What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-15 compared with 2023-02-16 · 105 added, 133 removed, 213 unchanged (53% of the section changed)

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Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for that discussion.

The Company is a global leader providing Enterprise Asset Intelligence (“EAI”) solutions in the Automatic Identification and Data Capture (“AIDC”) industry.

The Company is a global leader in providing Enterprise Asset Intelligence (“EAI”) solutions in the Automatic Identification and Data Capture (“AIDC”) industry.

The AIDC market consists of mobile computing, data capture, radio frequency identification devices (“RFID”), barcode printing, and other workflow automation products and services.

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• The AIT segment is an industry leader in barcode printing and asset tracking technologies.

Its major product lines include barcode and card printers, supplies, including temperature-monitoring labels and services.

Its major product lines include barcode and card printers, RFID and RTLS offerings, and supplies, including temperature-monitoring labels, and services.

• The EVM segment is an industry leader in automatic information and data capture solutions.

Its major product lines include mobile computing, data capture, RFID, fixed industrial scanning and machine vision, services, workflow optimization solutions and location solutions.

Its major product lines include mobile computing, data capture, fixed industrial scanning and machine vision, services, and workflow optimization solutions.

Our workflow optimization solutions include cloud-based software subscriptions, retail solutions, and robotic automation solutions.

Change in Segments

In the second quarter of 2023, 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.

During the past year, we have maintained our position as a market leader in our core businesses, which are generally considered to be comprised of our mobile computing and data capture products, printing products and supplies, as well as support and repair services.

Customers across the industries that we serve have benefited from our core offerings to keep pace with the increasingly on-demand economy and to invest in their long-term technology capabilities.

The Company has continued to make strategic investments to accelerate progress in certain adjacent and expansion markets.

In June 2022, the Company acquired Matrox Electronic Systems Ltd.

(“Matrox) for $881 million in cash, net of Matrox’s cash on-hand.

Matrox, part of our EVM segment, is a leading provider of advanced machine vision components and software serving many end-markets.

Through its acquisition of Matrox, the Company significantly expanded its machine vision products and software offerings.

The Company also continues to focus on scaling and integrating our other recent acquisitions (Antuit.ai, Fetch Robotics, Adaptive Vision Sp.

z.o.o., and Reflexis) providing growth opportunities across our software and robotic solution offerings.

These investments were funded partly through cash flow generation from our core businesses operations as well as through borrowings and other working capital facilities that enable us to maintain strong liquidity and manageable debt leverage.

As part of our ongoing supply chain optimization and resiliency initiatives, we extended the transition timeline of our distribution center in North America.

The transition negatively impacted product fulfillment and operating results in the third quarter and contributed to elevated inventory levels.

To mitigate the impacts associated with that transition, we resumed servicing customer orders through our existing logistics service provider.

Additionally, in January 2023, we terminated our contractual arrangement with the new service provider and have directly assumed the distribution center lease and have staffed the facility with Zebra employees, hence assuming all operational activities at the location.

We are actively managing our inventory levels and have been addressing certain component part shortages through a combination of entering long-term supply commitments with key vendors, utilizing expedited modes of transportation, as well as executing select product re-designs.

We anticipate inventory levels to remain elevated from historical levels as we continue to manage through supply chain challenges.

The Company continues to focus on scaling and integrating our recent acquisitions providing growth opportunities across our solution offerings.

Macroeconomic Environment

The acceleration of broad global cost inflation, a rising interest rate environment, and a stronger U.S.

dollar in the current year have negatively impacted our operating results.

We have partially mitigated the financial impacts of these headwinds through a combination of targeted price increases, as well as our ongoing foreign currency exchange and interest rate risk management programs.

We believe that this challenging operating environment, partially due to the COVID-19 pandemic and Russia/Ukraine war, has contributed to a deceleration of certain customer demand, particularly late in the current year.

The Company expects these macro conditions to persist into 2023.

In the first quarter of 2022, we announced the suspension of our business operations in Russia.

Neither Russia nor Ukraine comprises a material portion of our business;

therefore, the war thus far has not had a significant effect on our results of operations.

