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

Overview

The Company is a global leader respected for innovative EAI solutions in the automatic information and data capture solutions industry. We design, manufacture, and sell a broad range of products that capture and move data, including: mobile computers; barcode scanners and imagers; RFID readers; specialty printers for barcode labeling and personal identification; RTLS; related accessories and supplies, such as self-adhesive labels and other consumables; and software utilities and applications. We also provide a full range of services, including maintenance, technical support, and repair, managed and professional services, including cloud-based subscriptions. End-users of our products and services include those in the retail and e-commerce, transportation and logistics, manufacturing, healthcare, hospitality, warehouse and distribution, energy and utilities, government and education enterprises around the world. Benefits of our solutions include improved efficiency and workflow management, increased productivity and asset utilization, real-time, actionable enterprise information, and better customer experiences. We provide our products and services globally through a direct sales force and an extensive network of partners. We provide products and services in over 180 countries, with 109 facilities and approximately 7,400 employees worldwide.

Segments

The Company’s operations consist of two reportable segments: Asset Intelligence & Tracking (“AIT”) and Enterprise Visibility & Mobility (“EVM”).

Asset Intelligence & Tracking

The AIT segment is an industry leader in barcode printing and asset tracking technologies. Its major product lines include barcode and card printers, supplies, services and location solutions. Industries served include retail and e-commerce, transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America; Europe, Middle East, and Africa (“EMEA”); Asia-Pacific; and Latin America.

Enterprise Visibility & Mobility

The EVM segment is an industry leader in automatic information and data capture solutions. Its major product lines include mobile computing, data capture, RFID, and services. Industries served include retail and e-commerce, transportation and logistics, manufacturing, healthcare, and other end markets within the following regions: North America; EMEA; Asia-Pacific; and Latin America.

Geographic Information

For the year ended December 31, 2018, the Company recorded $4.2 billion of Net sales in its consolidated statements of operations, of which approximately 48.4% were attributable to North America; approximately 33.4% were attributable to EMEA; and other foreign locations accounted for the remaining 18.2%. Relative Net sales attributable to each region is comparable with the prior year period.

Acquisition and Integration

On August 14, 2018, the Company completed its tender offer to acquire all outstanding common stock of Xplore for $6.00 per share. In connection with this acquisition, the Company paid $87 million in cash, which included $72 million for the net assets acquired, a $9 million payment of Xplore debt, as well as $6 million of other Xplore transaction-related obligations. The operating results of Xplore are included within the Company’s EVM segment beginning August 14, 2018, contributing approximately 1% to our consolidated Net sales growth in 2018. The Xplore acquisition was accounted for under the acquisition method of accounting for business combinations and the preliminary opening balance sheet was included in the Company’s Consolidated Balance Sheet and operating results beginning August 14, 2018.

On October 27, 2014, the Company acquired Enterprise from MSI and began integration activities focused on creating “One Zebra”. Our integration priorities centered on maintaining business continuity while identifying and implementing cost synergies, operating efficiencies, and integration of functional organizations and processes. Another key focus of the integration was to exit MSI-provided TSAs related primarily to IT systems and support services. These TSAs were an interim measure to continue the operations of the Enterprise business without disruption while integration activities were completed. The Company substantially completed its integration activities in fiscal year 2017, including the implementation of a common enterprise resource planning system and has exited the last TSAs with MSI.

Restructuring Programs

In the first quarter 2017, the Company’s executive leadership approved an initiative to continue the Company’s efforts to increase operational efficiency (the “Productivity Plan”). The Productivity Plan built upon the exit and restructuring initiatives specific to the October 2014 Enterprise acquisition (the “Acquisition Plan”). Actions under the Productivity Plan included organizational design changes, process improvements and automation. The Company substantially completed all initiatives

under the Acquisition Plan as of December 31, 2017, and substantially completed all initiatives under the Productivity Plan as of December 31, 2018. Exit and restructuring costs are not included in the operating results of our segments as they do not impact the specific segment measures as reviewed by our Chief Operating Decision Maker and therefore are reported as a component of Corporate eliminations. See Note 18, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements.

Total exit and restructuring charges of $23 million life-to-date specific to the Productivity Plan have been recorded through December 31, 2018 and include severance and related benefits, lease exit costs and other expenses. Charges related to the Productivity Plan for the year ended December 31, 2018 and 2017 were $11 million and $12 million, respectively.

