# ZEBRA TECHNOLOGIES CORP (ZBRA) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ZEBRA TECHNOLOGIES CORP's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/877212/000087721222000026/zbra-20211231.htm
Accession: 0000877212-22-000026
Filing date: 2022-02-10
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ZBRA/
All MD&A years: /company/ZBRA/mda/
Next year: /company/ZBRA/mda/fy2022/ (FY 2022)

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section generally discusses fiscal 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 are not included herein. 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, 2020 for that discussion.

Overview

Zebra Technologies Corporation and its subsidiaries (“Zebra” or the “Company”) is a global leader respected for innovative Enterprise Asset Intelligence (“EAI”) solutions in the automatic identification and data capture solutions industry. We design, manufacture, and sell a broad range of products and solutions, including cloud-based subscriptions, that capture and move data. These products and solutions include mobile computers; barcode scanners and imagers; radio frequency identification device (“RFID”) readers; specialty printers for barcode labeling and personal identification; real-time location systems (“RTLS”); related accessories and supplies, such as self-adhesive labels and other consumables; and related software applications. We also provide a full range of services, including maintenance, technical support, repair, managed and professional services, as well as various workflow optimization solutions, including cloud-based software subscriptions and robotic automation solutions. End-users of our products, solutions and services include those in the retail and e-commerce, manufacturing, transportation and logistics, healthcare, public sector, and other industries within the following regions: North America; Europe, Middle East, and Africa (“EMEA”); Asia-Pacific; and Latin America.  We provide our products, solutions, and services in approximately 180 countries, with 128 facilities and approximately 9,800 employees worldwide.

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

The Company’s operations consist of two reportable segments that provide complementary offerings to our customers: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”). 

•The AIT segment is an industry leader in barcode printing and asset tracking technologies. Its major product lines include barcode and card printers, supplies, including temperature-monitoring labels, services, and location solutions.

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

In the first quarter of 2021, the retail solutions product line, which provides a range of physical inventory management solutions with application in the retail industry, including solutions for full store physical inventories, cycle counts and analytics, moved from our AIT segment into our EVM segment contemporaneous with a change in our organizational structure and management of the business. We have reported our results reflecting this change, including historical periods, on a comparable basis. This change did not have an impact to the Consolidated Financial Statements.

Beginning in the first quarter of 2022, we will move the location solutions product line from our AIT segment into our EVM segment contemporaneously with a change in our organizational structure and management of the business. We will begin reporting our results reflecting this change in the first quarter of 2022 and will present historical periods on a comparable basis. This change will not have an impact to the Consolidated Financial Statements and is immaterial to our current and historical reportable segment results.

Recent Developments

COVID-19 Outbreak

The global coronavirus (“COVID-19”) pandemic continues to be complex and rapidly evolving. Governmental agencies, to varying degrees, have imposed, and continue to impose, several protocols and regulations restricting activities of individuals in an effort to limit the spread of COVID-19. We have implemented a number of measures in an effort to protect our employees’ health and well-being over the course of the pandemic tailored to address the local impacts, including having the majority of office workers work remotely during the height of the pandemic and gradually returning to offices as restrictions are lifted,

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limiting employee travel, and implementing more strenuous health and safety measures for hosting and attending in-person industry events. Throughout the pandemic, distribution centers and repair centers have remained open at varying capacity levels to ensure continued support to our customers, many of whom provide essential goods and services to communities. As governments ease their restrictions, we have been allowing, and will continue to allow, our employees to come back to work in our offices in a controlled approach, with modified business practices, including masking and social distancing protocols consistent with government regulations, vaccine verification, health screening, office capacity restrictions and tracking and tracing protocols where applicable, provision of personal protective equipment, increasing air exchange/ventilation and extensively and frequently disinfecting our workspaces.