Additionally, the war has not significantly affected our ability to source supplies or deliver our products and services to our customers in the surrounding EMEA region.

We will continue to monitor this for potential future adverse impacts on our business.

In 2020, the global COVID-19 pandemic resulted in significant declines in customer demand and supply chain disruptions, which negatively impacted the Company’s Net sales and overall profitability.

In 2021, customer demand sharply rebounded as the underlying trend to digitize and automate workflows accelerated, which, along with pent-up demand from customers who we believe previously delayed purchases due to the pandemic, benefited the Company’s 2021 sales and profitability.

The level of demand for certain product components resulted in lengthened lead times, component shortages, and higher input costs, including freight and component parts.

Component shortages for certain products and elevated input costs continued in 2022 which negatively impacted our ability to meet customer demand and our operating results.

2022 Financial Highlights and Other Recent Developments

We entered 2023 facing headwinds from global cost inflation, rising interest rates, and a stronger U.S.

dollar, which have negatively impacted our current year results.

As the year progressed, we experienced a broad-based decline in customer demand across our core product offerings.

Demand declines were most pronounced in our mobile computing and printing businesses within our EVM and AIT segments, respectively, as we believe many of our customers were absorbing significant capacity built-out in recent years, while also experiencing tighter capital spending budgets.

These dynamics, coupled with a general trend in distributors reducing their inventory levels, negatively impacted our current year results.

We have been partially mitigating the financial impacts of these operating headwinds through a combination of cost management actions and targeted list price increases.

Throughout 2023, we also experienced an overall improvement in both component part availability and costs of transportation, which enabled us to better meet customer demand as compared to the prior year.

We are not yet seeing signs of a broad-based recovery in end-market demand.

2023 Financial Summary and Other Recent Developments

• Net sales were $4,584 million in the current year compared to $5,781 million in the prior year.

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• Net income was $296 million, or $5.72 per diluted share in the current year, compared to Net income of $463 million, or $8.80 per diluted share in the prior year.

• Operating cash flow was $488 million in the current year compared to $1,069 million in the prior year.

• Net cash used in operating activities was $4 million in the current year compared to net cash provided by operating activities of $488 million in the prior year.

• We repurchased $52 million of common shares in the current year compared to $751 million in the prior year.

Restructuring Activity

In the third quarter of 2022, the Company committed to certain organizational changes and leased site rationalization actions designed to generate structural cost efficiencies (collectively referred to as the “2022 Productivity Plan”).

The total cost under the 2022 Productivity Plan, which is expected to be completed in 2023, is estimated to be approximately $25 million.

Exit and restructuring charges associated with the 2022 Productivity Plan were $12 million for the year ended December 31, 2022.

The Company incurred Exit and restructuring costs, under previously announced programs of $2 million, $7 million, and $11 million for the years ended December 31, 2022, 2021 and 2020, respectively.

License and Settlement Agreement

On June 30, 2022, the Company announced it entered into a License and Settlement Agreement (“Settlement”) resulting in a $372 million pre-tax charge, inclusive of $12 million of external legal fees, within Operating expenses on the Consolidated Statement of Operations.

Under the Settlement, Zebra agreed to pay $360 million to the counterparty in eight quarterly payments of $45 million which began in the second quarter.

See Item 3, Legal Proceedings and Note 14, Accrued Liabilities, Commitments, and Contingencies for additional information.

Change in Segments

In the first quarter of 2022, the location solutions offering, which provides a range of RTLS and services that generate on-demand information about the physical location and status of high-valued assets, equipment, and people, moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business.

We have reported our results reflecting this change, including historical periods, on a comparable basis.

This change did not have an impact to the Consolidated Financial Statements.

As a result of the impacts on our business discussed above, the Company expanded the scope of its 2022 Productivity Plan and initiated a U.S.

employee voluntary retirement plan (“VRP”) in the current year (the “Programs”).

During the first quarter of 2024, the Company committed to additional actions under the 2022 Productivity Plan which will bring the total expected cost of the Programs to approximately $130 million.

These costs are classified within Exit and restructuring on the Consolidated Statements of Operations.

