of debt | (144) | (69) | |||||||||
| Total long-term debt | $ | 2,017 | $ | 922 | |||||||
As of July 2, 2022, the future maturities of debt are as follows (in millions):
| 2022 (remaining 6 months) | $ | 122 | ||||||
| 2023 | 44 | |||||||
| 2024 | 129 | |||||||
| 2025 | 66 | |||||||
| 2026 | 88 | |||||||
| Thereafter | 1,722 | |||||||
| Total future debt maturities | $ | 2,171 | ||||||
All borrowings as of July 2, 2022 were denominated in U.S. Dollars.
The estimated fair value of the Company’s debt approximated $2.1 billion and $1.0 billion as of July 2, 2022 and December 31, 2021, respectively. These fair value amounts, developed based on inputs classified as Level 2 within the fair value hierarchy, represent the estimated value at which the Company’s lenders could trade its debt within the financial markets and do not represent the settlement value of these liabilities to the Company. The fair value of debt will continue to vary each period based on a number of factors, including fluctuations in market interest rates as well as changes to the Company’s credit ratings.
In May 2022, the Company refinanced its long-term credit facilities by entering into its third amendment to the Amended and Restated Credit Agreement (“Amendment No. 3”). Amendment No. 3 increased the Company’s borrowing under Term Loan A from $875 million to $1.75 billion and increased the Company’s borrowing capacity under the Revolving Credit Facility from $1 billion to $1.5 billion. Amendment No. 3 also extended the maturities of Term Loan A and the Revolving Credit Facility to May 25, 2027 and replaced LIBOR with SOFR as the benchmark reference rate.
This refinancing resulted in one-time charges of $2 million, which included certain third party fees and the accelerated amortization of previously deferred issuance costs. These items are included in Interest (expense) income, net on the Consolidated Statements of Operations. Additionally, $6 million of new issuance costs and fees were deferred and will be amortized over the remaining term of Term Loan A and the Revolving Credit Facility.
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Term Loan A
The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in September 2022 and the majority due upon the May 25, 2027 maturity date. The Company may make prepayments, in whole or in part, without premium or penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of July 2, 2022, the Term Loan A interest rate was 3.10%. Interest payments are generally made monthly and are subject to variable rates plus an applicable margin.
Revolving Credit Facility
The Company has a Revolving Credit Facility that is available for working capital and other general business purposes, including letters of credit. As of July 2, 2022, the Company had letters of credit totaling $7 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1,500 million to $1,493 million. As of July 2, 2022, the Revolving Credit Facility had an average interest rate of 2.57%. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility matures on May 25, 2027.
Receivables Financing Facilities
The Company has two Receivables Financing Facilities with financial institutions that have a combined total borrowing limit of up to $280 million. As collateral, the Company pledges perfected first-priority security interests in its U.S. domestically originated accounts receivable. The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings. The Company’s first Receivables Financing Facility allows for borrowings of up to $180 million and matures on March 19, 2024. The Company’s second Receivable Financing Facility allows for borrowings of up to $100 million and matures on May 15, 2023.
As of July 2, 2022, the Company’s Consolidated Balance Sheets included $763 million of receivables that were pledged under the two Receivables Financing Facilities. As of July 2, 2022, $186 million had been borrowed, of which $100 million was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of July 2, 2022, the Receivables Financing Facilities had an average interest rate of 2.57%. Interest is paid on these borrowings on a monthly basis.
Each of the Company’s borrowing arrangements described above include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels.
The Company uses interest rate swaps to manage the interest rate risk associated with its debt. See Note 9, Derivative Instruments for further information.
As of July 2, 2022, the Company was in compliance with all debt covenants.
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Note 11 Leases
During the three months ended July 2, 2022, the Company recorded an additional $54 million of right-of-use (“ROU”) assets obtained in exchange for lease obligations primarily related to the commencement of a new distribution center lease agreement and an extension to a real estate lease agreement.
Future minimum lease payments under non-cancellable leases as of July 2, 2022 were as follows (in millions):
| 2022 (remaining 6 months) | $ | 24 | ||||||
| 2023 | 44 | |||||||
| 2024 | 42 | |||||||
| 2025 | 30 | |||||||
| 2026 | 25 | |||||||
| Thereafter | 67 | |||||||
| Total future minimum lease payments | $ | 232 | ||||||
| Less: Interest | (38) | |||||||
| Present value of lease liabilities | $ | 194 | ||||||
| Reported as of July 2, 2022: | ||||||||
| Current portion of lease liabilities | $ | 39 | ||||||
| Long-term lease liabilities | 155 | |||||||
| Present value of lease liabilities | $ | 194 | ||||||
The current portion of lease liabilities is included within Accrued liabilities on the Consolidated Balance Sheets.
Note 12 Accrued Liabilities, Commitments and Contingencies
Accrued Liabilities
The components of Accrued liabilities are as follows (in millions):
| July 2, 2022 | December 31, 2021 | ||||||||||
| Settlement and related costs | $ | 185 | $ | — | |||||||
| Payroll and benefits | 116 | 96 | |||||||||
| Incentive compensation | 64 | 155 | |||||||||
| Warranty | 26 | 26 | |||||||||
| Customer rebates | 49 | 51 | |||||||||
| 39 | 33 | ||||||||||
| Unremitted cash collections due to banks on factored accounts receivable | 113 | 141 | |||||||||
| Short-term interest rate swaps | — | 15 | |||||||||
| Freight and duty | 45 | 45 | |||||||||
| Other | 77 | 77 | |||||||||
| Accrued liabilities | $ | 714 | $ | 639 | |||||||
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Warranties
The following table is a summary of the Company’s accrued warranty obligations (in millions):
| Six Months Ended | |||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||
| Balance at the beginning of the period | $ | 26 | $ | 24 | |||||||
| Warranty expense | 15 | 16 | |||||||||
| Warranties fulfilled | (15) | (15) | |||||||||
| Balance at the end of the period | $ | 26 | $ | 25 | |||||||
Contingencies
The Company is subject to a variety of investigations, claims, suits, and other legal proceedings that arise from time to time in the ordinary course of business, including but not limited to, intellectual property, employment, tort, and breach of contract matters. The Company currently believes that the outcomes of such proceedings, individually and in the aggregate, will not have a material adverse impact on its business, cash flows, financial position, or results of operations. Any legal proceedings are subject to inherent uncertainties, and the Company’s view of these matters and their potential effects may change in the future. The Company records a liability for contingencies when a loss is deemed to be probable and the loss can be reasonably estimated.
During the second quarter of 2022, the Company entered into a License and Settlement agreement (“Settlement”) to resolve certain patent-related litigation. Under the Settlement, the Company and the counterparty each agreed to a mutual general release from all past claims asserted by the parties; entered into a covenant not to sue for patent infringement; agreed to a payment by the Company to the counterparty for past damages of $360 million and entered into a royalty-free cross-license with respect to each party’s existing patent portfolio for the lives of the licensed patents. Based on the terms of the Settlement and a relative fair value analysis of each of the settlement provisions, the Company concluded that no significant portion of the payment resulted in a future benefit, and as such, the full $360 million was recorded as a charge in the current quarter. That charge, along with $12 million of external legal fees, is reflected within Settlement and related costs on the Consolidated Statement of Operations. The payment terms under the Settlement consist of 8 quarterly payments of $45 million beginning in the current quarter. The portion payable in the next 12 months is included within Accrued liabilities, with the remaining amounts included within Other long-term liabilities on the Consolidated Balance Sheets. See Item 1, Legal Proceedings for additional information.
Note 13 Share-Based Compensation
In May 2018, the Company’s stockholders approved the Zebra Technologies 2018 Long-Term Incentive Plan (“2018 Plan”). The 2018 Plan superseded and replaced the Zebra Technologies Corporation 2015 Long-Term Incentive Plan (“2015 Plan”) on the approval date, except that the 2015 Plan, as well as the Zebra Technologies Corporation 2011 Long-Term Incentive Plan that was previously superseded by the 2015 Plan, remain in effect with respect to outstanding stock appreciation rights that were granted under those plans until such awards have been exercised, forfeited, cancelled, expired or otherwise terminated in accordance with their terms. Awards available under the 2018 Plan include stock-settled awards, including stock-settled restricted stock units, stock-settled performance stock units, restricted stock awards, performance share awards, stock appreciation rights, incentive stock options, and non-qualified stock options. Awards available under the 2018 Plan also include cash-settled awards, including cash-settled stock appreciation rights, cash-settled restricted stock units, and cash-settled performance stock units. No awards remain available for future grants under the 2015 Plan or previous plans.
