Item 1. Consolidated Financial Statements

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

			September 30, 2023						December 31, 2022
			(Unaudited)
Assets
Current assets:
Cash and cash equivalents			$	61					$	105
Accounts receivable, net of allowances for doubtful accounts of $1 each as of September 30, 2023 and December 31, 2022			538						768
Inventories, net			848						860
Income tax receivable			43						26
Prepaid expenses and other current assets			162						124
Total Current assets			1,652						1,883
Property, plant and equipment, net			302						278
Right-of-use lease assets			165						156
Goodwill			3,893						3,899
Other intangibles, net			552						630
Deferred income taxes			438						407
Other long-term assets			329						276
Total Assets			$	7,331					$	7,529
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt			$	152					$	214
Accounts payable			433						811
Accrued liabilities			528						744
Deferred revenue			428						425
Income taxes payable			21						138
Total Current liabilities			1,562						2,332
Long-term debt			2,121						1,809
Long-term lease liabilities			150						139
Deferred income taxes			75						75
Long-term deferred revenue			318						333
Other long-term liabilities			92						108
Total Liabilities			4,318						4,796
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			599						561
Treasury stock at cost, 20,792,573 and 20,700,357 shares as of September 30, 2023 and December 31, 2022, respectively			(1,858)						(1,799)
Retained earnings			4,315						4,036
Accumulated other comprehensive loss			(44)						(66)
Total Stockholders’ Equity			3,013						2,733
Total Liabilities and Stockholders’ Equity			$	7,331					$	7,529

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												Nine Months Ended
			September 30, 2023						October 1, 2022						September 30, 2023						October 1, 2022
Net sales:
Tangible products			$	729					$	1,164					$	2,885					$	3,630
Services and software			227						214						690						648
Total Net sales			956						1,378						3,575						4,278
Cost of sales:
Tangible products			419						632						1,559						1,998
Services and software			110						118						341						341
Total Cost of sales			529						750						1,900						2,339
Gross profit			427						628						1,675						1,939
Operating expenses:
Selling and marketing			138						149						445						452
Research and development			127						143						403						428
General and administrative			88						92						256						288
Settlement and related costs			—						—						—						372
Amortization of intangible assets			26						39						78						107
Acquisition and integration costs			2						1						4						19
Exit and restructuring costs			58						2						82						4
Total Operating expenses			439						426						1,268						1,670
Operating (loss) income			(12)						202						407						269
Other income (loss), net:
Foreign exchange gain			6						—						2						5
Interest (expense) income, net			(16)						21						(69)						48
Other expense, net			(2)						(1)						(8)						(3)
Total Other (expense) income, net			(12)						20						(75)						50
(Loss) income before income tax			(24)						222						332						319
Income tax (benefit) expense			(9)						52						53						42
Net (loss) income			$	(15)					$	170					$	279					$	277
Basic (loss) earnings per share			$	(0.28)					$	3.28					$	5.44					$	5.29
Diluted (loss) earnings per share			$	(0.28)					$	3.26					$	5.40					$	5.25

See accompanying Notes to Consolidated Financial Statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

			Three Months Ended												Nine Months Ended
			September 30, 2023						October 1, 2022						September 30, 2023						October 1, 2022
Net (loss) income			$	(15)					$	170					$	279					$	277
Other comprehensive income (loss), net of tax:
Changes in unrealized gains on anticipated sales hedging transactions			23						(1)						24						11
Foreign currency translation adjustment			(7)						(5)						(2)						(16)
Comprehensive income			$	1					$	164					$	301					$	272