The Programs are expected to impact over 9% of our global employee base and are estimated to result in annualized net cost savings of approximately $120 million, primarily within Operating expenses.

The Company has realized approximately $50 million of net savings to date, primarily in the third and fourth quarters of the current year.

The actions under the VRP have been completed in the current year and the remaining actions under the 2022 Productivity Plan are expected to be substantially completed in the first half of 2024.

Results of Operations:

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Year Ended December 31, Percent

Change 2022 vs 2021 Percent

Change 2023 vs 2022

2022 2021 2020

Change 2022 vs 2021

Tangible products $ 3,665 $ 4,915 $ 4,845 (25.4) % 1.4 %

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Year Ended December 31, Percent

Change 2022 vs 2021 Percent

Change 2023 vs 2022

2022 2021 2020

Change 2022 vs 2021

North America $ 2,405 $ 2,919 $ 2,819 (17.6) % 3.5 %

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Year Ended December 31, As a Percentage of Net sales

2022 2021 2020 2022 2021 2020

Selling and marketing $ 581 $ 607 $ 587 12.7 % 10.5 % 10.4 %

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Total Operating expenses $ 1,642 $ 2,095 $ 1,649 35.8 % 36.2 % 29.3 %

Consolidated Organic Net sales growth:

Consolidated Organic Net sales (decline) growth:

Year Ended December 31,

Reported GAAP Consolidated Net sales growth 2.7 % 26.5 %

Impact of foreign currency translations (1)

Reported GAAP Consolidated Net sales (decline) growth

(20.7) % 2.7 %

Impact of foreign currency translations (1)

Impact of acquisitions (2)

(0.5) % (1.5) %

Consolidated Organic Net sales growth (3)

Consolidated Organic Net sales (decline) growth (3)

(19.8) % 3.2 %

(1) Operating results reported in U.S.

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This impact is calculated by translating the current period results at the currency exchange rates used in the comparable prior year period, inclusive of the Company’s foreign currency hedging program.

(2) For purposes of computing Organic Net sales growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisitions.

(3) Consolidated Organic Net sales growth is a non-GAAP financial measure.

(2) For purposes of computing Organic Net sales (decline) growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisitions.

(3) Consolidated Organic Net sales (decline) growth is a non-GAAP financial measure.

See the Non-GAAP Measures section at the end of this item.

2023 compared to 2022

Total Net sales increased $154 million or 2.7% compared to the prior year as our customers continue to digitize and automate their workflows.

Net sales grew across both of our segments and most of our regions.

Current year Net sales of both segments were negatively impacted by supply chain bottlenecks, which were particularly pronounced in our EVM segment.

Prior year Net sales of both segments benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic.

Excluding the effects of currency changes and acquisitions, the increase in Consolidated Organic Net sales was 3.2%.

Gross margin decreased to 45.4% for the current year compared to 46.7% in the prior year.

Gross margins were lower in both of our segments.

The decrease in gross margin was primarily due to higher premium freight and component part costs, the negative impact of foreign currency changes, unfavorable business mix, and lower support service margins, partially offset by targeted price increases.

The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.

Total Net sales decreased $1,197 million or 20.7% compared to the prior year reflecting declines in both of our segments resulting from broad-based decline in demand for our core products as well as a reduction of inventory levels at our distributors.

Current year Net sales of both segments included the benefit of targeted list price increases, partially offset by the negative effects of foreign currency changes.

Prior year Net sales of both segments were negatively impacted by supply chain bottlenecks, which were most pronounced in our EVM segment.

Excluding the effects of foreign currency changes and acquisitions, Consolidated Organic Net sales decreased by 19.8%.

Gross margin increased to 46.3% for the current year compared to 45.4% in the prior year.

As compared to the prior year, Gross margin was significantly higher in our AIT segment, while Gross margin in our EVM segment was modestly lower.

Both segments, particularly AIT, benefited from lower premium freight and component part costs compared to the prior year, and were negatively impacted by volume deleveraging, particularly EVM.

Operating expenses for the years ended December 31, 2023 and 2022 were $1,642 million and $2,095 million, or 35.8% and 36.2% of Net sales, respectively.