The Company uses treasury shares as its source for issuing shares under the share-based compensation programs. As of July 2, 2022, the Company had 2,878,812 shares of Class A Common stock remaining available to be issued under the 2018 Plan.
The compensation expense from the Company’s share-based compensation plans and associated income tax benefit, excluding the effects of excess tax benefits or shortfalls, were included in the Consolidated Statements of Operations as follows (in millions):
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | ||||||||||||||||||||
| Cost of sales | $ | 1 | $ | 2 | $ | 2 | $ | 4 | |||||||||||||||
| Selling and marketing | 6 | 7 | 10 | 13 | |||||||||||||||||||
| Research and development | 10 | 8 | 16 | 14 | |||||||||||||||||||
| General and administration | 10 | 10 | 16 | 17 | |||||||||||||||||||
| Total compensation expense | $ | 27 | $ | 27 | $ | 44 | $ | 48 | |||||||||||||||
| Income tax benefit | $ | 5 | $ | 4 | $ | 8 | $ | 7 | |||||||||||||||
As of July 2, 2022, total unearned compensation costs related to the Company’s share-based compensation plans was $149 million, which will be recognized over the weighted average remaining service period of approximately 1.6 years.
The majority of the Company’s share-based compensation awards are generally issued as part of its employee and non-employee director incentive program during the second quarter of each fiscal year. The Company also issues awards associated with business acquisitions or other off-cycle events.
Stock-Settled Restricted Stock Units (“stock-settled RSUs”) and Stock-Settled Performance Share Units (“stock-settled PSUs”)
The Company began issuing stock-settled RSUs and stock-settled PSUs in the second quarter of 2021. Stock-settled RSUs and stock-settled PSUs each typically vest over a three-year service period, with stock-settled RSUs vesting ratably in annual installments and stock-settled PSUs vesting at the end of the three-year period. Vesting for each participant is subject to restrictions, such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, stock-settled RSUs and stock-settled PSUs are converted into shares of Class A Common Stock that are released to participants.
Compensation cost for the Company’s stock-settled RSUs and stock-settled PSUs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on the grant date multiplied by the number of units granted, net of estimated forfeitures. The fair value of PSUs also includes assumptions around achievement of certain Company-wide financial performance goals.
Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”)
Prior to 2021, the Company’s restricted stock grants consisted of time-vested RSAs and PSAs as part of the Company’s annual incentive program. These awards are considered participating securities. The outstanding RSAs and PSAs are included as part of the Company’s Class A Common Stock outstanding. The RSAs and PSAs vest at each vesting date, subject to restrictions such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, RSAs and PSAs are released to holders and are no longer subject to restrictions.
Compensation cost for the Company’s RSAs and PSAs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on the grant date multiplied by the number of units granted, net of estimated forfeitures. The fair value of PSAs also includes assumptions around achievement of certain Company-wide financial performance goals. The total required service period is typically three years.
The Company also issues RSAs to non-employee directors. The number of shares granted to each non-employee director is determined by dividing the value of the annual grant by the price of a share of the Company’s Class A Common Stock. New directors in any fiscal year earn a prorated amount. During the first six months of 2022, there were 5,686 shares granted to non-employee directors compared to 2,877 shares during the first six months of 2021. The shares vest immediately on the grant date.
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A summary of the Company’s restricted and performance stock-settled awards for the six months ended July 2, 2022 is as follows:
| RSUs | PSUs | RSAs | PSAs | |||||||||||||||||||||||||||||||||||||||||||||||
| Units | Weighted-Average Grant Date Fair Value | Units | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||||||||||||||||||||||
| Outstanding at beginning of period | 130,009 | $ | 518.80 | 37,691 | $ | 482.42 | 154,322 | $ | 253.54 | 74,032 | $ | 225.34 | ||||||||||||||||||||||||||||||||||||||
| Granted | 164,592 | 366.72 | 69,553 | 367.87 | 5,960 | 321.34 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Released | (27,961) | 492.78 | (226) | 482.42 | (90,499) | 233.33 | (37,617) | 205.54 | ||||||||||||||||||||||||||||||||||||||||||
| Forfeited | (8,636) | 512.86 | (402) | 482.42 | (6,650) | 253.00 | (115) | 244.62 | ||||||||||||||||||||||||||||||||||||||||||
| Outstanding at end of period | 258,004 | $ | 424.54 | 106,616 | $ | 407.69 | 63,133 | $ | 288.01 | 36,300 | $ | 245.80 | ||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights (“SARs”)
SARs were previously granted primarily as part of the Company’s annual share-based compensation incentive program. Beginning in 2021, the Company no longer included SARs in its annual share based compensation award issuances and did not issue any SARs during the six months ended July 2, 2022.
A summary of the Company’s SARs for the six months ended July 2, 2022 is as follows:
| SARs | SARs | Weighted-Average Exercise Price | ||||||||||||
| Outstanding at beginning of period | 474,151 | $ | 121.05 | |||||||||||
| Granted | — | — | ||||||||||||
| Exercised | (16,533) | 70.19 | ||||||||||||
| Forfeited | (953) | 226.71 | ||||||||||||
| Expired | — | — | ||||||||||||
| Outstanding at end of period | 456,665 | $ | 122.67 | |||||||||||
| Exercisable at end of period | 410,816 | $ | 109.36 | |||||||||||
The following table summarizes information about SARs outstanding as of July 2, 2022:
| Outstanding | Exercisable | ||||||||||
| Aggregate intrinsic value (in millions) | $ | 81 | $ | 78 | |||||||
| Weighted-average remaining contractual life (in years) | 3.1 | 3.0 | |||||||||
The intrinsic value of SARs exercised during the six months ended July 2, 2022 and July 3, 2021 was $6 million and $38 million, respectively. The total fair value of SARs vested during the six months ended July 2, 2022 and July 3, 2021 was $3 million and $5 million, respectively.
Reflexis Replacement Options
In connection with the Company’s September 2020 acquisition of Reflexis, the Company assumed the 2016 Stock Incentive Plan of Reflexis Systems, Inc. (the “Reflexis Plan”) and replaced certain unvested options under the Reflexis Plan with Zebra incentive stock options (“Reflexis Replacement Options”). Upon exercise of Reflexis Replacement Options, the Company receives cash proceeds equal to the exercise price and issues whole shares of Class A Common Stock to participants.
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As of July 2, 2022, there were 19,540 outstanding Reflexis Replacement Options, of which 17,132 were exercisable. The outstanding awards have a weighted average exercise price and remaining contractual life of $57.69 and 5.9 years, respectively. The awards that are exercisable have a weighted average exercise price and remaining contractual life of $55.47 and 5.7 years, respectively. The intrinsic value of Reflexis Replacement Options exercised was $2 million each during the six months ended July 2, 2022 and July 3, 2021. The total fair value of Reflexis Replacement Options vested during the six months ended July 2, 2022 and July 3, 2021 was $1 million and $3 million, respectively.
Cash-settled awards
The Company also has cash-settled share-based compensation awards, including cash-settled stock appreciation rights, cash-settled restricted stock units and cash-settled performance stock units that are classified as liability awards. These awards are expensed over the vesting period of the related award, which is typically three years. Compensation cost is calculated at the fair value on grant date multiplied by the number of share-equivalents granted. The fair value is remeasured at the end of each reporting period based on the Company’s stock price, with remeasurements reflected as an adjustment to compensation expense in the Consolidated Statements of Operations. Cash settlement is based on the fair value of share equivalents at the time of vesting, which was $4 million and $9 million for the six months ended July 2, 2022 and July 3, 2021, respectively. Share-equivalents issued under these programs totaled 64,056 and 9,262 during the six months ended July 2, 2022 and July 3, 2021, respectively.