Total exit and restructuring charges of $69 million life-to-date specific to the Acquisition Plan have been recorded through December 31, 2018 and include severance and related benefits, lease exit costs and other expenses. Charges related to the Acquisition Plan for the periods ended December 31, 2017 and 2016, were $4 million and $19 million, respectively.

See Note 8, Costs Associated with Exit and Restructuring Activities in the Notes to Consolidated Financial Statements for further information.

Impact of U.S. Tax Reform

Enacted on December 22, 2017, the Tax Cut and Jobs Act (“TCJA” or “the Act”) reduced the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. Based on current operations, the Company is subject to the Global Intangible Low-Taxed Income and the Deduction for Foreign-Derived Intangible Income provisions (collectively referred to as “GILTI”) of the Act, for which we recorded income tax expense of $10 million in 2018. We are not currently subject to the new limitations which defer U.S. interest deductions in excess of 30% of adjusted taxable income or the Base Erosion Anti-Avoidance Tax (“BEAT”). However, the application of the interest limitations and BEAT regime may apply in the future, depending on changes in the Company’s business model or the level of taxable income in any given year. Additionally, the Company is no longer able to deduct performance-based compensation for its covered employees which exceeds the limitation under amended Internal Revenue Code Section 162(m). These impacts are included in the calculation of the Company’s effective tax rate.

During 2017, the Company provisionally recognized an income tax expense of $72 million associated with the Act, comprised of one-time transition tax of $37 million and $35 million remeasurement of its net U.S. deferred tax assets based on the federal statutory rate of 21%.

During 2018, the Company finalized its analysis of the Act, including the one-time transition tax and measurement of net deferred tax assets, and recorded a $3 million income tax benefit for the year ended December 31, 2018 as a result of differences between its final analysis and provisional analysis from the prior year. The final analysis included both federal and state tax effects based on legislative pronouncements through December 31, 2018. The Company also utilized a total of $28 million of available net operating losses, research and development credits, alternative minimum tax credits, and foreign tax credits, in order to reduce its future cash payments for the one-time transition tax, resulting in a net liability for the one-time transition tax of $6 million, of which $1 million has been classified as a short term liability and $5 million as a long term liability. The final one-time transition tax installment payment will be made in 2024.

See Note 14, Income Taxes in the Notes to Consolidated Financial Statements for further information.

Results of Operations: Year Ended 2018 versus 2017 and Year Ended 2017 versus 2016

Consolidated Results of Operations

(amounts in millions, except percentages)

	Year Ended December 31,												Percent Change 2018 vs 2017			Percent Change 2017 vs 2016
	2018				2017				2016
Net sales	$	4,218			$	3,722			$	3,574			13.3	%		4.1	%
Gross profit	1,981				1,710				1,642				15.8	%		4.1	%
Operating expenses	1,371				1,388				1,562				(1.2	)%		(11.1	)%
Operating income	$	610			$	322			$	80			89.4	%		302.5	%
Gross margin	47.0		%		45.9		%		45.9		%

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

	Year Ended December 31,												Percent Change 2018 vs 2017			Percent Change 2017 vs 2016
	2018				2017				2016
North America	$	2,041			$	1,798			$	1,739			13.5	%		3.4	%
Europe, Middle East, and Africa	1,409				1,221				1,138				15.4	%		7.3	%
Asia-Pacific	520				468				483				11.1	%		(3.1	)%
Latin America	248				235				214				5.5	%		9.8	%
Total Net sales	$	4,218			$	3,722			$	3,574			13.3	%		4.1	%

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

	Year Ended December 31,												As Percentage of Net sales
	2018				2017				2016				2018			2017			2016
Selling and marketing	$	483			$	448			$	444			11.5	%		12.0	%		12.4	%
Research and development	444				389				376				10.5	%		10.5	%		10.5	%
General and administrative	328				301				307				7.8	%		8.1	%		8.6	%
Amortization of intangible assets	97				184				229				NM			NM			NM
Acquisition and integration costs	8				50				125				NM			NM			NM
Impairment of goodwill and other intangibles	—				—				62				NM			NM			NM
Exit and restructuring costs	11				16				19				NM			NM			NM
Total Operating expenses	$	1,371			$	1,388			$	1,562			32.5	%		37.3	%		43.7	%

Consolidated Organic Net sales growth:

	Year Ended December 31,
	2018			2017
Reported GAAP Consolidated Net sales growth	13.3	%		4.1	%
Adjustments:
Impact of foreign currency translation (1)	(1.6	)%		(0.6	)%
Impact of Xplore acquisition (2)	(0.6	)%		—	%
Impact of Wireless LAN divestiture (3)	—	%		3.2	%
Corporate, eliminations (4)	—	%		(0.2	)%
Consolidated Organic Net sales growth	11.1	%		6.5	%

(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, for certain currencies, the current period results at the currency exchange

rates used in the comparable prior year period, rather than the exchange rates in effect during the current period. In addition, we exclude the impact of the company’s foreign currency hedging program in both the current and prior year periods.