Excluding the Settlement charge, Operating expenses were 29.8% of Net sales in the current year, with an increase over the prior year primarily due to the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses, and increased employee travel, which were partially offset by lower employee incentive-based compensation.

Excluding the $372 million settlement charge in the prior year, Operating expenses would have been 29.8% of Net sales.

The increase as a percentage of Net sales over the prior year reflects the impact of expense deleveraging.

Current year Operating expenses were lower than the prior year primarily due to the prior year including a $372 million settlement charge, lower employee incentive compensation, cost efficiencies attributed to our Exit and restructuring actions, lower Amortization of intangible assets, and lower Acquisition and integration costs, partially offset by higher Exit and restructuring costs and the inclusion of operating expenses associated with recently acquired businesses.

Operating income was $481 million for the current year compared to $529 million for the prior year.

The decrease was primarily due to the negative impact of the Settlement charge.

Net income decreased 44.7% compared to the prior year due to lower Operating income and a higher income tax rate, which were partially offset by favorability in Other income (expense), net as follows:

• Other income (expense), net was income of $15 million for the current year, compared to an expense of $11 million in the prior year primarily due to the current year benefiting from an $83 million gain on interest rate swaps compared to a $13 million gain in the prior year, which was partially offset by higher interest expense due to higher average outstanding debt levels and interest rates in the current year.

The decrease was due to lower Gross profit partially offset by lower Operating expenses.

Net income decreased 36.1% compared to the prior year primarily due to lower Operating income, as described above, as well as higher Other (expense) income, net.

Other (expense) income, net was an expense of $147 million for the current year, compared to income of $15 million in the prior year primarily due to higher interest expense associated with higher interest rates and average outstanding debt levels as well as lower interest rate swap gains in the current year.

The Company’s effective tax rates for the years ended December 31, 2023 and December 31, 2022 were 11.4% and 14.9%, respectively.

The increase in the effective tax rate compared to the prior year was primarily due to settlements with tax authorities, unfavorable return to provision adjustments, and lower share-based compensation deductions.

The decrease in the effective tax rate compared to the prior year was primarily due to favorability in discrete items.

Diluted earnings per share decreased to $5.72 as compared to $8.80 in the prior year due to lower Net income, partially offset by lower average shares outstanding.

Results of Operations by Segment

The following commentary should be read in conjunction with the financial results of each operating business segment as detailed in Note 20, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements.

To the extent applicable, segment operating income excludes business acquisition purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, as well as certain other non-recurring costs (such as the Settlement in the current year).

The following commentary should be read in conjunction with the financial results of each reportable business segment as detailed in Note 20, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements.

Asset Intelligence & Tracking Segment (“AIT”)

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Year Ended December 31, Percent

Change 2022 vs 2021 Percent

Change 2023 vs 2022

Change 2022 vs 2021

2023 2022 2021

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Operating income $ 346 $ 361 $ 386 (4.2) % (6.5) %

AIT Organic Net sales growth:

AIT Organic Net sales (decline) growth:

Year Ended December 31,

AIT Reported GAAP Net sales growth 4.8 % 21.0 %

AIT Reported GAAP Net sales (decline) growth

(10.1) % 5.9 %

Impact of foreign currency translations (1)

AIT Organic Net sales (decline) growth (2)

(8.8) % 7.9 %

AIT Organic Net sales growth (2)

(1) Operating results reported in U.S.

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(2) AIT Organic Net sales growth is a non-GAAP financial measure.

(2) AIT Organic Net sales (decline) growth is a non-GAAP financial measure.

See the Non-GAAP Measures section at the end of this item.

2023 compared to 2022

Total Net sales for AIT increased $79 million or 4.8% compared to the prior year primarily due to higher sales of printing products (contributing the majority of the total increase), supplies, and support services.

Current year Net sales included the benefit of targeted price increases as well as the negative effects of supply chain bottlenecks, while prior year Net sales benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic.

Excluding the impact of foreign currency changes, AIT Organic Net sales growth was 6.7%.