In connection with the acquisition of Matrox, the Company granted $13 million of cash-settled RSUs to certain employees, which are attributable to service to be rendered subsequent to the acquisition and will generally be expensed over a 3-year service period.
Employee Stock Purchase Plan
In May 2020, the Company’s stockholders approved the Zebra Technologies Corporation 2020 Employee Stock Purchase Plan (“2020 ESPP”), which superseded the 2011 Employee Stock Purchase Plan (“2011 ESPP”) and became effective on July 1, 2020. Like the 2011 ESPP, the 2020 ESPP permits eligible employees to purchase common stock at 95% of the fair market value at the date of purchase. Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under the 2020 ESPP is 1,500,000 shares. As of July 2, 2022, 1,421,112 shares remained available for future purchase.
Note 14 Income Taxes
The Company’s effective tax rate for the three and six months ended July 2, 2022 was 35.9% and (10.3)%, respectively, compared to 8.0% and 13.0%, three and six respectively, for the comparable periods ended July 3, 2021. In the current period, the variance from the 21% federal statutory rate was primarily attributable to a discrete tax benefit resulting from the Settlement and related costs recorded in the quarter, lower tax rates on foreign earnings, and U.S. tax credits. In the prior period, the variance from the 21% federal statutory rate was primarily attributable to share-based compensation deductions, lower tax rates on foreign earnings and U.S. tax credits.
The Company evaluated the provisions of the American Rescue Plan Act, signed into law on March 11, 2021; the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020; and the Coronavirus Aid, Relief and Economic Security Act, signed into law on March 27, 2020. The provisions of these laws did not have a significant impact to our effective tax rate in either the current or prior year. Management continues to monitor guidance regarding these laws and developments 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 that is taxed at rates different than the U.S. federal statutory rate. The Company’s principal foreign jurisdictions that provide sources of operating income are the U.K. and Singapore. The Company has received an incentivized tax rate from the Singapore Economic Development Board, which reduces the income tax rate in that jurisdiction effective for calendar years 2019 to 2023. The Company has committed to making additional investments in Singapore over the period 2019 to 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. The Company is subject to U.S. income tax on substantially all foreign earnings under Global Intangible Low-Taxed Income, while any remaining foreign earnings are eligible for a dividends received deduction. As a result, future repatriation of earnings will not be subject to additional U.S. federal income tax but may be subject to currency translation gains or losses. Where required, the Company has recorded a deferred tax liability for foreign withholding taxes on current earnings. Additionally, gains and losses on any future taxable dispositions of U.S.-owned foreign affiliates continue to be subject to U.S. income tax.
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
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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 six months ended July 2, 2022.
Uncertain Tax Positions
The Company is currently undergoing U.S. federal income tax audits for tax years 2017 and 2018. Additionally, fiscal years 2009 through 2022 remain open to examination by multiple foreign and U.S. state taxing jurisdictions. As of July 2, 2022, no significant uncertain tax positions are expected to be settled within the next twelve months. Due to uncertainties in any tax audit or litigation outcome, the Company’s estimates of the ultimate settlements of uncertain tax positions may change and the actual tax benefits may differ significantly from estimates.
Note 15 (Loss) Earnings Per Share
Basic net (loss) earnings per share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding for the period. Diluted (loss) earnings per share is computed by dividing net (loss) 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 share-based compensation awards were converted into common shares during the period.
(Loss) earnings per share (in millions, except share data):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | ||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Net (loss) income | $ | (98) | $ | 219 | $ | 107 | $ | 447 | |||||||||||||||
Weighted-average shares outstanding (1) | 52,138,470 | 53,449,143 | 52,642,348 | 53,460,495 | |||||||||||||||||||
| Basic (loss) earnings per share | $ | (1.87) | $ | 4.10 | $ | 2.04 | $ | 8.36 | |||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Net (loss) income | $ | (98) | $ | 219 | $ | 107 | $ | 447 | |||||||||||||||
Weighted-average shares outstanding (1) | 52,138,470 | 53,449,143 | 52,642,348 | 53,460,495 | |||||||||||||||||||
Dilutive shares (2) | — | 459,152 | 391,381 | 469,608 | |||||||||||||||||||
| Diluted weighted-average shares outstanding | 52,138,470 | 53,908,295 | 53,033,729 | 53,930,103 | |||||||||||||||||||
| Diluted (loss) earnings per share | $ | (1.87) | $ | 4.07 | $ | 2.02 | $ | 8.29 | |||||||||||||||
(1) In periods of a net loss, restricted stock and performance share awards, which are participating securities, are excluded from weighted-average shares outstanding.
(2) In periods of net loss, all unvested share-based awards were anti-dilutive and therefore excluded from diluted shares.
Anti-dilutive share-based compensation awards are excluded from diluted earnings per share calculations. There were 630,182 and 335,476 shares that were anti-dilutive for the three and six months ended July 2, 2022, respectively. No shares were anti-dilutive for the three and six months ended and July 3, 2021.
Note 16 Accumulated Other Comprehensive Income (Loss)
Stockholders’ equity includes certain items classified as AOCI, including:
•Unrealized gain (loss) on anticipated sales hedging transactions relates to derivative instruments used to hedge the exposure related to currency exchange rates for forecasted Euro sales. These hedges are designated as cash flow hedges, and the Company defers income statement recognition of gains and losses until the hedged transaction occurs. See Note 9, Derivative Instruments for more details.
•Foreign currency translation adjustments relate to the Company’s non-U.S. subsidiary companies that have designated a functional currency other than the U.S. Dollar. The Company is required to translate the subsidiary functional currency financial statements to U.S. Dollars using a combination of historical, period end, and average
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foreign exchange rates. This combination of rates creates the foreign currency translation adjustment component of AOCI.
The components of AOCI for the six months ended July 2, 2022 and July 3, 2021 are as follows (in millions):
| Unrealized gain (loss) on sales hedging | Foreign currency translation adjustments | Total | ||||||||||||||||||
| Balance at December 31, 2020 | $ | (28) | $ | (41) | $ | (69) | ||||||||||||||
| Other comprehensive income (loss) before reclassifications | 23 | (3) | 20 | |||||||||||||||||
Amounts reclassified from AOCI(1) | 20 | — | 20 | |||||||||||||||||
| Tax effect | (9) | — | (9) | |||||||||||||||||
| Other comprehensive income (loss), net of tax | 34 | (3) | 31 | |||||||||||||||||
| Balance at July 3, 2021 | $ | 6 | $ | (44) | $ | (38) | ||||||||||||||
| Balance at December 31, 2021 | $ | 18 | $ | (47) | $ | (29) | ||||||||||||||
| Other comprehensive income (loss) before reclassifications | 57 | (11) | 46 | |||||||||||||||||
Amounts reclassified from AOCI(1) | (43) | — | (43) | |||||||||||||||||
| Tax effect | (2) | — | (2) | |||||||||||||||||
| Other comprehensive income (loss), net of tax | 12 | (11) | 1 | |||||||||||||||||
| Balance at July 2, 2022 | $ | 30 | $ | (58) | $ | (28) | ||||||||||||||
(1) See Note 9, Derivative Instruments regarding timing of reclassifications to operating results.
Note 17 Accounts Receivable Factoring
The Company has Receivables Factoring arrangements, pursuant to which certain receivables are sold to banks without recourse in exchange for cash. Transactions under the Receivables Factoring arrangements are accounted for as sales under ASC 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under these Receivables Factoring arrangements, the Company does not maintain any beneficial interest in the receivables sold. The banks’ purchase of eligible receivables is subject to a maximum amount of uncollected receivables. The Company services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Net cash provided by operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Net cash used in financing activities on the Consolidated Statements of Cash Flows.
The Company currently has two active Receivables Factoring arrangements. One arrangement allows for the factoring of up to $25 million of uncollected receivables originated from the Europe, Middle East, and Africa (“EMEA”) region. The second arrangement allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions. With respect to the second arrangement, the Company may be required to maintain a portion of sales proceeds as deposits in a restricted cash account that is released to the Company as it satisfies its obligations as servicer of sold receivables, which totaled $0 million and $12 million as of July 2, 2022 and December 31, 2021, respectively, and is classified within Prepaid expenses and other current assets on the Consolidated Balance Sheets.