The negative impacts to Net sales from the pandemic, including declines in customer demand and impacts of operational closures within our supply chain, were most pronounced in the first half of 2020 and lessened later in 2020 as the global economic recovery took shape. While the ultimate duration of the pandemic and timing of recovery in each region remains highly uncertain, the Company’s 2021 sales and profitability, particularly in the first half of the year, have benefited from pent-up demand from customers who we believe had delayed purchases in 2020 due to the pandemic, as well as the resulting acceleration of the underlying trend to digitize and automate workflows. The level of demand for certain product components has resulted in lengthened lead times and higher input costs in 2021, including freight, which have become more significant during the second half of 2021 and, in some cases, have impacted our ability to meet customer demand. The Company expects input costs to remain elevated for some period of time, which we believe will be partially mitigated through higher pricing where permitted by market conditions. The availability of certain component parts has and may continue to negatively impact our ability to meet forecasted customer demand as suppliers of necessary parts allocate supply among their customers, including the Company.

Acquisitions

Antuit: On October 7, 2021, the Company acquired Antuit Holdings Pte. Ltd. (“Antuit”) for $145 million in cash, net of cash acquired. Antuit is a provider of demand-sensing and pricing optimization software solutions for retail and consumer products companies. Through this acquisition, the Company expands its portfolio of software solution offerings to customers in these industries by combining Antuit’s platform with its existing software solutions and EVM products. The operating results of Antuit are included in the EVM segment.

Fetch: On August 9, 2021, the Company acquired Fetch Robotics, Inc. (“Fetch”) for total purchase consideration of $301 million, which consisted of $290 million in cash paid, net of cash acquired, and the fair value of the Company’s existing minority ownership interest in Fetch of $11 million, as remeasured upon acquisition. Fetch is a provider of autonomous mobile robot solutions for customers who operate in the manufacturing, distribution, and fulfillment industries, enabling customers to optimize workflows through robotic automation. Through this acquisition, the Company intends to expand its automation solution offerings within these industries. The operating results of Fetch are included within the EVM segment.

Adaptive Vision: On May 17, 2021, the Company acquired Adaptive Vision Sp. z o.o. (“Adaptive Vision”) for $18 million in cash, net of cash acquired. Adaptive Vision is a provider of graphical machine vision software with applications in the manufacturing industry, as well as a provider of libraries and other offerings for machine vision developers. The operating results of Adaptive Vision are included within the EVM segment.

Reflexis: On September 1, 2020, the Company acquired Reflexis Systems, Inc. (“Reflexis”) for $547 million in cash, net of cash acquired. Reflexis is a provider of task and workforce management, execution, and communication solutions for customers in the retail, food service, hospitality, and banking industries. Through this acquisition, the Company intends to enhance its solution offerings to customers in those industries by combining Reflexis’ platform with its existing software solutions and EVM products. The operating results of Reflexis are included within the EVM segment.

Cortexica: On November 5, 2019, the Company acquired Cortexica Vision Systems Limited (“Cortexica”) for $7 million in cash. Cortexica is a provider of computer vision-based artificial intelligence solutions primarily serving the retail industry. The operating results of Cortexica are included within the EVM segment.

Profitect: On May 31, 2019, the Company acquired Profitect, Inc. (“Profitect”) for total purchase consideration of $79 million, which consisted of $75 million in cash paid, net of cash acquired, and the fair value of the Company’s existing minority ownership interest in Profitect of $4 million, as remeasured upon acquisition. Profitect is a provider of prescriptive analytics primarily serving the retail industry. Through this acquisition, the Company intends to enhance its solution offerings to customers in the retail industry by combining Profitect’s platform with its existing software solutions and EVM products. The operating results of Profitect are included within the EVM segment.

Temptime: On February 21, 2019, the Company acquired Temptime Corporation (“Temptime”) for $180 million in cash, net of cash acquired. Temptime is a developer and manufacturer of temperature-monitoring labels and devices. Through this

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acquisition, the Company expanded its product offerings within the healthcare industry, with possible future applications in other industries involving temperature-sensitive products. The operating results of Temptime are included within the AIT segment.