Gross margin decreased to 43.0% in the current year compared to 45.8% in the prior year primarily due to higher premium freight and component part costs, the negative impact of foreign currency changes, and unfavorable business mix, partially offset by targeted price increases.

The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.

Total Net sales for AIT decreased $186 million or 10.1% compared to the prior year primarily due to lower sales of printing products and the negative effects of foreign currency changes, partially offset by targeted list price increases.

Excluding the impact of foreign currency changes, AIT Organic Net sales decreased by 8.8%.

Gross margin increased to 47.7% in the current year compared to 43.3% for the prior year primarily due to lower premium freight and component part costs, and price increases, partially offset by the negative impact of foreign currency changes and volume deleveraging.

Operating income decreased 4.2% in the current year compared to the prior year due to lower Gross profit and higher Operating expenses.

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Year Ended December 31, Percent

Change 2022 vs 2021 Percent

Change 2023 vs 2022

Change 2022 vs 2021

2023 2022 2021

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Operating income $ 343 $ 711 $ 746 (51.8) % (4.7) %

EVM Organic Net sales growth:

EVM Organic Net sales (decline) growth:

Year Ended December 31,

EVM Reported GAAP Net sales growth 1.7 % 28.8 %

Impact of foreign currency translations (1)

EVM Reported GAAP Net sales (decline) growth

(25.6) % 1.2 %

Impact of foreign currency translations (1)

Impact of acquisitions (2)

(0.8) % (2.2) %

EVM Organic Net sales growth (3)

EVM Organic Net sales (decline) growth (3)

(24.9) % 1.1 %

(1) Operating results reported in U.S.

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(2) For purposes of computing EVM Organic Net sales growth, amounts directly attributable to the acquisitions of Adaptive Vision, Fetch, Antuit, and Matrox are excluded for twelve months following their respective acquisitions.

(3) EVM Organic Net sales growth is a non-GAAP financial measure.

(2) For purposes of computing EVM Organic Net sales (decline) growth, amounts directly attributable to business acquisitions are excluded for twelve months following their respective acquisitions.

(3) EVM Organic Net sales (decline) growth is a non-GAAP financial measure.

See the Non-GAAP Measures section at the end of this item.

2023 compared to 2022

Total Net sales for EVM increased $69 million or 1.7% compared to the prior year primarily due to higher sales of data capture products, contributions from our recent acquisitions, and higher sales of support services, which were partially offset by lower sales of mobile computing products and unfavorable foreign currency changes.

Current year Net sales included the benefit of targeted price increases as well as the negative impact of supply chain bottlenecks, while prior year Net sales benefited from pent-up demand from customers who we believe delayed purchases in fiscal 2020 due to the COVID-19 pandemic.

Excluding the impacts of foreign currency changes and acquisitions, EVM Organic Net sales growth was 1.7%.

Gross margin decreased to 46.4% in the current year compared to 47.2% in the prior year primarily due to higher premium freight and component part costs, unfavorable business mix, the negative impact of foreign currency changes, and lower support service margins, partially offset by targeted price increases.

The prior year gross margin included the benefit of partial recovery of Chinese import tariffs.

Operating income for the current year decreased 5.1% compared to the prior year period primarily due to higher Operating expenses.

Total Net sales for EVM decreased $1,011 million or 25.6% compared to the prior year primarily due to lower sales of mobile computing products (contributing the majority of the total decrease) and data capture products, which were partially offset by higher sales of services and software, and contributions from our recent acquisitions.

Current year Net sales included the benefit of targeted list price increases, substantially offset by the negative effects of foreign currency changes.

Excluding the impacts of foreign currency changes and acquisitions, EVM Organic Net sales decreased by 24.9%.

Gross margin decreased to 45.6% in the current year compared to 46.4% for the prior year primarily due to product volume deleveraging, the negative impact of foreign currency changes and inventory-related charges, partially offset by pricing, higher service and software margins, and lower premium freight and component part costs.

Operating income for the current year decreased 51.8% compared to the prior year due to lower Gross profit, partially offset by lower Operating expenses.