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, 2022						51,451,500						$	1					$	561					$	(1,799)					$	4,036					$	(66)					$	2,733
Issuances of treasury shares related to share-based compensation plans, net of forfeitures						29,784						—						5						—						—						—						5
Shares withheld to fund withholding tax obligations related to share-based compensation plans						(504)						—						—						—						—						—						—
Share-based compensation						—						—						18						—						—						—						18
Repurchase of common stock						(55,811)						—						—						(15)						—						—						(15)
Net income						—						—						—						—						150						—						150
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)						—						—						—						—						—						(3)						(3)
Foreign currency translation adjustment						—						—						—						—						—						3						3
Balance at April 1, 2023						51,424,969						$	1					$	584					$	(1,814)					$	4,186					$	(66)					$	2,891
Issuances of treasury shares related to share-based compensation plans, net of forfeitures						75,271						—						(6)						1						—						—						(5)
Shares withheld to fund withholding tax obligations related to share-based compensation plans						(28,795)						—						—						(9)						—						—						(9)
Share-based compensation						—						—						2						—						—						—						2
Repurchase of common stock						(138,508)						—						—						(37)						—						—						(37)
Net income						—						—						—						—						144						—						144
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)						—						—						—						—						—						4						4
Foreign currency translation adjustment						—						—						—						—						—						2						2
Balance at July 1, 2023						51,332,937						$	1					$	580					$	(1,859)					$	4,330					$	(60)					$	2,992
Issuances of treasury shares related to share-based compensation plans, net of forfeitures						26,506						—						—						1						—						—						1
Shares withheld to fund withholding tax obligations related to share-based compensation plans						(159)						—						—						—						—						—						—
Share-based compensation						—						—						19						—						—						—						19
Net loss						—						—						—						—						(15)						—						(15)
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)						—						—						—						—						—						23						23
Foreign currency translation adjustment						—						—						—						—						—						(7)						(7)
Balance at September 30, 2023						51,359,284						$	1					$	599					$	(1,858)					$	4,315					$	(44)					$	3,013

						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
Repurchase 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
Repurchase 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
Issuances of treasury shares related to share-based compensation plans, net of forfeitures						20,587						—						2						—						—						—						2
Shares withheld to fund withholding tax obligations related to share-based compensation plans						(159)						—						—						—						—						—						—
Share-based compensation						—						—						28						—						—						—						28
Repurchase of common stock						(159,763)						—						—						(50)						—						—						(50)
Net income						—						—						—						—						170						—						170
Changes in unrealized gains and losses on anticipated sales hedging transactions (net of income taxes)						—						—						—						—						—						(1)						(1)
Foreign currency translation adjustment						—						—						—						—						—						(5)						(5)
Balance at October 1, 2022						51,815,659						$	1					$	542					$	(1,702)					$	3,850					$	(34)					$	2,657

See accompanying Notes to Consolidated Financial Statements.

ZEBRA TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

			Nine Months Ended
			September 30, 2023						October 1, 2022
Cash flows from operating activities:
Net income			$	279					$	277
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			132						158
Share-based compensation			39						70
Deferred income taxes			(35)						(115)
Unrealized gain on forward interest rate swaps			(14)						(92)
Other, net			3						4
Changes in operating assets and liabilities:
Accounts receivable, net			228						(58)
Inventories, net			7						(293)
Other assets			(25)						(68)
Accounts payable			(402)						127
Accrued liabilities			(79)						(101)
Deferred revenue			(12)						27
Income taxes			(134)						3
Settlement liability			(135)						270
Other operating activities			3						12
Net cash (used in) provided by operating activities			(145)						221
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired			—						(878)
Purchases of property, plant and equipment			(48)						(51)
Purchases of long-term investments			(1)						(12)
Net cash used in investing activities			(49)						(941)
Cash flows from financing activities:
Payment of debt issuance costs, extinguishment costs and discounts			—						(8)
Payments of long-term debt			(221)						(210)
Proceeds from issuance of long-term debt			469						1,385
Payments for repurchases of common stock			(52)						(655)
Net proceeds related to share-based compensation plans			(8)						(14)
Change in unremitted cash collections from servicing factored receivables			(48)						(28)
Net cash provided by financing activities			140						470
Effect of exchange rate changes on cash and cash equivalents, including restricted cash			(2)						(2)
Net decrease in cash and cash equivalents, including restricted cash			(56)						(252)
Cash and cash equivalents, including restricted cash, at beginning of period			117						344
Cash and cash equivalents, including restricted cash, at end of period			$	61					$	92
Less restricted cash, included in Prepaid expenses and other current assets			—						(11)
Cash and cash equivalents at end of period			$	61					$	81
Supplemental disclosures of cash flow information:
Income taxes paid			$	227					$	152
Interest paid			$	80					$	34

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 (“AIDC”) industry. We design, manufacture, and sell a broad range of products and solutions, as well as various workflow optimization solutions, including cloud-based software subscriptions and robotic automation solutions. 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, 2022.