During the six months ended July 2, 2022 and July 3, 2021, the Company received cash proceeds of $765 million and $814 million, respectively, from the sales of accounts receivables under its factoring arrangements. As of July 2, 2022 and December 31, 2021, there were a total of $64 million and $24 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.
As servicer of sold receivables, the Company had $113 million and $141 million of obligations that were not yet remitted to banks as of July 2, 2022 and December 31, 2021, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash used in financing activities on the Consolidated Statements of Cash Flows.
Fees incurred in connection with these arrangements were not significant.
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Note 18 Segment Information & Geographic Data
The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”). The reportable segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker or “CODM”) to assess segment performance and allocate resources among the Company’s segments. The CODM reviews adjusted operating income to assess segment profitability. To the extent applicable, segment operating income excludes business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, as well as certain other non-recurring costs (such as the Settlement and related costs in the current year). Segment assets are not reviewed by the Company’s CODM and therefore are not disclosed below.
Effective January 1, 2022, the location solutions offering, which provides a range of RTLS and services that generate on-demand information about the physical location and status of assets, equipment, and people, moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change did not have an impact to the Consolidated Financial Statements.
Financial information by segment is presented as follows (in millions):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| AIT | $ | 446 | $ | 414 | $ | 840 | $ | 843 | |||||||||||||||
| EVM | 1,022 | 966 | 2,060 | 1,887 | |||||||||||||||||||
| Total segment Net sales | 1,468 | 1,380 | 2,900 | 2,730 | |||||||||||||||||||
Corporate, eliminations(1) | — | (3) | — | (6) | |||||||||||||||||||
| Total Net sales | $ | 1,468 | $ | 1,377 | $ | 2,900 | $ | 2,724 | |||||||||||||||
| Operating income: | |||||||||||||||||||||||
AIT(2) | $ | 97 | $ | 100 | $ | 157 | $ | 211 | |||||||||||||||
EVM(2) | 181 | 180 | 370 | 371 | |||||||||||||||||||
| Total segment operating income | 278 | 280 | 527 | 582 | |||||||||||||||||||
Corporate eliminations(1) | (423) | (33) | (460) | (63) | |||||||||||||||||||
| Total Operating (loss) income | $ | (145) | $ | 247 | $ | 67 | $ | 519 | |||||||||||||||
(1)To the extent applicable, amounts included in Corporate eliminations consist of business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, as well as certain other non-recurring costs (such as the Settlement and related costs in the current year).
(2)AIT and EVM segment operating income includes depreciation and share-based compensation expense. The amounts of depreciation and share-based compensation expense 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 tables. Net sales amounts are attributed to geographic area based on customer location. We manage our business based on regions rather than by individual countries.
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Geographic data for Net sales is as follows (in millions):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | July 2, 2022 | July 3, 2021 | ||||||||||||||||||||
| North America | $ | 714 | $ | 707 | $ | 1,413 | $ | 1,380 | |||||||||||||||
| EMEA | 521 | 464 | 1,021 | 954 | |||||||||||||||||||
| Asia-Pacific | 152 | 137 | 301 | 257 | |||||||||||||||||||
| Latin America | 81 | 69 | 165 | 133 | |||||||||||||||||||
| Total Net sales | $ | 1,468 | $ | 1,377 | $ | 2,900 | $ | 2,724 | |||||||||||||||
| 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 software subscriptions, that capture and move 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; fixed industrial scanning and machine vision; real-time location systems (“RTLS”); related accessories and supplies, such as self-adhesive labels and other consumables; and related software applications. We also provide a full range of services, including maintenance, technical support, repair, managed and professional services, as well as various workflow optimization solutions, including cloud-based software subscriptions and robotic automation solutions. End-users of our products, solutions and services include those in the retail and e-commerce, manufacturing, transportation and logistics, healthcare, public sector, and other industries within the following regions: North America; Europe, Middle East, and Africa (“EMEA”); Asia-Pacific; and Latin America.
Our customers have traditionally benefited from proven solutions that increase productivity and improve asset efficiency and utilization. The Company is poised to drive, and capitalize on, the evolution of the data capture industry into the broader EAI industry, supported by technology trends including the Internet of Things (“IoT”), ubiquitous mobility, automation, cloud computing, and 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 that provide complementary offerings to our customers: 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, including temperature-monitoring labels, and services.
•The EVM segment is an industry leader in automatic information and data capture solutions. Its major product lines include mobile computing, data capture, location solutions, RFID, fixed industrial scanning and machine vision, services, and workflow optimization solutions. Our workflow optimization solutions include cloud-based software subscriptions, retail solutions, and robotic automation solutions.
In the first quarter of 2022, the location solutions offering, which provides a range of RTLS and services that generate on-demand information about the physical location and status of high-valued assets, equipment, and people, moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change did not have an impact to the Consolidated Financial Statements.
Recent Developments
Share Repurchase
On May 17, 2022, the Company announced that its Board of Directors authorized an incremental $1 billion share repurchase program of its outstanding shares of common stock. This authorization augments the previous $1 billion share repurchase authorization which was announced in July 2019.
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Debt Refinancing
On May 26, 2022, the Company announced that it amended its long-term credit facilities which increased its borrowing under Term Loan A from $875 million to $1.75 billion and also its borrowing capacity under the Revolving Credit Facility from $1 billion to $1.5 billion. As part of the refinancing, the Company extended the maturities of its long-term credit facilities to May 25, 2027 and replaced LIBOR with SOFR as the benchmark reference rate.
Matrox Acquisition
On June 3, 2022, the Company acquired Matrox Electronic Systems, Ltd. (“Matrox”) for $878 million. The Company’s total purchase consideration comprised of $875 million in cash paid at closing, net of Matrox’s cash on-hand and an additional $3 million of cash that will be paid in the third quarter of 2022. Matrox is a leading provider of advanced machine vision components and software serving a number of end-markets. Through its acquisition of Matrox, the Company intends to expand its machine vision products and software offerings. The operating results of Matrox are included in the EVM segment.
License and Settlement Agreement
On June 30, 2022, the Company announced it entered into a License and Settlement Agreement (“Settlement”) resulting in a $372 million pre-tax charge, inclusive of $12 million of external legal fees, within Operating expenses on the Consolidated Statement of Operations. Under the Settlement, Zebra will pay $360 million to the counterparty in eight quarterly payments of $45 million beginning in the current quarter. See Item 1, Legal Proceedings for additional information.
Russia and Ukraine War
On March 5, 2022, we announced the suspension of our business operations in Russia. Neither Russia nor Ukraine comprises a material portion of our business, and therefore, the war thus far has not had a significant effect on our results of operations. Additionally, the war has not significantly affected our ability to source supplies or deliver our products and services to our customers in the surrounding EMEA region. We continue to closely monitor this for potential significant adverse impacts on our business.
COVID-19 Outbreak
The global coronavirus (“COVID-19”) pandemic continues to evolve. Governmental agencies, to varying degrees, have imposed, and continue to impose, several protocols and regulations restricting activities of individuals in an effort to limit the spread of COVID-19 when rates of infection rise, with some relaxation of these measures when infections rates are relatively low. 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 high risk times and gradually returning to offices as restrictions are lifted when risks decrease, limiting employee travel, and implementing more strenuous health and safety measures for hosting and attending in-person industry events. 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. As governments have eased their restrictions, our employees continue to return to our offices, with modified business practices, consistent with government regulations and current medical guidance.
While customer demand has remained strong, the limited availability of certain product components has resulted in lengthened lead times and higher input costs, including freight, and in some cases, has impacted our ability to meet customer demand. The Company expects input costs to remain elevated for some period of time, which we believe will be partially mitigated through higher pricing where permitted by market conditions. The limited availability of certain component parts may continue to negatively impact our ability to meet forecasted customer demand. The Company’s 2021 sales and profitability, particularly in the first half of the year, benefited from pent-up demand from customers who we believe had previously delayed purchases due to the pandemic, as well as the resulting acceleration of the underlying trend to digitize and automate workflows.