Liquidity and Capital Resources

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The following table summarizes our cash flow activities for the years indicated (in millions):

Year Ended December 31, $ Change 2022 vs 2021 $ Change 2021 vs 2020

Year Ended December 31, $ Change 2023 vs 2022

$ Change 2022 vs 2021

2023 2022 2021

Cash flow provided by (used in):

Cash flow (used in) provided by:

Operating activities $ (4) $ 488 $ 1,069 $ (492) $ (581)

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Effect of exchange rates on cash balances — — — — —

Net (decrease) increase in cash and cash equivalents, including restricted cash $ (227) $ 152 $ 162 $ (379) $ (10)

Net increase (decrease) in cash and cash equivalents, including restricted cash $ 21 $ (227) $ 152 $ 248 $ (379)

The change in our cash and cash equivalents balance during the current year is reflective of the following:

• The decrease in cash provided by operating activities compared to the prior year was primarily due to higher inventory levels, current year payments associated with the Settlement, and higher payments of 2021 incentive compensation.

These items were partially offset by favorability in the timing of customer collections and accounts receivable factoring activity in the current year in comparison to the prior year.

• Cash used in investing activities was higher than the prior year primarily due to the $881 million acquisition of Matrox, with the prior year including cash payments of $453 million for the acquisitions of Antuit, Fetch, and Adaptive Vision.

• Cash provided by financing activities during the year included $1,037 million in net debt proceeds primarily related to the Company's debt refinancing activities in the second quarter, partially offset by $751 million of common stock repurchases.

Cash used in financing activities in the prior year was primarily comprised of $257 million net debt repayments, $57 million of common stock repurchases, and $56 million of net payments related to share-based compensation.

• $492 million of incremental operating cash outflows primarily due to reduced operating profits and higher cash payments for income taxes, Exit and restructuring actions, interest, inventory purchases, and the settlement, partially offset by favorability in the timing of customer collections and lower employee incentive compensation payments.

• $876 million less in investing activities primarily due to cash payments for the acquisition of Matrox in the prior year.

• $136 million less in financing activities primarily due to increased borrowings in the prior year as a result of the Company refinancing its long-term credit facilities, partially offset by lower common stock repurchases in the current year.

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

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Total long-term debt $ 2,047 $ 1,809

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.

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.

In May 2022, the Company refinanced its long-term credit facilities by entering into its third amendment to the Amended and Restated Credit Agreement, which increased the Company’s borrowing under Term Loan A from $875 million to $1.75 billion and the Company’s borrowing capacity under the Revolving Credit Facility from $1 billion to $1.5 billion, extended the maturities of the facilities to May 25, 2027, and replaced LIBOR with SOFR as the benchmark reference rate.

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.

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domestically originated accounts receivable.

The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings.

The Company’s first Receivables Financing Facility allows for borrowings of up to $180 million and matures on March 19, 2024.

The Company’s second Receivable Financing Facility allows for borrowings of up to $100 million and matures on May 15, 2023.

As of December 31, 2022, the Company’s Consolidated Balance Sheets included $785 million of receivables that were pledged under the two Receivables Financing Facilities.

As of December 31, 2022, $254 million had been borrowed, of which $171 million was classified as current.

Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin.

As of December 31, 2022, the Receivables Financing Facilities had an average interest rate of 5.33%.

Interest is paid on these borrowings on a monthly basis.

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 December 31, 2023, the Company’s Consolidated Balance Sheets included $483 million of gross receivables that were pledged under the facilities.

As of December 31, 2023, $129 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 December 31, 2023, the facilities had an average interest rate of 6.81%.

Interest is paid monthly on these borrowings.

See Note 12, Long-Term Debt in the Notes to Consolidated Financial Statements for further details related to the Company’s debt instruments.

Receivables Factoring

The Company currently has two Receivables Factoring arrangements, pursuant to which certain receivables are sold to banks without recourse in exchange for cash.

One arrangement allows for the factoring of up to $25 million of uncollected receivables originated from the EMEA region.

The second arrangement allows for the factoring of up to €150 million of uncollected receivables originated from the EMEA and Asia-Pacific regions.

Transactions under the Receivables Factoring arrangements are accounted for as sales under Accounting Standards Codification 860, Transfers and Servicing of Financial Assets, with the sold receivables removed from the Company’s balance sheet.