(2)	For purposes of computing Organic Net sales, amounts directly attributable to the Xplore acquisition (included in our consolidated results beginning August 14, 2018) will be excluded for 12 months following the acquisition date.

(3)	The Company sold the WLAN business in October 2016. The Company excludes the impact of the Net sales of this business in 2016 when computing Organic Net sales growth.

(4)	Amounts included in Corporate, eliminations consist of purchase accounting adjustments not reported in segments related to the Enterprise acquisition.

2018 compared to 2017

Net sales increased by $496 million or 13.3% compared with the prior year, reflecting growth across all regions, most notably North America, EMEA and Asia-Pacific. The increase in Net sales was primarily due to higher sales of mobile computing, barcode printing and data capture products. Net sales growth was also positively impacted by currency changes, primarily in the EMEA region, as well as the inclusion of Xplore. Consolidated Organic Net sales growth was 11.1%.

Gross margin increased to 47.0% in the current year compared to 45.9% in the prior year. Gross margin improvement was driven by higher margins in both the EVM and AIT segments primarily due to operational efficiencies, favorable business mix as well as favorable foreign currency changes.

Operating expenses for the years ended December 31, 2018 and 2017 were $1.4 billion, or 32.5% and 37.3% of Net sales, respectively. As a percentage of Net sales, operating costs continue trending favorably primarily due to lower intangible asset amortization expense and acquisition and integration charges. The lower amortization expense results from certain acquired intangible assets becoming fully amortized in 2017. Additionally, the Company had lower acquisition and integration charges in the current year as the Enterprise business integration activities were substantially completed during 2017. Current operating costs reflect higher compensation costs, which include the impact of higher incentive-based compensation associated with financial performance, a $13 million pretax charge related to a legal settlement included within general and administrative expense, investments to accelerate organic growth, as well as the inclusion of Xplore.

Operating income was $610 million for the current year, compared to $322 million for the prior year. The increase was primarily due to higher Net sales and Gross profit as well as lower Operating expenses.

Total Other expenses, net was $86 million for the current year, compared to $234 million for the prior year. The decrease was primarily due to $81 million reduction of debt extinguishment and modification costs versus the prior year. The current year also benefited from lower outstanding debt and interest rates, a $10 million gain on sale of certain investments, and a $6 million increase in interest rate swap gains.

The Company recognized income tax expense of $103 million and $71 million for the years ended December 31, 2018 and 2017, respectively. The Company’s effective tax rates were 19.7% and 80.7% as of December 31, 2018 and 2017, respectively. The decrease in the effective tax rate in the current year versus the prior year is primarily due to favorable year-over-year impacts of U.S. Tax Reform, changes in valuation allowances, U.S. impacts of the Enterprise acquisition as well as uncertain tax benefits, partially offset by the benefits of net foreign deferred tax asset remeasurements and intercompany asset transfers recorded in the prior year as well as reduced year-over-year favorability of foreign income taxes.

2017 compared to 2016

Net sales increased by $148 million or 4.1% compared with the prior year period. The increase in Net sales was due to higher hardware sales in North America, EMEA, and Latin America, offset by lower hardware sales in Asia-Pacific. The increase in hardware sales was largely attributable to increased sales of mobile computing, data capture, and barcode printing products, partially offset by the impact of the divestiture of the WLAN business in October 2016. Services sales were lower primarily due to the impact of the WLAN divestiture. Organic net sales growth was 6.5%, reflecting growth in all four geographic regions, most notably in EMEA, North America, and Latin America.

Gross margin was 45.9% in both the current and prior year periods. This reflects an increase in gross margin in the EVM segment primarily due to changes in business mix and operational efficiencies, offset by lower AIT segment gross margin driven primarily by higher overhead and service costs, as well as increased customer sales incentives.