Other Acquisitions
Antuit.ai: On October 7, 2021, the Company acquired Antuit Holdings Pte. Ltd. (“Antuit”) for $145 million in cash, net of cash acquired. Antuit is a provider of demand-sensing and pricing optimization software solutions for retail and consumer products companies. Through this acquisition, the Company expands its portfolio of software solution offerings to customers in these industries by combining Antuit’s platform with its existing software solutions and EVM products. The operating results of Antuit are included in the EVM segment.
Fetch: On August 9, 2021, the Company acquired Fetch Robotics, Inc. (“Fetch”) for total purchase consideration of $301 million, which consisted of $290 million in cash paid, net of cash acquired, and the fair value of the Company’s existing minority ownership interest in Fetch of $11 million, as remeasured upon acquisition. Fetch is a provider of autonomous mobile robot solutions for customers who operate in the manufacturing, distribution, and fulfillment industries, enabling customers to
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optimize workflows through robotic automation. Through this acquisition, the Company intends to expand its automation solution offerings within these industries. The operating results of Fetch are included within the EVM segment.
Adaptive Vision: On May 17, 2021, the Company acquired Adaptive Vision Sp. z o.o. (“Adaptive Vision”) for $18 million in cash, net of cash acquired. Adaptive Vision is 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 operating results of Adaptive Vision are included within the EVM segment.
Results of Operations
Consolidated Results of Operations
(amounts in millions, except percentages)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | $ Change | % Change | July 2, 2022 | July 3, 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Tangible products | $ | 1,259 | $ | 1,192 | $ | 67 | 5.6 | % | $ | 2,466 | $ | 2,345 | $ | 121 | 5.2 | % | |||||||||||||||||||||||||||||||
| Services and software | 209 | 185 | 24 | 13.0 | % | 434 | 379 | 55 | 14.5 | % | |||||||||||||||||||||||||||||||||||||
| Total Net sales | 1,468 | 1,377 | 91 | 6.6 | % | 2,900 | 2,724 | 176 | 6.5 | % | |||||||||||||||||||||||||||||||||||||
| Gross profit | 674 | 658 | 16 | 2.4 | % | 1,311 | 1,313 | (2) | (0.2) | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | 45.9 | % | 47.8 | % | (190) bps | 45.2 | % | 48.2 | % | (300) bps | |||||||||||||||||||||||||||||||||||||
| Operating expenses | 819 | 411 | 408 | 99.3 | % | 1,244 | 794 | 450 | 56.7 | % | |||||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (145) | $ | 247 | $ | (392) | (158.7) | % | $ | 67 | $ | 519 | $ | (452) | (87.1) | % | |||||||||||||||||||||||||||||||
Net sales to customers by geographic region were as follows (amounts in millions, except percentages):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | $ Change | % Change | July 2, 2022 | July 3, 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| North America | $ | 714 | $ | 707 | $ | 7 | 1.0 | % | $ | 1,413 | $ | 1,380 | $ | 33 | 2.4 | % | |||||||||||||||||||||||||||||||
| EMEA | 521 | 464 | 57 | 12.3 | % | 1,021 | 954 | 67 | 7.0 | % | |||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 152 | 137 | 15 | 10.9 | % | 301 | 257 | 44 | 17.1 | % | |||||||||||||||||||||||||||||||||||||
| Latin America | 81 | 69 | 12 | 17.4 | % | 165 | 133 | 32 | 24.1 | % | |||||||||||||||||||||||||||||||||||||
| Total Net sales | $ | 1,468 | $ | 1,377 | $ | 91 | 6.6 | % | $ | 2,900 | $ | 2,724 | $ | 176 | 6.5 | % | |||||||||||||||||||||||||||||||
Operating expenses are summarized below (amounts in millions, except percentages):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | As a % of Net sales | July 2, 2022 | July 3, 2021 | As a % of Net sales | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Selling and marketing | $ | 151 | $ | 148 | 10.3 | % | 10.7 | % | $ | 303 | $ | 282 | 10.4 | % | 10.4 | % | |||||||||||||||||||||||||||||||
| Research and development | 148 | 141 | 10.1 | % | 10.2 | % | 285 | 281 | 9.8 | % | 10.3 | % | |||||||||||||||||||||||||||||||||||
| General and administrative | 97 | 92 | 6.6 | % | 6.7 | % | 196 | 174 | 6.8 | % | 6.4 | % | |||||||||||||||||||||||||||||||||||
| Settlement and related costs | 372 | — | NM | NM | 372 | — | NM | NM | |||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 35 | 26 | NM | NM | 68 | 52 | NM | NM | |||||||||||||||||||||||||||||||||||||||
| Acquisition and integration costs | 14 | 4 | NM | NM | 18 | 5 | NM | NM | |||||||||||||||||||||||||||||||||||||||
| Exit and restructuring costs | 2 | — | NM | NM | 2 | — | NM | NM | |||||||||||||||||||||||||||||||||||||||
| Total Operating expenses | $ | 819 | $ | 411 | 55.8 | % | 29.8 | % | $ | 1,244 | $ | 794 | 42.9 | % | 29.1 | % | |||||||||||||||||||||||||||||||
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Consolidated Organic Net sales growth:
| Three Months Ended | Six Months Ended | ||||||||||
| July 2, 2022 | July 2, 2022 | ||||||||||
| Reported GAAP Consolidated Net sales growth | 6.6 | % | 6.5 | % | |||||||
| Adjustments: | |||||||||||
Impact of foreign currency translation (1) | 2.0 | % | 0.8 | % | |||||||
Impact of acquisitions (2) | (1.7) | % | (1.2) | % | |||||||
Consolidated Organic Net sales growth (3) | 6.9 | % | 6.1 | % | |||||||
(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 the acquisitions of Adaptive Vision, Fetch, Antuit and Matrox are excluded for twelve months following their respective 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.
Second quarter 2022 compared to second quarter 2021
Total Net sales increased $91 million or 6.6% compared to the prior year as our customers continue to digitize and automate their workflows. Net sales grew across both of our segments and all of our regions. Current year Net sales included the negative effects of supply constraints, which were particularly pronounced in EVM. Prior year Net sales of both segments benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the effects of currency changes and acquisitions, the increase in Consolidated Organic Net sales was 6.9%.
Gross margin decreased to 45.9% for the current quarter compared to 47.8% for the prior year. Gross margins were lower in both of our segments primarily due to higher premium freight and component part costs, as well as the negative impact of foreign currency changes, which were partially offset by favorable business mix and higher support service margins. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating expenses for the quarters ended July 2, 2022 and July 3, 2021 were $819 million and $411 million, or 55.8% and 29.8% of Net sales, respectively. Excluding the Settlement charge, Operating expenses were 30.4% of Net Sales for the quarter ended July 2, 2022. The increase in Operating expenses over the prior quarter, excluding the Settlement charge in the current quarter, was primarily due to the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses, increased Acquisition and integration costs as well as increased employee travel as in-person activities continued to resume. These increases were partially offset by lower employee incentive-based compensation.
Operating income decreased 158.7% to a $145 million loss for the current quarter compared to $247 million income for the prior year. The decrease was due to higher Operating expenses, partially offset by higher Gross profit.
Net income decreased 144.7% compared to the prior year due to lower Operating income, which was partially offset by favorability in Income tax (benefit) expense, and Other income, net as follows:
•Other income, net was an expense of $8 million in the current year compared to an expense of $9 million in the prior year primarily due to lower interest expense in the current year. The current year interest expense benefited from an $11 million gain on interest rate swaps compared to a $3 million loss in the prior year, which was partially offset by higher interest rates and average outstanding debt levels.
•The Company’s effective income tax rate for the three months ended July 2, 2022 and July 3, 2021 was 35.9% and 8.0%, respectively. The increase in the effective tax rate was primarily due to the discrete tax benefit recorded in the current quarter related to the Settlement.
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Diluted earnings per share decreased to $(1.87) as compared to $4.07 in the prior year primarily due to lower Net income, partially offset by lower average shares outstanding.