In the opinion of the Company, these interim financial statements include all adjustments (of a normal, recurring nature) necessary to fairly present its Consolidated Balance Sheet as of September 30, 2023, the Consolidated Statements of Operations, Comprehensive Income (Loss) and Stockholders’ Equity for the three and nine months ended September 30, 2023 and October 1, 2022, and the Consolidated Statement of Cash Flows for the nine months ended September 30, 2023 and October 1, 2022. These results, however, are not necessarily indicative of the results expected for the full fiscal year ending December 31, 2023.

In the second quarter, our advanced location technology solutions business, which is primarily comprised of radio frequency identification devices (“RFID”) and real-time location solution offerings (“RTLS”), moved from our Enterprise Visibility & Mobility (“EVM”) segment into our Asset Intelligence & Tracking (“AIT”) segment contemporaneous with a change in our organizational structure and management of the business. We have reported our segment results reflecting this change, including historical periods, on a comparable basis. This change does not have an impact on the Consolidated Financial Statements.

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, 2022. There have been no changes to our significant accounting policies since our Annual Report on Form 10-K for the year ended December 31, 2022.

Note 3 Revenues

The Company recognizes revenue to depict the transfer of goods, solutions or services to a customer at an amount that reflects the consideration which it expects to receive for providing those goods, solutions 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 (in millions):

			Three Months Ended
			September 30, 2023																		October 1, 2022
Segment			Tangible Products						Services and Software						Total						Tangible Products						Services and Software						Total
AIT			$	295					$	29					$	324					$	414					$	28					$	442
EVM			434						198						632						750						186						936
Total			$	729					$	227					$	956					$	1,164					$	214					$	1,378
			Nine Months Ended
			September 30, 2023																		October 1, 2022
Segment			Tangible Products						Services and Software						Total						Tangible Products						Services and Software						Total
AIT			$	1,222					$	83					$	1,305					$	1,238					$	82					$	1,320
EVM			1,663						607						2,270						2,392						566						2,958
Total			$	2,885					$	690					$	3,575					$	3,630					$	648					$	4,278

In addition, refer to Note 16, Segment Information & Geographic Data for Net sales to customers by geographic region.

Performance Obligations

The Company’s remaining performance obligations relate to repair and support services, as well as software solutions. The aggregated transaction price allocated to remaining performance obligations for arrangements with an original term exceeding one year was $1,094 million and $1,105 million, inclusive of deferred revenue, as of September 30, 2023 and December 31, 2022, respectively. On average, remaining performance obligations as of September 30, 2023 and December 31, 2022 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 $14 million and $16 million as of September 30, 2023 and December 31, 2022, respectively. These contract assets result from timing differences between billing and satisfying performance obligations, as well as the impact of the allocation of the transaction price among performance obligations for contracts that include multiple performance obligations. Contract assets are evaluated for impairment and no impairment losses have been recognized during the three and nine months ended September 30, 2023 and October 1, 2022, 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 $746 million and $758 million as of September 30, 2023 and December 31, 2022, respectively. During the three and nine months ended September 30, 2023, the Company recognized $100 million and $349 million in revenue, which was previously included in the beginning balance of deferred revenue as of

December 31, 2022. During the three and nine months ended October 1, 2022, the Company recognized $92 million and $329 million in revenue, which was previously included in the beginning balance of deferred revenue as of December 31, 2021.

Note 4 Inventories

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

			September 30, 2023						December 31, 2022
Raw materials (1)			$	412					$	369
Work in process			5						4
Finished goods			431						487
Total Inventories, net (2)			$	848					$	860

(1) Raw material inventories primarily consist of product components as well as supplies used in repair operations.