Restructuring Programs

In the fourth quarter of 2021, the Company committed to organizational design changes intended to better meet its strategic objectives and improve cost efficiency (referred to as the “2021 Productivity Plan”), principally within the EMEA and North America regions. Exit and restructuring charges associated with the 2021 Productivity Plan, which primarily related to employee benefits and severance, were $7 million during the year ended December 31, 2021. Estimated remaining costs under the 2021 Productivity Plan, which is expected to be completed by 2022, are expected to be up to $3 million.

In the fourth quarter of 2019, the Company committed to certain organizational changes designed to generate operational efficiencies (referred to as the “2019 Productivity Plan”), principally in the North America and EMEA regions. The 2019 Productivity Plan was completed in 2020. Exit and restructuring charges associated with the 2019 Productivity Plan, which primarily related to employee severance and benefits, were $11 million and $8 million during the years ended December 31, 2020 and 2019, respectively.

Product Sourcing Diversification Initiative

In 2020, the Company completed its initiative to diversify its product sourcing footprint to include sourcing products from Taiwan, Vietnam, and Malaysia, thereby reducing its reliance on Chinese-based manufacturing and the impacts of related customs duties (“tariffs”) on U.S imports from China.  In conjunction with this initiative, the Company incurred total one-time costs of $23 million, including $18 million and $5 million during the years ended December 31, 2020 and December 31, 2019, respectively, which are primarily reflected within Operating expenses on the Consolidated Statements of Operations. The Company also made $8 million of incremental equipment purchases during the year ended December 31, 2020.

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Results of Operations: Year Ended 2021 versus 2020 and Year Ended 2020 versus 2019

Consolidated Results of Operations

(amounts in millions, except percentages)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change 2021 vs 2020","","Percent Change 2020 vs 2019"],["","2021","","2020","","2019"],["Net sales:"],["Tangible products","$","4,845","","","$","3,813","","","$","3,907","","","27.1","%","","(2.4)","%"],["Services and software","782","","","635","","","578","","","23.1","%","","9.9","%"],["Total Net sales","5,627","","","4,448","","","4,485","","","26.5","%","","(0.8)","%"],["Gross profit","2,628","","","2,003","","","2,100","","","31.2","%","","(4.6)","%"],["Gross margin","46.7","%","","45.0","%","","46.8","%","","170 bps","","(180) bps"],["Operating expenses","1,649","","","1,352","","","1,408","","","22.0","%","","(4.0)","%"],["Operating income","$","979","","","$","651","","","$","692","","","50.4","%","","(5.9)","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change 2021 vs 2020","","Percent Change 2020 vs 2019"],["","2021","","2020","","2019"],["North America","$","2,819","","","$","2,319","","","$","2,261","","","21.6","%","","2.6","%"],["EMEA","1,976","","","1,495","","","1,462","","","32.2","%","","2.3","%"],["Asia-Pacific","543","","","439","","","518","","","23.7","%","","(15.3)","%"],["Latin America","289","","","195","","","244","","","48.2","%","","(20.1)","%"],["Total Net sales","$","5,627","","","$","4,448","","","$","4,485","","","26.5","%","","(0.8)","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","As a Percentage of Net sales"],["","2021","","2020","","2019","","2021","","2020","","2019"],["Selling and marketing","$","587","","","$","483","","","$","503","","","10.4","%","","10.9","%","","11.2","%"],["Research and development","567","","","453","","","447","","","10.1","%","","10.2","%","","10.0","%"],["General and administrative","348","","","304","","","323","","","6.2","%","","6.8","%","","7.2","%"],["Amortization of intangible assets","115","","","78","","","103","","","NM","","NM","","NM"],["Acquisition and integration costs","25","","","23","","","22","","","NM","","NM","","NM"],["Exit and restructuring costs","7","","","11","","","10","","","NM","","NM","","NM"],["Total Operating expenses","$","1,649","","","$","1,352","","","$","1,408","","","29.3","%","","30.4","%","","31.4","%"]]
[[/GREPCENT_TABLE]]