Year to date 2022 compared to Year to date 2021
Total Net sales increased $176 million or 6.5% compared to the prior year as our customers continue to digitize and automate their workflows. EVM Net sales growth was partially offset by a decline in AIT Net sales. Current year Net sales of both segments included the negative effects of supply constraints, which were most pronounced in AIT during the first quarter and EVM in the second quarter. Prior year Net sales of both segments benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the effects of acquisitions and currency changes, the increase in Consolidated Organic Net sales was 6.1%.
Gross margin decreased to 45.2% for the current period compared to 48.2% for the prior year. Gross margins were lower in both of our segments primarily due to higher premium freight and component part costs, as well as unfavorable business mix, which were partially offset by higher support service margins. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating expenses for the period ended July 2, 2022 and July 3, 2021 were $1,244 million and $794 million, or 42.9% and 29.1% of Net sales, respectively. Excluding the Settlement charge, Operating expenses were 30.1% of Net Sales for the period ended July 2, 2022. The increase in Operating expenses over the prior year, excluding the Settlement charge in the current period, was primarily due to the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses, increased Acquisition and integration costs, as well as increased employee travel as in-person activities resumed. These increases were partially offset by lower employee incentive-based compensation.
Operating income decreased 87.1% to $67 million for the current year compared to $519 million for the prior year. The decrease was due to higher Operating expenses and lower Gross Profit.
Net income decreased 76.1% compared to the prior year due to lower Operating income, which was partially offset by favorability in Income tax (benefit) expense, and Other income, net as follows:
•Other income, net was income of $30 million in the current year compared to an expense of $5 million in the prior year primarily due to higher interest income and foreign exchange gains in the current year. The current year interest income benefited from a $45 million gain on interest rate swaps compared to a $5 million gain in the prior year, which was partially offset by higher interest rates and average outstanding debt levels.
•The Company’s effective income tax rate for the six months ended July 2, 2022 and July 3, 2021 was (10.3)% and 13.0%, respectively. The decrease in the effective tax rate was primarily due to the discrete tax benefit recorded in the second quarter related to the Settlement.
Diluted earnings per share decreased to $2.02 as compared to $8.29 in the prior year primarily due to lower Net income, partially offset by lower average diluted shares outstanding.
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 18, 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, and exit and restructuring costs, as well as certain other non-recurring costs (such as the Settlement and related costs in the current year).
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Asset Intelligence & Tracking Segment (“AIT”)
(in millions, except percentages)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | $ Change | % Change | July 2, 2022 | July 3, 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Tangible products | $ | 422 | $ | 390 | $ | 32 | 8.2 | % | $ | 792 | $ | 797 | $ | (5) | (0.6) | % | |||||||||||||||||||||||||||||||
| Services and software | 24 | 24 | — | — | % | 48 | 46 | 2 | 4.3 | % | |||||||||||||||||||||||||||||||||||||
| Total Net sales | 446 | 414 | 32 | 7.7 | % | 840 | 843 | (3) | (0.4) | % | |||||||||||||||||||||||||||||||||||||
| Gross profit | 195 | 199 | (4) | (2.0) | % | 349 | 406 | (57) | (14.0) | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | 43.7 | % | 48.1 | % | (440) bps | 41.5 | % | 48.2 | % | (670) bps | |||||||||||||||||||||||||||||||||||||
| Operating expenses | 98 | 99 | (1) | (1.0) | % | 192 | 195 | (3) | (1.5) | % | |||||||||||||||||||||||||||||||||||||
| Operating income | $ | 97 | $ | 100 | $ | (3) | (3.0) | % | $ | 157 | $ | 211 | $ | (54) | (25.6) | % | |||||||||||||||||||||||||||||||
AIT Organic Net sales growth:
| Three Months Ended | Six Months Ended | ||||||||||
| July 2, 2022 | July 2, 2022 | ||||||||||
| AIT Reported GAAP Net sales growth | 7.7 | % | (0.4) | % | |||||||
| Adjustments: | |||||||||||
Impact of foreign currency translation (1) | 2.0 | % | 1.1 | % | |||||||
AIT Organic Net sales growth (2) | 9.7 | % | 0.7 | % | |||||||
(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)AIT Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.
Second quarter 2022 compared to second quarter 2021
Total Net sales for AIT increased $32 million or 7.7% compared to the prior year primarily due to higher sales of printing products (contributing the vast majority of the total increase) and supplies. Prior year Net sales benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the impact of foreign currency changes, AIT Organic Net sales increased 9.7%.
Gross margin decreased to 43.7% for the current quarter compared to 48.1% for the prior year primarily due to higher premium freight and component part costs, unfavorable business mix, and the negative impact of foreign currency changes, which were partially offset by the favorable effects of volume leverage. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating income decreased 3.0% in the current quarter compared to the prior year period due to lower Gross profit.
Year to date 2022 compared to Year to date 2021
Total Net sales for AIT decreased $3 million or 0.4% compared to the prior year primarily due to lower sales of printing products, which were partially offset by higher sales of supplies and support services. Current year Net sales included the negative effects of supply constraints, particularly in the first quarter, while prior year Net sales benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the impact of foreign currency changes, AIT Organic Net sales increased 0.7%.
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Gross margin decreased to 41.5% for the current period compared to 48.2% for the prior year primarily due to higher premium freight and component part costs, as well as unfavorable business mix. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating income decreased 25.6% in the current quarter compared to the prior year period. The decrease was primarily due to lower Gross profit.
Enterprise Visibility & Mobility Segment (“EVM”)
(in millions, except percentages)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | $ Change | % Change | July 2, 2022 | July 3, 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||||||||||||||
| Tangible products | $ | 837 | $ | 802 | $ | 35 | 4.4 | % | $ | 1,674 | $ | 1,548 | $ | 126 | 8.1 | % | |||||||||||||||||||||||||||||||
| Services and software | 185 | 164 | 21 | 12.8 | % | 386 | 339 | 47 | 13.9 | % | |||||||||||||||||||||||||||||||||||||
| Total Net sales | 1,022 | 966 | 56 | 5.8 | % | 2,060 | 1,887 | 173 | 9.2 | % | |||||||||||||||||||||||||||||||||||||
| Gross profit | 479 | 462 | 17 | 3.7 | % | 962 | 913 | 49 | 5.4 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | 46.9 | % | 47.8 | % | (90) bps | 46.7 | % | 48.4 | % | (170) bps | |||||||||||||||||||||||||||||||||||||
| Operating expenses | 298 | 282 | 16 | 5.7 | % | 592 | 542 | 50 | 9.2 | % | |||||||||||||||||||||||||||||||||||||
| Operating income | $ | 181 | $ | 180 | $ | 1 | 0.6 | % | $ | 370 | $ | 371 | $ | (1) | (0.3) | % | |||||||||||||||||||||||||||||||
EVM Organic Net sales growth:
| Three Months Ended | Six Months Ended | ||||||||||
| July 2, 2022 | July 2, 2022 | ||||||||||
| EVM Reported GAAP Net sales growth | 5.8 | % | 9.2 | % | |||||||
| Adjustments: | |||||||||||
Impact of foreign currency translation (1) | 1.8 | % | 1.0 | % | |||||||
Impact of acquisitions (2) | (2.0) | % | (1.6) | % | |||||||
EVM Organic Net sales growth (3) | 5.6 | % | 8.6 | % | |||||||
(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 EVM Organic Net sales growth, amounts directly attributable to the acquisitions of Adaptive Vision, Fetch, Antuit, and Matrox are excluded for twelve months following their respective acquisitions.
(3)EVM Organic Net sales growth is a non-GAAP financial measure. See the Non-GAAP Measures section at the end of this item.
Second quarter 2022 compared to second quarter 2021
Total Net sales for EVM increased $56 million or 5.8% compared to the prior year primarily due to higher sales of mobile computing products, contributions from our recent acquisitions, and higher sales of data capture products and support services. Current year Net sales included the negative effects of supply constraints; while prior year Net sales benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the impacts of acquisitions and foreign currency changes, EVM Organic Net sales growth was 5.6%.
Gross margin decreased to 46.9% in the current quarter compared to 47.8% in the prior year primarily due to higher premium freight and component part costs, and the negative impact of foreign currency changes, which were partially offset by favorable
33
business mix and higher support service margins. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating income for the current quarter increased 0.6% compared to the prior year period. The increase was due to higher Gross profit, which was partially offset by higher Operating expenses.