(2) Categories of inventories for the period ended December 31, 2022 include reclassifications to conform the presentation of the prior period to the current period.

Note 5 Investments

The carrying value of the Company’s long-term investments, which are included in Other long-term assets on the Consolidated Balance Sheets, was $113 million as of both September 30, 2023 and December 31, 2022.

The Company paid $1 million and $12 million for the purchase of long-term investments during the nine months ended September 30, 2023 and October 1, 2022, respectively. Net gains and losses related to the Company’s long-term investments are included within Other expense, net on the Consolidated Statements of Operations. There were no net gains or losses during the three months ended September 30, 2023. The Company recognized net losses of $1 million during the nine months ended September 30, 2023. The Company did not recognize any net gains or losses during the three and nine months ended October 1, 2022.

Note 6 Exit and Restructuring Costs

In the second quarter, the Company expanded the scope of the 2022 Productivity Plan and also initiated a voluntary retirement plan (“VRP”) applicable to retirement-eligible U.S. employees. Employees who participate in the VRP have agreed to retire in 2023 in exchange for cash severance and other benefits. The total cost of these programs, which primarily relate to employee severance and other benefits, is expected to be at least $105 million.

Total charges associated with these programs, classified within Exit and restructuring on the Consolidated Statements of Operations, were $94 million to date, including $58 million and $82 million recorded for the three and nine months ended September 30, 2023, respectively. The actions under both programs are expected to be substantially completed by the end of 2023. The Company’s remaining payment obligations of $54 million, primarily related to the VRP are reflected within Accrued liabilities on the Consolidated Balance Sheets. These obligations are expected to be settled by the first quarter of 2024.

The Company’s liability associated with Exit and restructuring was:

Balance as of December 31, 2022			$	9
Exit and restructuring charges			82
Non-cash utilization			(6)
Cash payments			(31)
Balance as of September 30, 2023			$	54

Note 7 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. ASC Topic 820 established a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into the following three broad levels:

• Level 1: Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs (e.g. U.S. Treasuries and money market funds).

• Level 2: Observable prices that are based on inputs not quoted in active markets but corroborated by market data.

• Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs to the extent possible. In addition, the Company considers counterparty credit risk in the assessment of fair value.

The Company’s financial assets and liabilities carried at fair value as of September 30, 2023, are classified below (in millions):

			Level 1						Level 2						Level 3						Total
Assets:
Foreign exchange contracts (1)			$	1					$	17					$	—					$	18
Forward interest rate swap contracts (2)			—						127						—						127
Investments related to the deferred compensation plan			37						—						—						37
Total Assets at fair value			$	38					$	144					$	—					$	182
Liabilities:
Forward interest rate swap contracts (2)			$	—					$	41					$	—					$	41
Liabilities related to the deferred compensation plan			37						—						—						37
Total Liabilities at fair value			$	37					$	41					$	—					$	78

The Company’s financial assets and liabilities carried at fair value as of December 31, 2022, are classified below (in millions):

			Level 1						Level 2						Level 3						Total
Assets:
Forward interest rate swap contracts (2)			$	—					$	72					$	—					$	72
Investments related to the deferred compensation plan			35						—						—						35
Total Assets at fair value			$	35					$	72					$	—					$	107
Liabilities:
Foreign exchange contracts (1)			$	5					$	14					$	—					$	19
Liabilities related to the deferred compensation plan			35						—						—						35
Total Liabilities at fair value			$	40					$	14					$	—					$	54

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

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

• Fair value of hedges against net assets denominated in foreign currencies is calculated at the period-end exchange rate adjusted for current forward points unless the hedge has been traded but not settled at year end (Level 2). If this is the case, the fair value is calculated at the rate at which the hedge is being settled (Level 1).

(2)The fair value of forward interest rate swaps is based upon a valuation model that uses relevant observable market inputs at the quoted intervals, such as forward yield curves, and is adjusted for the Company’s credit risk and the interest rate swap terms.