Consolidated Organic Net sales growth:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020"],["Reported GAAP Consolidated Net sales growth","26.5","%","","(0.8)","%"],["Adjustments:"],["Impact of foreign currency translations (1)","(2.1)","%","","0.6","%"],["Impact of acquisitions (2)","(1.2)","%","","(0.7)","%"],["Consolidated Organic Net sales growth (3)","23.2","%","","(0.9)","%"]]
[[/GREPCENT_TABLE]]

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

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

2021 compared to 2020

Total Net sales increased $1,179 million or 26.5% compared to the prior year primarily due to broad-based customer demand to digitize and automate their businesses. Net sales growth across both of our segments and all of our regions included pent-up demand from customers who we believe had delayed purchases in fiscal 2020 due to the COVID-19 pandemic. In addition, Net sales for the prior year included the negative impacts of supply chain disruptions within our EVM segment resulting from the temporary closure of a key distribution center supplying the Americas late in the first quarter. Excluding the effects of favorable currency changes and acquisitions, the increase in Consolidated Organic Net sales was 23.2%.

Gross margin increased to 46.7% for the current year compared to 45.0% in the prior year. Gross margins were higher than the prior year primarily due to favorable business mix and volume leverage, higher support service margins, favorable currency changes, the mitigation of Chinese import tariffs as of the fourth quarter of 2020, partial recovery of Chinese import tariffs in the current year, and contributions from our recent higher margin EVM acquisitions. These benefits were partially offset by higher premium freight costs.

Operating expenses for the years ended December 31, 2021 and 2020 were $1,649 million and $1,352 million, or 29.3% and 30.4% of Net sales, respectively. The increase in Operating expenses over the prior year was primarily due to higher employee compensation costs associated with higher incentive-based compensation related to improved financial performance in the current year, as well as prior year temporary salary reductions that began late in the second quarter; the inclusion of operating expenses and amortization of intangible assets associated with recently acquired businesses; and increased investment in research and development program projects, principally within our EVM segment. The prior year included costs associated with the diversification of the Company’s product sourcing footprint.

Operating income was $979 million for the current year compared to $651 million for the prior year. The increase was due to higher Gross profit, which was partially offset by higher Operating expenses.

Net income increased 66.1% compared to the prior year due to higher Operating income and favorability in Other expenses, net, partially offset by higher income tax expense detailed as follows:

•Other expenses, net was $11 million for the current year, compared to $91 million in the prior year primarily due to lower interest expense and lower foreign exchange losses in the current year. The current year interest expense benefited from a $13 million gain on interest rate swaps compared to a $46 million loss in the prior year, lower average outstanding debt levels, and lower interest rates.

•The Company’s effective tax rates for the years ended December 31, 2021 and December 31, 2020 were 13.5% and 10.0%, respectively. The increase in the effective tax rate compared to the prior year was primarily due to increases in pre-tax income in jurisdictions with higher tax rates, partially offset by a higher foreign-derived intangible income deduction, higher share-based compensation deductions, and the benefit of the enacted U.K. corporate tax rate increase from 19% to 25% on the Company’s deferred tax assets.

Diluted earnings per share increased to $15.52 as compared to $9.35 in the prior year primarily due to higher Net income.

Results of Operations by Segment

The following commentary should be read in conjunction with the financial results of each operating business segment as detailed in Note 20, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements. To the extent applicable, segment results exclude purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and other intangibles, exit and restructuring costs, and product sourcing diversification costs.

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Asset Intelligence & Tracking Segment (“AIT”)

(amounts in millions, except percentages)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change 2021 vs 2020","","Percent Change 2020 vs 2019"],["","2021","","2020","","2019"],["Net sales:"],["Tangible products","$","1,577","","","$","1,298","","","$","1,347","","","21.5","%","","(3.6)","%"],["Services and software","110","","","94","","","100","","","17.0","%","","(6.0)","%"],["Total Net sales","1,687","","","1,392","","","1,447","","","21.2","%","","(3.8)","%"],["Gross profit","769","","","658","","","720","","","16.9","%","","(8.6)","%"],["Gross margin","45.6","%","","47.3","%","","49.8","%","","(170) bps","","(250) bps"],["Operating expenses","395","","","340","","","369","","","16.2","%","","(7.9)","%"],["Operating income","$","374","","","$","318","","","$","351","","","17.6","%","","(9.4)","%"]]
[[/GREPCENT_TABLE]]