Year to date 2022 compared to Year to date 2021
Total Net sales for EVM increased $173 million or 9.2% compared to the prior year primarily due to higher sales of mobile computing products (contributing the majority of the total increase), data capture products, contributions from our recent acquisitions, and higher sales of support services. Current year Net sales included the negative effects of supply constraints, particularly in the second quarter, while prior year Net sales benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic. Excluding the impacts of acquisitions and foreign currency changes, EVM Organic Net sales growth was 8.6%.
Gross margin decreased to 46.7% in the current period compared to 48.4% in the prior year primarily due to higher premium freight and component part costs, which were partially offset by higher support service margins. The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.
Operating income for the current quarter decreased 0.3% compared to the prior year period. The decrease was due to higher Gross profit, which was more than offset by higher Operating expenses.
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, acquisitions, and share repurchases. Management believes that our existing capital resources, inclusive of available borrowing capacity on debt and other financing facilities and funds generated from operations, are sufficient to meet anticipated capital requirements and service our indebtedness. The following table summarizes our cash flow activities for the periods indicated (in millions):
| Six Months Ended | |||||||||||||||||
| Cash flows provided by (used in): | July 2, 2022 | July 3, 2021 | $ Change | ||||||||||||||
| Operating activities | $ | 154 | $ | 539 | $ | (385) | |||||||||||
| Investing activities | (912) | (59) | (853) | ||||||||||||||
| Financing activities | 518 | (329) | 847 | ||||||||||||||
| Effect of exchange rates on cash balances | (6) | (4) | (2) | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents, including restricted cash | $ | (246) | $ | 147 | $ | (393) | |||||||||||
The change in our cash and cash equivalents balance during the six months ended July 2, 2022 compared to the prior year period is reflective of the following:
•The decrease in cash provided by operating activities compared to the prior year was primarily due to higher inventory levels reflecting the timing of purchases during the period, higher accounts receivable balances reflecting the timing of customer transactions within the period, higher incentive compensation and income tax payments, as well as the first quarterly payment associated with the Settlement in the current period. These items were partially offset by higher accounts payable, primarily associated with the timing of inventory purchases.
•Cash used in investing activities was higher than the prior year primarily due to cash paid for the acquisition of Matrox in the current period.
•The cash provided by financing activities during the year was primarily comprised of $1,175 net debt proceeds, which were partially offset by $605 million of common stock repurchases. Net cash used in financing activities in the prior year was primarily comprised of $264 million net debt repayments, $46 million net payments related to share-based compensation plans, and $25 million of common stock repurchases.
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Company Debt
The following table shows the carrying value of the Company’s debt (in millions):
| July 2, 2022 | December 31, 2021 | ||||||||||
| Term Loan A | $ | 1,750 | $ | 888 | |||||||
| Revolving Credit Facility | 235 | — | |||||||||
| Receivables Financing Facilities | 186 | 108 | |||||||||
| Total debt | $ | 2,171 | $ | 996 | |||||||
| Less: Debt issuance costs | (5) | (3) | |||||||||
| Less: Unamortized discounts | (5) | (2) | |||||||||
| Less: Current portion of debt | (144) | (69) | |||||||||
| Total long-term debt | $ | 2,017 | $ | 922 | |||||||
In May 2022, the Company refinanced its long-term credit facilities by entering into its third amendment to the Amended and Restated Credit Agreement (“Amendment No. 3”). Amendment No. 3 increased the Company’s borrowing under Term Loan A from $875 million to $1.75 billion and increased the Company’s borrowing capacity under the Revolving Credit Facility from $1 billion to $1.5 billion. Amendment No. 3 also extended the maturities of Term Loan A and the Revolving Credit Facility to May 25, 2027 and replaced LIBOR with SOFR as the benchmark reference rate.
This refinancing resulted in one-time charges of $2 million, which included certain third party fees and the accelerated amortization of previously deferred issuance costs. These items are included in Interest (expense) income, net on the Consolidated Statements of Operations. Additionally, $6 million of new issuance costs and fees were deferred and will be amortized over the remaining term of Term Loan A and the Revolving Credit Facility.
Term Loan A
The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in September 2022 and the majority due upon the May 25, 2027 maturity date. The Company may make prepayments, in whole or in part, without premium or penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of July 2, 2022, the Term Loan A interest rate was 3.10%. Interest payments are generally made monthly and are subject to variable rates plus an applicable margin.
Revolving Credit Facility
The Company has a Revolving Credit Facility that is available for working capital and other general business purposes, including letters of credit. As of July 2, 2022, the Company had letters of credit totaling $7 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1,500 million to $1,493 million. As of July 2, 2022, the Revolving Credit Facility had an average interest rate of 2.57%. Upon borrowing, interest payments are made monthly and are subject to variable rates plus an applicable margin. The Revolving Credit Facility matures on May 25, 2027.
Receivables Financing Facilities
The Company has two Receivables Financing Facilities with financial institutions that have a combined total borrowing limit of up to $280 million. As collateral, the Company pledges perfected first-priority security interests in its U.S. domestically originated accounts receivable. The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings. The Company’s first Receivables Financing Facility allows for borrowings of up to $180 million and matures on March 19, 2024. The Company’s second Receivable Financing Facility allows for borrowings of up to $100 million and matures on May 15, 2023.
As of July 2, 2022, the Company’s Consolidated Balance Sheets included $763 million of receivables that were pledged under the two Receivables Financing Facilities. As of July 2, 2022, $186 million had been borrowed, of which $100 million was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of July 2, 2022, the Receivables Financing Facilities had an average interest rate of 2.57%. Interest is paid on these borrowings on a monthly basis.
See Note 10, Long-Term Debt in the Notes to Consolidated Financial Statements for further details related to the Company’s debt instruments.
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Receivables Factoring
The Company currently has two Receivables Factoring arrangements, pursuant to which certain receivables are sold to banks without recourse in exchange for cash. One arrangement allows for the factoring of up to $25 million of uncollected receivables originated from the EMEA region. The second arrangement allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions. Transactions under the Receivables Factoring arrangements are accounted for as sales under Accounting Standards Codification 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet. Under these Receivables Factoring arrangements, the Company does not maintain any beneficial interest in the receivables sold. The banks’ purchase of eligible receivables is subject to a maximum amount of uncollected receivables. The Company services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Net cash provided by operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Net cash used in financing activities on the Consolidated Statements of Cash Flows.
As of July 2, 2022 and December 31, 2021, there were a total of $64 million and $24 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.
As servicer of sold receivables, the Company had $113 million and $141 million of obligations that were not yet remitted to banks as of July 2, 2022 and December 31, 2021, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash used in financing activities on the Consolidated Statements of Cash Flows.
See Note 17, Accounts Receivable Factoring in the Notes to Consolidated Financial Statements for further details.
Share Repurchases
On May 17, 2022, the Company announced that its Board of Directors authorized a share repurchase program for up to $1 billion of its outstanding shares of common stock. This authorization augments the previous $1 billion share repurchase authorization which was announced on July 30, 2019. The newly authorized share repurchase program does not have a stated expiration date. The level of the Company’s repurchases depends on a number of factors, including its financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors its management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. Repurchases may be 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 six months of 2022, the Company repurchased 1,493,144 shares of common stock for approximately $605 million. As of July 2, 2022, the Company has cumulatively repurchased 2,788,855 shares of common stock for approximately $908 million under the July 30, 2019 plan, resulting in a remaining amount of share repurchases authorized under the plan of approximately $92 million. As of July 2, 2022, the total remaining aggregate amount of share repurchases authorized under both plans is $1,092 million. Subsequent to the second quarter, the Company has repurchased 152,846 shares of common stock for approximately $47 million through July 29, 2022.