Note 8 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 Sheets Classification						September 30, 2023						December 31, 2022
Derivative instruments designated as hedges:
Foreign exchange contracts			Prepaid expenses and other current assets						$	17					$	—
Foreign exchange contracts			Accrued liabilities						—						(14)
Total derivative instruments designated as hedges									$	17					$	(14)
Derivative instruments not designated as hedges:
Foreign exchange contracts			Prepaid expenses and other current assets						$	1					$	—
Forward interest rate swaps			Prepaid expenses and other current assets						41						25
Forward interest rate swaps			Other long-term assets						86						47
Foreign exchange contracts			Accrued liabilities						—						(5)
Forward interest rate swaps			Accrued liabilities						(15)						—
Forward interest rate swaps			Other long-term liabilities						(26)						—
Total derivative instruments not designated as hedges									$	87					$	67
Total net derivative asset									$	104					$	53

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												Nine Months Ended
			Statements of Operations Classification						September 30, 2023						October 1, 2022						September 30, 2023						October 1, 2022
Derivative instruments not designated as hedges:
Foreign exchange contracts			Foreign exchange gain (loss)						$	1					$	9					$	(3)					$	17
Forward interest rate swaps			Interest income, net						23						39						34						84
Total net gain recognized in income									$	24					$	48					$	31					$	101

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

Credit and Market Risk Management

Financial instruments, including derivatives, expose the Company to counterparty credit risk of nonperformance and to market risk related to currency exchange rate and interest rate fluctuations. The Company manages its exposure to counterparty credit risk by establishing minimum credit standards, diversifying its counterparties, and monitoring its concentrations of credit. The Company’s counterparties are commercial banks with expertise in derivative financial instruments. The Company evaluates the impact of market risk on the fair value and cash flows of its derivative and other financial instruments by considering reasonably possible changes in interest rates and currency exchange rates. The Company continually monitors the creditworthiness of the customers to which it grants credit terms in the normal course of business. The terms and conditions of the Company’s credit policies are designed to mitigate concentrations of credit risk.

The Company’s master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. We present the assets and liabilities of our derivative financial instruments, for which we have net settlement agreements in place, on a net basis on the Consolidated Balance Sheets. If the derivative financial instruments had been presented gross on the Consolidated Balance Sheets, the asset and liability positions would have been increased by $1 million and $4 million as of September 30, 2023 and December 31, 2022, respectively.

Foreign Currency Exchange Risk Management

The Company conducts business on a multinational basis in a variety of foreign currencies. Exposure to market risk for changes in foreign currency exchange rates arises primarily from Euro-denominated external revenues, cross-border financing activities between subsidiaries, and foreign currency denominated monetary assets and liabilities. The Company manages its objective of preserving the economic value of non-functional currency denominated cash flows by initially hedging transaction exposures with natural offsets and, once these opportunities have been exhausted, through foreign exchange forward and option contracts, as deemed appropriate.

The Company manages the exchange rate risk of anticipated Euro-denominated sales using forward contracts, which typically mature within twelve months of execution. The Company designates these derivative contracts as cash flow hedges. Unrealized gains and losses on these contracts are deferred in Accumulated other comprehensive income (loss) (“AOCI”) on the Consolidated Balance Sheets until the contract is settled and the hedged sale is realized. The realized gain or loss is then recorded as an adjustment to Net sales on the Consolidated Statements of Operations. Realized amounts reclassified to Net sales were $6 million of losses and $29 million of gains for the three months ended September 30, 2023 and October 1, 2022, respectively. Realized amounts reclassified to Net sales were $16 million of losses and $72 million of gains for the nine months ended September 30, 2023 and October 1, 2022, respectively. As of September 30, 2023 and December 31, 2022, the notional amounts of the Company’s foreign exchange cash flow hedges were €597 million and €549 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):