AIT Organic Net sales growth:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["AIT Reported GAAP Net sales growth","21.2","%","","(3.8)","%"],["Adjustments:"],["Impact of foreign currency translations (1)","(1.9)","%","","0.4","%"],["Impact of acquisition (2)","\u2014","%","","(0.5)","%"],["AIT Organic Net sales growth (3)","19.3","%","","(3.9)","%"]]
[[/GREPCENT_TABLE]]

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

(2)For purposes of computing AIT Organic Net sales growth, amounts directly attributable to the Temptime acquisition are excluded for twelve months following its acquisition date.

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

2021 compared to 2020

Total Net sales for AIT increased $295 million or 21.2% compared to the prior year primarily due to higher sales of printing products (contributing the vast majority of the total increase) and supplies reflecting broad-based customer demand across all of our regions, inclusive of pent-up demand from customers who we believe had delayed purchases in fiscal 2020 due to the COVID-19 pandemic, as well as favorable currency changes. Excluding the impact of foreign currency changes, AIT Organic Net sales growth was 19.3%.

Gross margin decreased to 45.6% in the current year compared to 47.3% for the prior year, primarily due to higher premium freight costs, partially offset by favorable business mix and volume leverage, favorable currency changes, partial recovery of Chinese import tariffs in the current year, and the mitigation of Chinese import tariffs as of the fourth quarter of 2020.

Operating income increased 17.6% in the current year compared to the prior year. The increase was due to higher Gross profit, which was partially offset by higher Operating expenses.

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Enterprise Visibility & Mobility Segment (“EVM”)

(amounts in millions, except percentages)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change 2021 vs 2020","","Percent Change 2020 vs 2019"],["","2021","","2020","","2019"],["Net sales:"],["Tangible products","$","3,268","","","$","2,515","","","$","2,560","","","29.9","%","","(1.8)","%"],["Services and software","678","","","548","","","478","","","23.7","%","","14.6","%"],["Total Net sales","3,946","","","3,063","","","3,038","","","28.8","%","","0.8","%"],["Gross profit","1,865","","","1,358","","","1,387","","","37.3","%","","(2.1)","%"],["Gross margin","47.3","%","","44.3","%","","45.7","%","","300 bps","","(140) bps"],["Operating expenses","1,107","","","888","","","900","","","24.7","%","","(1.3)","%"],["Operating income","$","758","","","$","470","","","$","487","","","61.3","%","","(3.5)","%"]]
[[/GREPCENT_TABLE]]

EVM Organic Net sales growth:

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["EVM Reported GAAP Net sales growth","28.8","%","","0.8","%"],["Adjustments:"],["Impact of foreign currency translations (1)","(1.9)","%","","0.7","%"],["Impact of acquisitions (2)","(1.9)","%","","(1.0)","%"],["EVM Organic Net sales growth (3)","25.0","%","","0.5","%"]]
[[/GREPCENT_TABLE]]

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

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

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

2021 compared to 2020

Total Net sales for EVM increased $883 million or 28.8% compared to the prior year primarily due to broad-based customer demand resulting in higher sales of mobile computing products (contributing the vast majority of the total increase) and support services across all regions, as well as higher sales of data capture products across most regions. In addition, our recent acquisitions contributed to the growth of Services and software sales in the current year. Excluding the impacts of foreign currency changes and acquisitions, EVM Organic Net sales growth was 25.0%.

Gross margin increased to 47.3% in the current year compared to 44.3% in the prior year, primarily due to favorable business mix and volume leverage, higher support service margins, favorable currency changes, the mitigation of Chinese import tariffs as of the fourth quarter of 2020, and contributions from our higher margin acquisitions. These benefits were partially offset by higher premium freight costs.

Operating income for the current year increased 61.3% compared to the prior year period. The increase was due to higher Gross profit, which was partially offset by higher Operating expenses.

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Liquidity and Capital Resources

The primary factors that influence our liquidity include the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, repatriation of foreign cash, acquisitions, and share repurchases. Management believes that our existing capital resources, inclusive of available borrowing capacity on debt and other financing facilities and funds generated from operations, are sufficient to meet anticipated capital requirements and service our indebtedness. The following table summarizes our cash flow activities for the years indicated (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","$ Change 2021 vs 2020","","$ Change 2020 vs 2019"],["","2021","","2020","","2019"],["Cash flow provided by (used in):"],["Operating activities","$","1,069","","","$","962","","","$","685","","","$","107","","","$","277"],["Investing activities","(546)","","","(641)","","","(335)","","","95","","","(306)"],["Financing activities","(371)","","","(157)","","","(365)","","","(214)","","","208"],["Effect of exchange rates on cash balances","\u2014","","","(2)","","","1","","","2","","","(3)"],["Net increase (decrease) in cash and cash equivalents, including restricted cash","$","152","","","$","162","","","$","(14)","","","$","(10)","","","$","176"]]
[[/GREPCENT_TABLE]]

2021 vs. 2020

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

•The increase in cash provided by operating activities compared to the prior year was primarily due to higher operating income, lower inventory levels, and lower employee incentive compensation payments. These benefits were partially offset by higher accounts receivable balances reflecting the timing of customer transactions within the period, higher income tax payments, as well as reduced benefits from our accounts receivable factoring programs.

•The decrease in cash used in investing activities compared to the prior year was primarily due to lower cash paid for acquisitions. The current year includes cash payments for the acquisitions of Antuit, Fetch, and Adaptive Vision, whereas the prior year includes a cash payment for the acquisition of Reflexis.

•The increase in net cash used in financing activities during the current year was primarily due to higher net debt repayments, as well as higher payments related to share-based compensation plans in the current year, which were partially offset by lower share repurchases. The prior year included a net source of cash associated with the timing of factored receivables servicing activities.

Company Debt

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

[[GREPCENT_TABLE]]
[["","December 31,"],["","2021","","2020"],["Term Loan A","$","888","","","$","917"],["2020 Term Loan","\u2014","","","100"],["Receivables Financing Facilities","108","","","235"],["Total debt","$","996","","","$","1,252"],["Less: Debt issuance costs","(3)","","","(5)"],["Less: Unamortized discounts","(2)","","","(2)"],["Less: Current portion of debt","(69)","","","(364)"],["Total long-term debt","$","922","","","$","881"]]
[[/GREPCENT_TABLE]]

Term Loan A

The principal on Term Loan A is due in quarterly installments, with the next quarterly installment due in March 2022 and the majority due upon the August 9, 2024 maturity date. The Company may make prepayments, in whole or in part, without premium or penalty, and would be required to prepay certain outstanding amounts in the event of certain circumstances or transactions. As of December 31, 2021, the Term Loan A interest rate was 1.35%. Interest payments are made monthly and are subject to variable rates plus an applicable margin.

2020 Term Loan

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In September 2020, the Company entered into a new $200 million term loan (“2020 Term Loan”), with the proceeds used to partly fund the acquisition of Reflexis. The Company repaid $100 million of principal during the fourth quarter of 2020 and the remaining $100 million of principal in the first quarter of 2021.

Receivables Financing Facilities

The Company has two Receivables Financing Facilities with financial institutions that have a combined total borrowing limit of up to $280 million. As collateral, the Company pledges perfected first-priority security interests in its U.S. domestically originated accounts receivable. The Company has accounted for transactions under its Receivables Financing Facilities as secured borrowings. The Company’s first Receivables Financing Facility allows for borrowings of up to $180 million and matures on March 19, 2024. The Company’s second Receivable Financing Facility allows for borrowings of up to $100 million and matures on May 16, 2022.

As of December 31, 2021, the Company’s Consolidated Balance Sheets included $643 million of receivables that were pledged under the two Receivables Financing Facilities. As of December 31, 2021, $108 million had been borrowed, of which $13 million was classified as current. Borrowings under the Receivables Financing Facilities bear interest at a variable rate plus an applicable margin. As of December 31, 2021, the Receivables Financing Facilities had an average interest rate of 0.99%. Interest is paid on these borrowings on a monthly basis.

Revolving Credit Facility

The Company has a Revolving Credit Facility that is available for working capital and other general business purposes, including letters of credit. As of December 31, 2021, the Company had letters of credit totaling $7 million, which reduced funds available for borrowings under the Revolving Credit Facility from $1 billion to $993 million. No borrowings were outstanding under the Revolving Credit Facility as of December 31, 2021 or December 31, 2020.

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 services the receivables on behalf of the banks, but otherwise maintains no significant continuing involvement with respect to the receivables. Sale proceeds that are representative of the fair value of factored receivables, less a factoring fee, are reflected in Net cash provided by operating activities on the Consolidated Statements of Cash Flows, while sale proceeds in excess of the fair value of factored receivables are reflected in Net cash used in financing activities on the Consolidated Statements of Cash Flows.

As of December 31, 2021 and 2020 there were a total of $24 million and $70 million, respectively, of uncollected receivables that had been sold and removed from the Company’s Consolidated Balance Sheets.

As servicer of sold receivables, the Company had $141 million and $142 million of obligations that were not yet remitted to banks as of December 31, 2021 and 2020, respectively. These obligations are included within Accrued liabilities on the Consolidated Balance Sheets, with changes in such obligations reflected within Net cash used in 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.

Share Repurchases

On July 30, 2019, the Company announced that its Board of Directors authorized a share repurchase program for up to an aggregate amount of $1 billion of its outstanding shares of common stock. The share repurchase program does not have a stated expiration date. The level of the Company’s repurchases depends on a number of factors, including its financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors its management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. Repurchases may be effected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. During the year ended December 31, 2021, the Company repurchased 109,115 shares of

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common stock for $57 million. Comparatively, during the year ended December 31, 2020, the Company repurchased 948,740 shares of common stock for $200 million. As of December 31, 2021, approximately $696 million of common stock remained authorized for repurchase under the program. Subsequent to year end, the Company has repurchased 339,142 shares of common stock for $173 million through February 3, 2022.

Future Cash Requirements

We believe that our cash and cash equivalents, which totaled $332 million as of December 31, 2021, along with anticipated cash generation from operations and available borrowing capacity on debt and other financing facilities, will be sufficient to fund the Company’s cash requirements during the next 12 months and thereafter based on our current business plans.

Included in the Company’s Cash and cash equivalents are amounts held by foreign subsidiaries, which was $39 million and $37 million as of December 31, 2021 and 2020, respectively. We do not expect that Cash and cash equivalents held by foreign subsidiaries will need to be repatriated in order to fund the Company’s U.S. operations based on current cash requirements.

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

•Purchase obligations — We generally procure inventories and other goods and services through purchase orders at levels to satisfy our operational needs for 12 months or less. We have a limited number of multi-year inventory and service-related purchase commitments which contain minimum purchase requirements and are non-cancellable. As of December 31, 2021, these commitments were approximately $360 million relating to the next five years, excluding amounts already reflected within Accounts payable or Accrued expenses on the Consolidated Balance Sheet. See Note 14, Accrued Liabilities, Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional details.

•Debt obligations — We expect to make total payments of approximately $101 million associated with the Company’s debt facilities in 2022. This expected use of cash is based on the Company’s current borrowings and applicable interest rates and margins as of December 31, 2021, and includes principal and interest payments along with expected cash settlements associated with the Company’s interest rate swaps. In the ordinary course of business, the Company may decide to borrow additional amounts or repay principal earlier than contractually owed, which would affect future cash payments. See Note 12, Long-Term Debt in the Notes to Consolidated Financial Statements for further details related to the Company’s debt facilities.