Operating expenses for the year ended December 31, 2017 and 2016, were $1.4 billion, or 37.3% of Net sales, and $1.6 billion, or 43.7% of Net sales, respectively. The reduction in operating expenses was primarily due to impairment charges related to the disposal of the Company’s WLAN business in the prior year, lower acquisition and integration costs, and lower amortization of intangible assets. During 2017, the Company substantially completed its integration activities, including the implementation of

a common enterprise resource planning system, associated with the Enterprise acquisition. The Company also exited the transition service agreements with MSI. The decrease in amortization of intangible assets was due to certain assets reaching full amortization in 2017. Exit and restructuring costs were also lower than the prior year due to the prior year including costs associated with the divestiture of the WLAN business. Research and development costs were higher primarily due to increased incentive compensation expense associated with improved financial performance, partially offset by the impact of the divestiture of the WLAN business. General and administrative expenses were lower compared to the prior year due primarily to reduced facility and IT expenses, professional fees, and employee benefit costs, as well as the impact of the divestiture of the WLAN business being offset partially by increased incentive compensation expense associated with improved financial performance.

Operating income increased $242 million compared to the prior year. The increase was primarily due to the decline in Operating expenses as well as the increase in Net sales and Gross profit.

Total Other expenses, net was $234 million for the current year, compared to $209 million for the prior year. The increase was primarily driven by $65 million of payments for early extinguishment and $16 million of accelerated amortization of debt issuance costs related to the redemption of $1.1 billion senior notes in the current year, partially offset by the impact of early repayments of debt and lower interest rates as well as lower long-term investment impairment charges in the current year.

The Company recognized income tax expense of $71 million and $8 million for the years ended December 31, 2017 and 2016, respectively. The Company’s effective tax rates were 80.7% and (6.2)% for the years ended December 31, 2017 and December 31, 2016, respectively. The increase in income tax expense in 2017 was primarily due to improvement in pre-tax operating results as well as the one-time unfavorable impacts of U.S. Tax Reform, and unfavorable changes in valuation allowances as well as uncertain tax benefits, which were partially offset by the benefits of net foreign deferred tax asset remeasurements and intercompany asset transfers in 2017 as well as favorability of foreign income taxes.

Results of Operations by Segment

The following commentary should be read in conjunction with the financial results of each operating business segment as detailed in Note 18, Segment Information & Geographic Data in the Notes to Consolidated Financial Statements. Segment results exclude purchase accounting adjustments, amortization of intangible assets, acquisition and integration costs, impairment of goodwill and intangibles, and exit and restructuring costs. Segment results reflect a current year revision to the Company’s operating cost allocation methodologies which more accurately reflects where costs are being incurred. The effect of this revision on prior periods resulted in $14 million and $41 million of operating expenses being reclassified from AIT to EVM for the years ended December 31, 2017 and 2016, respectively.

Asset Intelligence & Tracking Segment (“AIT”)

(amounts in millions, except percentages)

	Year Ended December 31,												Percent Change 2018 vs 2017			Percent Change 2017 vs 2016
	2018				2017				2016
Net sales	$	1,423			$	1,311			$	1,247			8.5	%		5.1	%
Gross profit	710				640				620				10.9	%		3.2	%
Operating expenses	385				366				339				5.2	%		8.0	%
Operating income	$	325			$	274			$	281			18.6	%		(2.5	)%
Gross margin	49.9		%		48.8		%		49.7		%

AIT Organic Net sales growth:

	December 31,
	2018			2017
AIT Reported GAAP Net sales growth	8.5	%		5.1	%
Adjustments:
Impact of foreign currency translations (1)	(1.5	)%		(0.5	)%
AIT Organic Net sales growth	7.0	%		4.6	%

(1)	Operating results reported in U.S. dollars are affected by foreign currency exchange rate fluctuations. Foreign currency translation impact represents the difference in results that are attributable to fluctuations in the currency exchange rates used to convert the results for businesses where the functional currency is not the U.S. dollar. This impact is calculated by

translating, for certain currencies, the current period results at the currency exchange rates used in the comparable prior year period, rather than the exchange rates in effect during the current period. In addition, we exclude the impact of the company’s foreign currency hedging program in both the current and prior year periods.

