UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
Form 10-Q
____________________________________________
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the period ended
September 29, 2012
or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number: 1-7221
____________________________________________
MOTOROLA SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________
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DELAWARE
(State of Incorporation)
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36-1115800
(I.R.S. Employer Identification No.)
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1303 E. Algonquin Road,
Schaumburg, Illinois
(Address of principal executive offices)
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60196
(Zip Code)
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Registrant’s telephone number, including area code:
(847) 576-5000
____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on
September 29, 2012
:
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Class
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Number of Shares
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Common Stock; $.01 Par Value
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280,500,435
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Page
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Item 1 Financial Statements
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Item 4
Mine Safety Disclosures
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Part I—Financial Information
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended
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Nine Months Ended
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(In millions, except per share amounts)
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September 29,
2012
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October 1,
2011
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September 29,
2012
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October 1,
2011
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Net sales from products
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$
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1,567
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$
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1,552
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$
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4,574
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$
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4,379
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Net sales from services
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586
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533
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1,683
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1,524
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Net sales
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2,153
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2,085
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6,257
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5,903
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Costs of product sales
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682
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679
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2,052
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1,949
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Costs of service sales
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384
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351
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1,085
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968
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Costs of sales
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1,066
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1,030
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3,137
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2,917
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Gross margin
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1,087
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1,055
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3,120
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2,986
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Selling, general and administrative expenses
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485
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471
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1,454
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1,414
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Research and development expenditures
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262
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270
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785
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769
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Other charges
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16
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60
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48
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221
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Operating earnings
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324
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254
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833
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582
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Other income (expense):
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Interest expense, net
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(16
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(18
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)
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(46
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(59
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)
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Gain on sales of investments and businesses, net
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19
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2
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39
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21
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Other
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(3
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—
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(18
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(73
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)
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Total other expense
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—
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(16
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(25
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(111
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Earnings from continuing operations before income taxes
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324
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238
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808
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471
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Income tax expense (benefit)
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118
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83
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266
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(93
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Earnings from continuing operations
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206
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155
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542
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564
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Earnings (loss) from discontinued operations, net of tax
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—
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(25
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3
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404
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Net earnings
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206
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130
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545
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968
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Less: Earnings (loss) attributable to noncontrolling interests
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—
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2
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—
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(6
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Net earnings attributable to Motorola Solutions, Inc.
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206
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128
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545
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974
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Amounts attributable to Motorola Solutions, Inc. common stockholders:
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Earnings from continuing operations, net of tax
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$
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206
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$
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153
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$
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542
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$
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570
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Earnings (loss) from discontinued operations, net of tax
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—
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(25
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3
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404
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Net earnings
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$
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206
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$
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128
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$
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545
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$
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974
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Earnings (loss) per common share:
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Basic:
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Continuing operations
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$
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0.73
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$
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0.46
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$
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1.83
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$
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1.69
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Discontinued operations
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—
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(0.08
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0.01
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1.20
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$
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0.73
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$
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0.38
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$
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1.84
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$
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2.89
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Diluted:
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Continuing operations
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$
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0.72
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$
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0.45
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$
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1.80
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$
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1.66
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Discontinued operations
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—
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(0.07
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0.01
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1.18
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$
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0.72
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$
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0.38
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$
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1.81
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$
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2.84
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Weighted average common shares outstanding:
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Basic
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283.1
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335.4
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296.1
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337.3
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Diluted
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287.4
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339.5
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301.5
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343.4
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Dividends declared per share
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$
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0.26
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—
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$
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0.70
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—
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See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended
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(In millions)
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September 29,
2012
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October 1,
2011
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Net earnings
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$
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206
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$
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130
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Other comprehensive income (loss):
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Amortization of retirement benefit adjustments, net of tax of $14 and $19
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53
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34
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Remeasurement of Postretirement Health Care Plan, net of tax of $52 and $0
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87
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—
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Foreign currency translation adjustment, net of tax of $21 and $3
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4
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(34
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Net gain (loss) on derivative hedging instruments, net of tax of $0 and $(1)
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2
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(5
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)
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Net unrealized loss on securities, net of tax of $(5) and $(6)
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(6
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(9
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)
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Total other comprehensive income (loss)
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140
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(14
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)
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Comprehensive income
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346
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116
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Less: Earnings attributable to noncontrolling interest
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—
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2
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Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