Under these Receivables Factoring arrangements, the Company does not maintain any beneficial interest in the receivables sold.

The banks’ purchase of eligible receivables is subject to a maximum amount of uncollected receivables.

The Company 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 does not maintain any beneficial interest in the receivables sold.

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.

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 third quarter, the Company amended its second arrangement to allow the factoring of uncollected receivables originated from the EMEA region from up to $25 million to $50 million.

Otherwise, the amendment did not substantially change the terms of the arrangement.

As of December 31, 2023 and 2022, there were a total of $56 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 $112 million and $130 million of obligations that were not yet remitted to banks as of December 31, 2023 and 2022, 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.

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.

See Note 19, Accounts Receivable Factoring in the Notes to Consolidated Financial Statements for further details.

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As of December 31, 2023, the Company has cumulatively repurchased 3,517,602 shares of common stock for approximately $1.1 billion, resulting in a remaining amount of share repurchases authorized under the plans of $893 million.

Subsequent to the year ended December 31, 2022, the Company has repurchased 55,811 shares of common stock for approximately $15 million through February 9, 2023.

Future Cash Requirements

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Our cash requirements during the next 12 months and thereafter include payments to satisfy the following obligations:

• Purchase obligations — We have a limited number of multi-year purchase commitments, primarily related to semiconductors and cloud-services, which contain minimum purchase requirements and are non-cancellable.

As of December 31, 2022, these commitments were approximately $557 million.

This amount excludes routine purchase orders for good and services, as well as amounts already reflected within Accounts payable or Accrued expenses on the Consolidated Balance Sheet.

• Purchase obligations — The Company has a limited number of multi-year purchase commitments, primarily related to semiconductors and cloud services, which contain minimum purchase requirements and are non-cancellable.

As of December 31, 2023, these multi-year commitments were approximately $124 million.

This amount excludes routine purchase orders for goods and services, as well as amounts already reflected within Current liabilities on the Consolidated Balance Sheet.

See Note 14, Accrued Liabilities, Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional details.

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Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements provides additional discussion of these items along with other significant accounting policies of the Company.

The accounting estimates described below have been identified by Management as those that are most critical to our financial statements, as they require management to make significant judgments and assumptions about inherently uncertain matters.

The accounting estimates described below have been identified by Management as those that are most significant to our financial statements.

We estimate a provision or benefit for income taxes and amounts to be settled or recovered in several tax jurisdictions globally.

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Goodwill Impairment

Goodwill impairment testing consists of comparing the estimated fair value of each of our reporting units to its carrying value.

Fair value determinations require judgment and are sensitive to changes in underlying assumptions, estimates, as well as market factors.

Our goodwill impairment testing includes a comparison of the estimated fair value of each of our reporting units to its carrying value.

Fair value determinations require judgment and can be sensitive to changes in underlying assumptions, estimates, as well as market factors.

We estimate the fair value of reporting units using both income and market-based valuation approaches.

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market-based discount rates and other market factors.

Our annual quantitative impairment test, most recently completed in the fourth quarter of 2022, continues to indicate that the fair values of each of our reporting units significantly exceed their respective carrying values.

Our annual impairment testing, most recently completed in the fourth quarter of 2023, continues to indicate that the fair values of each of our reporting units significantly exceed their respective carrying values.

Revenue Recognition

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The Company has provided reconciliations of the supplemental non-GAAP financial measures, as defined under the rules of the Securities and Exchange Commission, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP.

These supplemental non-GAAP financial measures – Consolidated Organic Net sales growth, AIT Organic Net sales growth, and EVM Organic Net sales growth – are presented because our management evaluates our financial results both including and excluding the effects of business acquisitions and foreign currency translation, as applicable.

These supplemental non-GAAP financial measures – Consolidated Organic Net sales (decline) growth, AIT Organic Net sales (decline) growth, and EVM Organic Net sales (decline) growth – are presented because our management evaluates our financial results both including and excluding the effects of business acquisitions and foreign currency translation, as applicable.

Management believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of our business from period to period and trends in our historical operating results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis