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.

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.

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.

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

						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.

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

See accompanying Notes to Consolidated Financial Statements.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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
Leases			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

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):

			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 three annual installments and stock-settled PSUs vesting at the end of the three-year period. Vesting for each participant is subject to restrictions, such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, stock-settled RSUs and stock-settled PSUs are converted into shares of Class A Common Stock that are released to participants.

Compensation cost for the Company’s stock-settled RSUs and stock-settled PSUs is expensed over each participant’s required service period. Compensation cost is calculated as the fair market value of the Company’s Class A Common Stock on the grant date multiplied by the number of units granted, net of estimated forfeitures. The fair value of PSUs also includes assumptions around achievement of certain Company-wide financial performance goals.

Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”)

Prior to 2021, the Company’s restricted stock grants consisted of time-vested RSAs and PSAs as part of the Company’s annual incentive program. These awards are considered participating securities. 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.

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.

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

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

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.

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.

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