2018 compared to 2017

Net sales for AIT increased $112 million or 8.5% compared to the prior year. The increase in Net sales was primarily due to higher sales of barcode printing products being partially offset by declines in card printer sales. Barcode printer growth was broad based across all major product lines and led by North America, Asia-Pacific, and EMEA regions. Net sales growth was also positively impacted by currency changes, primarily in the EMEA region. AIT Organic Net sales growth for the year ended December 31, 2018 was 7.0%.

Gross margin increased to 49.9% in the current year compared to 48.8% for the prior year. The increase was primarily driven by favorable product mix, operational efficiencies and the favorable impact of currency changes.

Operating income for the current period increased 18.6% primarily due to higher Net sales and Gross profit partially offset by higher Operating expenses.

2017 compared to 2016

AIT Net sales for the year ended December 31, 2017 increased $64 million or 5.1% compared to the prior year. The increase in Net sales was largely driven by higher sales of barcode and card printers, primarily in the EMEA and Asia-Pacific regions. Sales of supplies and services were also higher than the prior year. The year-on-year growth also reflects a price concession to distributors of barcode printer products imported into China in the third quarter of 2016. During 2017, no additional price concession provisions were required and a reduction of the 2016 provision was recorded due to a change in import classification for barcode printers. AIT Organic Net sales growth for the year ended December 31, 2017 was 4.6%.

Gross margin was 48.8% compared to 49.7% for comparable prior year. The decrease in gross margin reflects higher overhead costs, including freight and costs associated with our regional distribution center transitions, higher services costs and increased customer sales incentives, offset partially by lower provisions for price concessions to distributors of barcode printer products imported into China.

Operating income decreased 2.5% as higher Net sales and Gross profit were more than offset by higher Operating expenses.

Enterprise Visibility & Mobility Segment (“EVM”)

(amounts in millions, except percentages)

	Year Ended December 31,												Percent Change 2018 vs 2017			Percent Change 2017 vs 2016
	2018				2017				2016
Net sales	$	2,795			$	2,414			$	2,337			15.8	%		3.3	%
Gross profit	1,274				1,073				1,032				18.7	%		4.0	%
Operating expenses	870				772				787				12.7	%		(1.9	)%
Operating income	$	404			$	301			$	245			34.2	%		22.9	%
Gross margin	45.6		%		44.4		%		44.2		%

EVM Organic Net sales growth:

	December 31,
	2018			2017
EVM Reported GAAP Net sales growth	15.8	%		3.3	%
Adjustments:
Impact of foreign currency translation (1)	(1.6	)%		(0.7	)%
Impact of Xplore acquisition (2)	(0.8	)%		—	%
Impact of Wireless LAN Divestiture (3)	—	%		4.9	%
EVM Organic Net sales growth	13.4	%		7.5	%

(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, for certain currencies, the current period results at the currency exchange rates used in the comparable prior year period, rather than the exchange rates in effect during the current period. In addition, we exclude the impact of the company’s foreign currency hedging program in both the current and prior year periods.

(2)	For purposes of computing Organic Net sales, amounts directly attributable to the Xplore acquisition (included in our consolidated results beginning August 14, 2018) will be excluded for 12 months following the acquisition date.

(3)	The Company sold the WLAN business in October 2016. The Company excludes the impact of the Net sales of this business in 2016 when computing Organic Net sales growth.

2018 compared to 2017

Net sales for EVM increased $381 million or 15.8% compared to the prior year. The increase in Net sales was primarily attributable to strong global sales of mobile computing and data capture products, most notably in North America, EMEA and Asia-Pacific regions. Net sales growth was also positively impacted by currency changes, primarily in the EMEA region, as well as the inclusion of Xplore. EVM Organic Net sales growth was 13.4%.

Gross margin increased to 45.6% in the current year as compared to 44.4% in the prior year. The increase was primarily due to favorable product mix, operational efficiencies, and the positive impact of currency changes.

Operating income for the current year increased 34.2% due to higher Net sales and Gross profit that were partially offset by higher Operating expenses.

2017 compared to 2016

EVM Net sales for the year ended December 31, 2017 increased $77 million or 3.3% compared to prior year. The increase in Net sales was primarily driven by higher sales of mobile computing and data capture products, primarily in the North America and EMEA regions, partially offset by impact of the divestiture of the WLAN business in October 2016. EVM Organic Net sales growth for the year ended December 31, 2017 was 7.5%.

Gross margin for the year ended December 31, 2017 was 44.4% compared to 44.2% in the prior year. The increase in gross margin primarily reflects changes in product mix and improvements in hardware product costs.

Operating income increased 22.9% primarily as a result of higher Net sales and Gross profit as well as lower Operating expenses.

Critical Accounting Policies and Estimates

Management prepared the consolidated financial statements of the Company under accounting principles generally accepted in the United States of America. The application of these principles requires the use of estimates, judgments, and assumptions which affect the amounts reported in our consolidated financial statements. We believe that our estimates, judgments, and assumptions are reasonable based upon available information. Our more significant estimates and assumptions include those related to the measurement and recognition of income tax assets and liabilities, development of reporting unit fair values as part of our annual goodwill impairment testing, and the allocation of transaction price to performance obligations in certain revenue transactions. See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements for additional discussion of these as well as other accounting policies.

Recently Issued Accounting Pronouncements

See Note 2, Significant Accounting Policies in the Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

The primary factors that influence our liquidity include, but are not limited to, the amount and timing of our revenues, cash collections from our customers, cash payments to our suppliers, capital expenditures, repatriation of foreign cash and investments, and acquisitions of third-parties. Management believes that our existing capital resources 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):

	Year Ended December 31,
	2018				2017				2016
Cash flow (used in) provided by:
Operating activities	$	785			$	478			$	380
Investing activities	(137		)		(51		)		(39		)
Financing activities	(661		)		(517		)		(384		)
Effect of exchange rates on cash balances	(5		)		(4		)		7
Net decrease in cash and cash equivalents	$	(18	)		$	(94	)		$	(36	)

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

2018 vs. 2017

Cash flows from operations increased by $307 million during 2018 to $785 million. The increase was primarily due to higher net income, favorable changes in accounts payable due primarily to timing of payments and extension of contractual payment terms, lower cash payments for interest, and commencement of our Receivables Factoring program. These were partially offset by unfavorable timing of accounts receivable collections.

The increase in net cash used in investing activities was driven by the acquisition of Xplore and higher capital expenditures.

Net cash used in financing activities during the year ended December 31, 2018 consisted primarily of net debt repayments of $657 million compared to $454 million during the year ended December 31, 2017. The net debt repayment activities in 2017 also included $65 million of debt extinguishment costs associated with the full redemption of $1.1 billion in debt obligations.

2017 vs. 2016

Cash flows from operations increased $98 million during 2017 to $478 million. This improvement was driven by an increase in net earnings of $154 million, partially offset by a decline in working capital primarily related to higher inventory levels and lower accounts payable. Net inventory increased primarily as a result of growth in the business and changes in product mix, an increased backlog level compared to the prior year, and our recent transition to a new distribution model for our European operations. In addition, the prior year working capital benefited from the successful renegotiation of longer payment terms with vendors.

Net cash used in the purchase of property, plant and equipment declined $27 million as compared to the prior year, as capital expenditures related to the Enterprise acquisition integration were substantially completed in 2016. The prior year investing activities also included net cash proceeds of $39 million related to the sale of the WLAN business.

Net cash used in financing activities increased by $133 million during 2017 to $517 million. The increase was primarily due to higher net debt repayments in 2017 as well as $65 million of debt extinguishment costs associated with the full redemption of $1.1 billion in debt obligations.

Company Debt

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

	December 31,
	2018				2017
Term Loan A	$	608			$	679
Term Loan B	445				1,160
Revolving Credit Facility	408				275
Receivables Financing Facility	139				135
Total debt	1,600				2,249
Less: Debt issuance costs	(5		)		(7		)
Less: Unamortized discounts	(4		)		(15		)
Less: Current portion of long-term debt	(157		)		(51		)
Total long-term debt	$	1,434			$	2,176

Credit Facilities

The Company’s debt includes borrowings under Term Loan A, Term Loan B and a multi-currency Revolving Credit Facility, all maturing in 2021. Borrowings under each instrument bear interest at a variable rate for which the Company has entered into interest rate swap contracts to manage interest rate exposure. All borrowings under the credit facilities as of December 31, 2018 were denominated in U.S. Dollars, except for €92 million under the Revolving Credit Facility that was borrowed in Euros. The average interest rates as of December 31, 2018 for Term Loan A, Term Loan B, and the Revolving Credit Facility were 3.84%, 4.09% and 3.26%, respectively. The Company is required to prepay certain amounts in the event of certain circumstances or transactions. The Company may make prepayments against the Term Loans, in whole or in part, without premium or penalty.

Receivables Financing Facility

In December 2017, the Company entered into a Receivables Financing Facility with a financial institution that has a borrowing limit of up to $180 million which matures on November 29, 2019. As collateral, the Company pledges a perfected first-priority security interest in its domestically originated accounts receivables. Borrowings bear interest at a variable rate and are accounted for as secured borrowings. As of December 31, 2018, the Receivables Financing Facility had an average interest rate of 3.36% and the Company’s Consolidated Balance Sheets included $459 million of receivables that were pledged, of which $139 million had been borrowed against and reflected as a component of the Current portion of long-term debt on the Company’s Consolidated Balance Sheets. All borrowings under the Receivable Financing Facility were denominated in U.S. Dollars.

Both the Revolving Credit Facility and Receivables Financing Facility include terms and conditions that limit the incurrence of additional borrowings and require that certain financial ratios be maintained at designated levels. As of December 31, 2018, the Company was in compliance with all debt covenants.

See Note 11, Long-Term Debt in the Notes to Consolidated Financial Statements for further details.

Receivables Factoring

In addition to the Company’s borrowing arrangements described above, the Company entered into a Receivables Factoring arrangement in December 2018 in order to provide additional liquidity and improve working capital. Under the Receivables Factoring arrangement, the Company sells certain EMEA-originated receivables to a bank in exchange for cash without maintaining a beneficial interest in the receivables sold. At any time, the bank’s purchase of eligible receivables is subject to a maximum of $90 million of uncollected receivables. Transactions under the Receivables Factoring arrangement are accounted for as sales under ASC 860, Transfers and Servicing of Financial Assets with related cash flows reflected in operating cash flows. As of December 31, 2018, $33 million of uncollected receivables were sold and removed from the Company’s Consolidated Balance Sheet.

Cash and Cash Equivalents

Included in the Company’s Cash and cash equivalents are amounts held by foreign subsidiaries. The Company had $39 million and $54 million of foreign cash and cash equivalents included in the Company’s total cash positions of $44 million and $62 million as of December 31, 2018 and 2017, respectively.

Historically, significant portions of our cash inflows were generated by our operations. We currently expect this trend to continue throughout 2019. We believe that our existing cash and investments, borrowings available under our Revolving Credit Facility and Receivables Financing Facility and funds available from our Receivables Factoring arrangement, combined with cash flows expected from operations will be sufficient to meet expected operating and investing activities as well as debt repayment obligation requirements for the next 12 months.

Contractual Obligations

Zebra’s contractual obligations as of December 31, 2018 were as follows (in millions):

	Payments due by period
	Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating lease obligations(1)	$	153			$	34			$	52			$	30			$	37
Deferred compensation liability(2)	17				1				1				1				14
Debt principal payments	1,600				157				1,443				—				—
Interest payments(3)	160				64				96				—				—
Purchase obligations(4)	392				392				—				—				—
Total	$	2,322			$	648			$	1,592			$	31			$	51

(1)	Includes leases of facilities, distribution centers, and sales and administrative offices that are classified as operating leases. The contractual obligations above include future minimum payments, including payments for those periods where renewal options are reasonably certain to be exercised.

(2)

These payments relate to obligations under our deferred compensation plan. The deferred compensation plan allows certain members of management and other highly-compensated employees to defer receipt of a portion of their compensation. The amount in “More than 5 Years” represents the remaining total balance under the deferred compensation plan to be paid to participants who have not terminated employment, since we cannot estimate the timings of those terminations and withdrawals.

(3)	Payments related to variable interest or interest rate swap agreements are based on applicable rates as of December 31, 2018 plus the specified margin were applicable in the associated agreements for each period presented.

(4)

Purchase obligations are for purchases made in the normal course of business to meet operational requirements, primarily raw materials and finished goods. Purchase obligations included in the table above are based on quarterly forecasted component and manufacturing requirements and typically provide for fulfillment within agreed upon lead-times and/or commercially standard lead-times for products.

Uncertain tax benefits of $50 million have been excluded from the above table; of which $20 million is expected to be settled in the next twelve months and is reflected as a current liability as of December 31, 2018. The remainder is reflected within Other long-term liabilities as we cannot make a reasonably reliable estimate of the period of cash settlement, if any, with the respective taxing authority. See Note 14, Income Taxes in the Notes to Consolidated Financial Statements for further information.