			September 30, 2023						December 31, 2022
Notional balance of outstanding contracts:
British Pound/U.S. Dollar			£	7					£	11
Euro/U.S. Dollar			€	96					€	191
Euro/Czech Koruna			€	17					€	15
Japanese Yen/U.S. Dollar			¥	265					¥	—
Singapore Dollar/U.S. Dollar			S$	6					S$	5
Mexican Peso/U.S. Dollar			Mex$	149					Mex$	372
Polish Zloty/U.S. Dollar			zł	94					zł	47
Net fair value of assets (liabilities) of outstanding contracts			$	1					$	(5)

Interest Rate Risk Management

The Company’s debt consists of borrowings under a term loan (“Term Loan A”), Revolving Credit Facility, and Receivables Financing Facilities, which bear interest at variable rates plus applicable margins. As a result, the Company is exposed to market risk associated with the variable interest rate payments on these borrowings. See Note 9, Long-Term Debt for further details related to these borrowings.

The Company manages its exposure to changes in interest rates by utilizing long-term forward interest rate swaps to hedge this exposure and to achieve a desired proportion of fixed versus variable-rate debt, based on current and projected market conditions. The Company has interest rate swap agreements with a total notional amount of $800 million to lock into a fixed SOFR interest rate base, which are subject to monthly net cash settlements effective through October 2027.

In the second quarter, the Company entered into new interest rate swap agreements that contain a total notional amount of $400 million to lock into a variable interest rate base designed to offset a portion of the Company’s existing swap agreements. These agreements are subject to monthly cash settlements effective through October 2027. At the same time, the Company entered into additional new interest rate swap agreements that contain a total notional amount of $400 million to lock into a fixed SOFR interest rate base, which are subject to monthly cash settlements effective through June 2030. As a result of these transactions, the Company maintained fixed interest rates on a total notional amount of $800 million through October 2027 and a total notional amount of $400 million through June 2030. There was no cash settlement, or significant impact on the Consolidated Statement of Operations, as a result of these transactions.

Note 9 Long-Term Debt

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

			September 30, 2023						December 31, 2022
Term Loan A			$	1,684					$	1,728
Revolving Credit Facility			477						50
Receivables Financing Facilities			119						254
Total debt			$	2,280					$	2,032
Less: Debt issuance costs			(3)						(4)
Less: Unamortized discounts			(4)						(5)
Less: Current portion of debt			(152)						(214)
Total long-term debt			$	2,121					$	1,809

As of September 30, 2023, the future maturities of debt are as follows (in millions):

2023 (3 months remaining)						$	—
2024						162
2025						66
2026						88
2027						1,964
Total future maturities of debt						$	2,280

All borrowings as of September 30, 2023 were denominated in U.S. Dollars.

The estimated fair value of the Company’s debt approximated $2.2 billion and $2.0 billion as of September 30, 2023 and December 31, 2022, 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.

Term Loan A

The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in March 2024 and the majority due upon maturity in 2027. The Company may make prepayments, as it did in the first quarter of 2023, 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 September 30, 2023, the Term Loan A interest rate was 6.67%. Interest payments are made monthly and are subject to variable rates plus an applicable margin.

Revolving Credit Facility

The Company has a Revolving Credit Facility that is available for working capital and other general business purposes, including letters of credit. As of September 30, 2023, the Company had letters of credit totaling $11 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1,500 million to $1,489 million. As of September 30, 2023, the Revolving Credit Facility had an average interest rate of 6.65%. 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 facilities as secured borrowings. The Company’s first facility allows for borrowings of up to $180 million and matures on March 19, 2024. The Company’s second facility allows for borrowings of up to $100 million and matures on May 13, 2024.

As of September 30, 2023, the Company’s Consolidated Balance Sheets included $530 million of gross receivables that were pledged under the facilities. As of September 30, 2023, $119 million had been borrowed and was classified as current. Borrowings under the facilities bear interest at a variable rate plus an applicable margin. As of September 30, 2023, the facilities had an average interest rate of 6.80%. Interest is paid monthly on these borrowings.

Each of the Company’s borrowings 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 8**,** Derivative Instruments for further information.

As of September 30, 2023, the Company was in compliance with all debt covenants.

Note 10 Leases

During the nine months ended September 30, 2023, the Company recorded an additional $41 million of right-of-use (“ROU”) assets obtained in exchange for lease obligations primarily related to the commencement of a new office facility lease as well as contract modifications that extend existing lease terms.

Future minimum lease payments under non-cancellable leases as of September 30, 2023 were as follows (in millions):

2023 (3 months remaining)						$	12
2024						48
2025						38
2026						32
2027						26
Thereafter						77
Total future minimum lease payments						$	233
Less: Interest						(45)
Present value of lease liabilities						$	188
Reported as of September 30, 2023:
Current portion of lease liabilities						$	38
Long-term lease liabilities						150
Present value of lease liabilities						$	188

The current portion of lease liabilities is included within Accrued liabilities on the Consolidated Balance Sheets.

Note 11 Accrued Liabilities, Commitments and Contingencies

Accrued Liabilities

The components of Accrued liabilities are as follows (in millions):

			September 30, 2023						December 31, 2022
Settlement			$	90					$	180
Payroll and benefits			84						90
Unremitted cash collections due to banks on factored accounts receivable			82						130
Exit and restructuring			54						9
Customer rebates			38						55
Current portion of lease liabilities			38						37
Incentive compensation			31						100
Warranty			25						26
Freight and duty			10						19
Foreign exchange contracts			—						19
Other			76						79
Accrued liabilities			$	528					$	744

Warranties

The following table is a summary of the Company’s accrued warranty obligations (in millions):

			Nine Months Ended
			September 30, 2023						October 1, 2022
Balance at the beginning of the period			$	26					$	26
Warranty expense			21						23
Warranties fulfilled			(22)						(22)
Balance at the end of the period			$	25					$	27

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 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. The payment terms under the Settlement consist of 8 quarterly payments of $45 million that began in the second quarter of 2022. The remaining 2 quarterly amounts will be paid by the first quarter of 2024 and are included within Accrued liabilities on the Consolidated Balance Sheets.

Note 12 Income Taxes

The Company’s effective tax rate for the three and nine months ended September 30, 2023 was 37.5% benefit and 16.0% expense, respectively, compared to 23.4% and 13.2% for the three and nine months ended October 1, 2022, respectively. For the three and nine months ended September 30, 2023, the variance from the 21% federal statutory rate was primarily due to a discrete tax benefit from the VRP, U.S. tax credits, and the favorable impacts of foreign earnings subject to U.S. taxation. For the three months ended October 1, 2022, the variance from the 21% federal statutory rate was primarily attributable to unfavorable impacts from return to provision adjustments. For the nine months ended October 1, 2022, 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 second quarter, lower tax rates on foreign earnings, and U.S. tax credits.

Note 13 (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 diluted common shares outstanding. Diluted common shares outstanding is computed using the Treasury Stock method and, in periods of income, reflects the additional shares that would be outstanding if dilutive share-based compensation awards were converted into common shares during the period.

(Loss) earnings per share (in millions, except share data):

			Three Months Ended												Nine Months Ended
			September 30, 2023						October 1, 2022						September 30, 2023						October 1, 2022
Basic:
Net (loss) income			$	(15)					$	170					$	279					$	277
Weighted-average shares outstanding (1)			51,336,645						51,834,236						51,380,876						52,387,838
Basic (loss) earnings per share			$	(0.28)					$	3.28					$	5.44					$	5.29
Diluted:
Net (loss) income			$	(15)					$	170					$	279					$	277
Weighted-average shares outstanding (1)			51,336,645						51,834,236						51,380,876						52,387,838
Dilutive shares (2)			—						323,616						336,855						368,793
Diluted weighted-average shares outstanding			51,336,645						52,157,852						51,717,731						52,756,631
Diluted (loss) earnings per share			$	(0.28)					$	3.26					$	5.40					$	5.25

(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 446,331 and 250,025 shares that were anti-dilutive for the three and nine months ended September 30, 2023, respectively. There were 195,922 and 169,810 shares that were anti-dilutive for the three and nine months ended October 1, 2022, respectively.