•Leases obligations — We lease certain manufacturing facilities, distribution centers, sales and administrative offices, equipment, and vehicles. As of December 31, 2021, the Company’s fixed lease commitments totaled $215 million, of which $47 million is payable in 2022. See Note 13, Leases in the Notes to Consolidated Financial Statements for further details related to the Company’s lease arrangements.

In addition to the expected cash requirements described above, the Company may use cash to fund strategic acquisitions, investments, or repurchase common stock under its share repurchase program. We also expect to spend approximately $65 million to $75 million on capital expenditures in 2022.

Critical Accounting Estimates

Management prepared the consolidated financial statements of the Company under accounting principles generally accepted in the U.S. The application of these principles requires the use of estimates which affect the amounts reported in our consolidated financial statements. While we believe that our estimates are reasonable based upon available information, actual results may substantially differ from those estimates. 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 and complex matters.

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Income Taxes

We estimate a provision or benefit for income taxes and amounts to be settled or recovered in several tax jurisdictions globally. Our estimates are complex and involve significant judgments and interpretations of regulations. Resolution of income tax treatments in individual jurisdictions may not be known for several years after completion of a given year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis, which requires estimation of our ability to generate future taxable income. In particular, our income tax provision or benefit is dependent on our ability to forecast future taxable income in the U.S., U.K., Singapore, and other jurisdictions. Significant judgments included in our forecasts include projecting future sales volumes and pricing, costs to manufacture and procure products and to deliver services and solutions, among other factors. There were no significant changes in estimates to our income tax provision during the current year.

Acquisitions

We account for acquired businesses using the acquisition method of accounting. This method requires that the purchase price be allocated to the identifiable assets acquired and liabilities assumed at their estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. The estimates used to determine the fair values of long-lived intangible assets can be complex and require judgment. We generally value intangible assets using income-based valuation methodologies, such as the excess earnings method, which require a number of critical estimates that include, but are not limited to, future expected cash flows from revenues and operating activities, and the determination of discount rates.

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. We estimate the fair value of reporting units using both income and market-based valuation approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results and cash flows, and the determination of discount rates. The market approach estimates fair value using comparable marketplace fair value data from a comparable industry group. Estimating the fair value of reporting units also requires that we make a number of assumptions and estimates regarding our long-term growth and cash flow expectations, as well as overall industry and economic conditions. These estimates and assumptions include, but are not limited to, projections of revenue and income growth rates, capital investments, competitive and customer trends, appropriate peer group selection, market-based discount rates and other market factors. Our annual quantitative impairment test, most recently completed in the fourth quarter of 2021, continues to indicate that the fair values of each of our reporting units significantly exceed their respective carrying values.

Revenue Recognition

We recognize revenues when we transfer control of promised goods, solutions or services to our customers in an amount that reflects the consideration we expect to receive. The consideration that we expect to receive is estimated by reflecting reductions to our transaction price for product returns, rebates, and other incentives. These estimates are developed using the expected value that the Company anticipates receiving and are based on recent trends observed in similar transactions. Additionally, many of our contracts with customers contain multiple performance obligations, including various hardware, software, and/or services. For such contracts that contain multiple performance obligations, we allocate the estimated total transaction price to each performance obligation based on relative standalone selling prices (“SSP”). The determination of SSP is established at a regional level. SSP is based on observable prices in recent standalone transactions for the same or similar offerings, to the extent available, which is often applicable to tangible products and software licenses. Alternatively, in the absence of recent observable prices, the Company generally applies the expected cost-plus margin approach to professional services, repair and maintenance services, and solution offerings. There were no changes to our estimation processes for consideration received or SSP that materially affected revenues during the year.

New Accounting Pronouncements

See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements regarding recent accounting pronouncements.

Non-GAAP Measures

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

These supplemental non-GAAP financial measures – Consolidated Organic Net sales growth, AIT Organic Net sales growth, and EVM Organic Net sales growth – are presented because our management evaluates our financial results both including and

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excluding the effects of business acquisitions and foreign currency translation, as applicable. Management believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of our business from period to period and trends in our historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with the GAAP financial measures presented.

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