Significant Customers
The Company has three customers, who are distributors of the Company’s products, services 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:
| Six Months Ended | |||||||||||||||||||||||||||||||||||
| July 2, 2022 | July 3, 2021 | ||||||||||||||||||||||||||||||||||
| AIT | EVM | Total | AIT | EVM | Total | ||||||||||||||||||||||||||||||
| Significant customers as a % of Net sales | 15.7 | % | 29.9 | % | 45.6 | % | 17.5 | % | 34.2 | % | 51.7 | % | |||||||||||||||||||||||
These customers accounted for 53.0% of accounts receivable as of July 2, 2022. No other customer accounted for more than 10% of total Net sales during the periods ended July 2, 2022 and July 3, 2021. There was one additional distributor customer who accounted for more than 10% of total outstanding accounts receivables as of July 2, 2022.
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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 full year of 2022. These forward-looking statements are based on current expectations, forecasts and assumptions, and are subject to the risks and uncertainties inherent in the Company’s industry, market conditions, general domestic and international economic conditions, and other factors. These factors include:
•Market acceptance of the Company’s products, services and solution offerings and competitors’ offerings and the potential effects of emerging technologies and changes in customer requirements,
•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 changes in foreign exchange rates, customs duties and trade policies 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 as well as our ability to provide services and software to meet customer demand, particularly in light of global economic conditions,
•The availability of credit and the volatility of capital markets, which may affect our suppliers, customers, and ourselves,
•Success of integrating acquisitions,
•Our ability to attract, retain, develop, and motivate key personnel,
•Interest rate and financial market conditions,
•Access to cash and cash equivalents held outside the U.S.,
•The effect of natural disasters, man-made disasters, public health issues (including pandemics), and cybersecurity incidents on our business,
•The impact of changes in foreign and domestic governmental policies, laws, or regulations,
•The outcome of litigation in which the Company may be involved, particularly litigation or claims related to infringement of third-party intellectual property rights, and
•The outcome of any future tax matters or tax law changes.
We encourage readers of this report to review 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.
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.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||
There were no material changes in the Company’s market risk during the quarter ended July 2, 2022. 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, 2021.
| 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 July 2, 2022. Based on this assessment and those criteria, our management believes that, as of July 2, 2022, our disclosure controls were effective.
Changes in Internal Controls over Financial Reporting
During the quarter ended July 2, 2022, 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
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Zebra have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings | ||||
Beginning in September 2021, Honeywell filed patent infringement lawsuits against Zebra in multiple jurisdictions, including the International Trade Commission and Federal District Court in the Western District of Texas in the United States, as well as foreign courts in the United Kingdom, Germany, Netherlands, and China. Honeywell made substantially similar allegations of patent infringement in all cases filed. The technology addressed in the various actions generally includes aspects of data capture, barcode reading, and scanning. The allegedly infringing Zebra products identified in the actions were described as barcode scanners, mobile computers with barcode scanning capabilities, scan engines, and components thereof. The remedies sought in these lawsuits included damages and injunctive relief. The same Zebra products and technology were implicated in all of the lawsuits. Zebra vigorously defended against these infringement allegations. In February 2022, Zebra filed patent infringement lawsuits against Honeywell in multiple jurisdictions, including the International Trade Commission and Federal District Court in the Eastern District of New York in the United States, as well as foreign courts in the United Kingdom, Germany and China. Zebra’s allegations against Honeywell in each case varied based on the underlying technology in the Zebra patent that is alleged to have been infringed by Honeywell. The technology addressed in the various actions includes scan engine functionality generally, distance scanning, power management and security. The Honeywell products that are accused of infringing Zebra’s patents in the various actions include scan engines and components thereof, barcode scanners, mobile computers, RFID printers and other wireless devices. The remedies sought in these lawsuits included damages and injunctive relief. In June 2022, the parties resolved their disputes and entered into a License and Settlement Agreement (“Settlement”). All pending matters between the parties were dismissed. The following are the relevant terms disclosed in Zebra’s Form 8-K filed on June 30, 2022: Under the Settlement, the Company and Honeywell each deny liability and agreed to a mutual general release from all past claims; entered into a covenant not to sue for patent infringement; agreed to a payment by the Company to Honeywell for past damages of $360 million which was charged in the Company’s second quarter results and will be paid in equal quarterly installments over eight quarters; and entered into a royalty-free cross-license with respect to each party’s existing patent portfolio for the lives of the licensed patents.
See Note 12, Accrued Liabilities, 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, 2021, and the factors identified under “Safe Harbor” 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, 2021, other than as described below.
The Company has substantial operations and sells a significant portion of our products, solutions and services outside of the U.S. and purchases important components, including final products, from suppliers located outside the U.S., many of whom with operations concentrated in China. Shipments to non-U.S. customers are expected to continue to account for a material portion of Net sales. We also expect to continue the use of third-party contract manufacturing services with non-U.S. production and assembly operations for our products.
Risks associated with operations, sales, and purchases outside the United States include:
•Fluctuating foreign currency rates could restrict sales, increase costs of purchasing, and affect collection of receivables outside of the U.S.;
•Volatility in foreign credit markets may affect the financial well-being of our customers and suppliers;
•Violations of anti-corruption laws, including the Foreign Corrupt Practices Act and the U.K. Bribery Act, could result in large fines and penalties;
•Adverse changes in, or uncertainty of, local business laws or practices, including the following:
•Imposition of burdensome tariffs, quotas, taxes, trade barriers, or capital flow restrictions;
•Restrictions on the export or import of technology may reduce or eliminate the ability to sell in, or purchase from, certain markets;
•Political and economic instability may reduce demand for our products or put our non-U.S. assets at risk;
•Limited intellectual property protection in certain countries may limit recourse against infringement on our products or may cause us to refrain from selling in certain geographic territories;
•Staffing may be difficult including higher than anticipated turnover;
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•A government-controlled exchange rate and limitations on the convertibility of currencies, including the Chinese Yuan;
•Transportation delays and customs related delays may affect production and distribution of our products;
•Geopolitical uncertainty or turmoil could negatively affect our operations or those of our customers or suppliers;
•Difficulty in effectively managing and overseeing operations that are distant and remote from corporate headquarters; and
•Integration and enforcement of laws varies significantly among jurisdictions and may change over time.
Further, the war between Russia and Ukraine and the global response to this war could have an adverse impact on our business and results of operations. On March 5, 2022, we suspended our business operations in Russia. While this suspension has not had, and is not expected to have, a material impact on our operating results, it is not possible to predict the broader or long-term consequences of the war between Russia and Ukraine, which may include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, cybersecurity conditions, currency exchange rates, financial markets and energy markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell and ship products, collect payments from and support customers in certain regions, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.
| 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 July 2, 2022:
| 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) | ||||||||||||||||||||||
| April 3, 2022 - April 30, 2022 | 274,166 | $ | 395.25 | 274,166 | $ | 284 | ||||||||||||||||||||
| May 1, 2022 - May 28, 2022 | 570,073 | 335.98 | 570,073 | 1,092 | ||||||||||||||||||||||
| May 29, 2022 - July 2, 2022 | — | — | — | 1,092 | ||||||||||||||||||||||
| Total | 844,239 | $ | 355.23 | 844,239 | $ | 1,092 | ||||||||||||||||||||
(1)On May 17, 2022, the Company announced that its Board of Directors authorized a share repurchase program for up to $1 billion of its outstanding shares of common stock. This authorization augments the previous $1 billion share repurchase authorization which was announced on July 30, 2019. Repurchases may be effected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. As of July 2, 2022, the Company has cumulatively repurchased 2,788,855 shares of common stock for approximately $908 million under the July 30, 2019 plan, resulting in a remaining amount of share repurchases authorized under the plan of approximately $92 million. As of July 2, 2022, the total remaining aggregate amount of share repurchases authorized under both plans is $1,092 million.
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| Item 6. | Exhibits | ||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 10.4 | |||||
| 10.5 | |||||
| 10.6 | |||||
| 10.7 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101 | The following financial information from Zebra Technologies Corporation Quarterly Report on Form 10-Q, for the quarter ended July 2, 2022, formatted in Inline XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because Inline XBRL tags are embedded in the iXBRL document. | ||||
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2022, 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: August 2, 2022 | By: | /s/ Anders Gustafsson | |||||||||
| Anders Gustafsson | |||||||||||
| Chief Executive Officer | |||||||||||
| Date: August 2, 2022 | By: | /s/ Nathan Winters | |||||||||
| Nathan Winters | |||||||||||
| Chief Financial Officer | |||||||||||
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