Note 14 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 8, 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 translates 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 changes in each component of AOCI during the nine months ended September 30, 2023 and October 1, 2022 were as follows (in millions):

						Unrealized gain (loss) on sales hedging												Foreign currency translation adjustments						Total
Balance at December 31, 2021						$	18											$	(47)					$	(29)
Other comprehensive income (loss) before reclassifications						86												(16)						70
Amounts reclassified from AOCI(1)						(72)												—						(72)
Tax effect						(3)												—						(3)
Other comprehensive income (loss), net of tax						11												(16)						(5)
Balance at October 1, 2022						$	29											$	(63)					$	(34)
Balance at December 31, 2022						$	(11)											$	(55)					$	(66)
Other comprehensive income (loss) before reclassifications						16												(2)						14
Amounts reclassified from AOCI(1)						16												—						16
Tax effect						(8)												—						(8)
Other comprehensive income (loss), net of tax						24												(2)						22
Balance at September 30, 2023						$	13											$	(57)					$	(44)

(1) See Note 8, Derivative Instruments regarding the timing of reclassifications to operating results.

Note 15 Accounts Receivable Factoring

The Company transfers certain receivables to banks without recourse as part of its credit and cash management activities. Such transfers are accounted for as sales and the related receivables are removed from the Company’s balance sheet. The Company services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Cash flows from operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Cash flows from financing activities on the Consolidated Statements of Cash Flows.

The Company has two Receivables Factoring arrangements. One arrangement allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions. In the current quarter, the Company amended its second arrangement to allow the factoring of uncollected receivables originated from the Europe, Middle East, and Africa (“EMEA”) region from up to $25 million to $50 million. Otherwise, the amendment did not substantially change the terms of the 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 September 30, 2023 and December 31, 2022, respectively, and is classified within Prepaid expenses and other current assets on the Consolidated Balance Sheets.

During the nine months ended September 30, 2023 and October 1, 2022, the Company received cash proceeds of $1,077 million and $1,135 million, respectively, from the sales of accounts receivables under its factoring arrangements. As of September 30, 2023 and December 31, 2022, there were a total of $72 million and $61 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 $82 million and $130 million of obligations that were not yet remitted to banks as of September 30, 2023 and December 31, 2022, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Cash flows from financing activities on the Consolidated Statements of Cash Flows.

Note 16 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 costs in the prior year). Segment assets are not reviewed by the Company’s CODM and therefore are not disclosed below.

In the second quarter, our advanced location technology solutions business, which is primarily comprised of RFID devices and RTLS offerings, moved from our EVM segment into our AIT segment contemporaneous with a change in our organizational structure and management of the business. We have reported our segment results reflecting this change, including historical periods, on a comparable basis. This change does not have an impact on the Consolidated Financial Statements.

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

			Three Months Ended												Nine Months Ended
			September 30, 2023						October 1, 2022						September 30, 2023						October 1, 2022
Net sales:
AIT			$	324					$	442					$	1,305					$	1,320
EVM			632						936						2,270						2,958
Total Net sales			$	956					$	1,378					$	3,575					$	4,278
Operating income (loss):
AIT(2)			$	44					$	85					$	287					$	235
EVM(2)			30						159						285						536
Total segment operating income			74						244						572						771
Corporate (1)			(86)						(42)						(165)						(502)
Total Operating (loss) income			$	(12)					$	202					$	407					$	269

(1)To the extent applicable, amounts included in Corporate 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 costs in the prior year).

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

Information regarding the Company’s operations by geographic area is contained in the following tables. Net sales amounts are attributed to geographic area based on customer location.

Net sales by region were as follows (in millions):

			Three Months Ended												Nine Months Ended
			September 30, 2023						October 1, 2022						September 30, 2023						October 1, 2022
North America			$	517					$	690					$	1,884					$	2,103
EMEA			269						456						1,086						1,477
Asia-Pacific			106						158						382						459
Latin America			64						74						223						239
Total Net sales			$	956					$	1,378					$	3,575					$	4,278