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$
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346
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$
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114
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Nine Months Ended
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(In millions)
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September 29,
2012
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October 1,
2011
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Net earnings
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$
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545
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$
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968
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Other comprehensive income (loss):
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Amortization of retirement benefit adjustments, net of tax of $65 and $55
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148
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99
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Remeasurement of retirement benefits, net of tax of $52 and $9
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87
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(77
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)
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Foreign currency translation adjustment, net of tax of $11 and $(2)
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(18
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49
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Net gain (loss) on derivative hedging instruments, net of tax of $0 and $(1)
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4
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(3
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Net unrealized gain on securities, net of tax of $1 and $0
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2
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—
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Total other comprehensive income
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223
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68
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Comprehensive income
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768
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1,036
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Less: Loss attributable to noncontrolling interest
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—
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(6
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Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
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$
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768
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$
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1,042
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See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
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(In millions, except par value amounts)
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September 29,
2012
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December 31,
2011
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ASSETS
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Cash and cash equivalents
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$
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1,779
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$
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1,881
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Sigma Fund and short-term investments
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1,760
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3,210
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Accounts receivable, net
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1,704
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1,866
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Inventories, net
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538
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512
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Deferred income taxes
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662
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613
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Other current assets
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828
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686
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Total current assets
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7,271
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8,768
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Property, plant and equipment, net
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860
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896
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Investments
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162
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166
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Deferred income taxes
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2,017
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2,375
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Goodwill
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1,430
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1,428
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Other assets
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280
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296
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Total assets
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$
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12,020
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$
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13,929
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current portion of long-term debt
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$
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4
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$
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405
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Accounts payable
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646
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677
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Accrued liabilities
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2,475
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2,733
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Total current liabilities
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3,125
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3,815
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Long-term debt
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1,860
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1,130
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Other liabilities
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3,138
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3,710
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Stockholders’ Equity
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Preferred stock, $100 par value
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—
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—
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Common stock, $.01 par value:
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3
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3
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Authorized shares: 600.0
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Issued shares: 9/29/12—282.3; 12/31/11—320.0
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Outstanding shares: 9/29/12—280.5; 12/31/11—318.8
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Additional paid-in capital
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5,161
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7,071
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Retained earnings
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1,361
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1,016
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Accumulated other comprehensive loss
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(2,653
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)
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(2,876
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)
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Total Motorola Solutions, Inc. stockholders’ equity
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3,872
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5,214
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Noncontrolling interests
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25
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60
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Total stockholders’ equity
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3,897
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5,274
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Total liabilities and stockholders’ equity
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$
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12,020
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$
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13,929
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See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
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(In millions)
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Shares
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Common
Stock and
Additional
Paid-in
Capital
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Accumulated Other Comprehensive Income (Loss), Net of Tax
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Retained
Earnings
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Noncontrolling
Interests
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Balance at December 31, 2011
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320.0
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$
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7,074
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$
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(2,876
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)
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$
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1,016
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$
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60
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Net earnings
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545
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—
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Net unrealized gain on securities, net of tax of $1
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2
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Foreign currency translation adjustments, net of tax of $11
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(18
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)
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Amortization of retirement benefit adjustments, net of tax of $65
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148
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|
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Remeasurement of retirement benefits, net of tax of $52
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87
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Issuance of common stock and stock options exercised
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5.8
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26
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Share repurchase program
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(43.5
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)
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(2,112
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)
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Excess tax benefit from share-based compensation
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17
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Share-based compensation expense
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139
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Net gain on derivative hedging instruments, net of tax of $0
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4
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Acquisition of noncontrolling interest from Japanese subsidiary
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20
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(35
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)
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Dividends declared
|
|
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(200
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)
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Balance at September 29, 2012
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282.3
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|
|
$
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5,164
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|
$
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(2,653
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)
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$
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1,361
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$
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25
|
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended
|
(In millions)
|
September 29,
2012
|
|
October 1,
2011
|
Operating
|
|
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Net earnings attributable to Motorola Solutions, Inc.
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$
|
545
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|
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$
|
974
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Loss attributable to noncontrolling interests
|
—
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|
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(6
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)
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Net earnings
|
545
|
|
|
968
|
|
Earnings from discontinued operations, net of tax
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3
|
|
|
404
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|
Earnings from continuing operations
|
542
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|
|
564
|
|
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
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Depreciation and amortization
|
151
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273
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Non-cash other expense
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12
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|
39
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Share-based compensation expense
|
139
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|
|
123
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Gain on sales of investments and businesses, net
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(39
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)
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|
(21
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)
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Loss from the extinguishment of long-term debt
|
6
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|
81
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Deferred income taxes
|
203
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|
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30
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Changes in assets and liabilities, net of effects of acquisitions and dispositions:
|
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Accounts receivable
|
189
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|
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82
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Inventories
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(51
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)
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(38
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)
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Other current assets
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(147
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)
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(6
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)
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Accounts payable and accrued liabilities
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(283
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)
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(230
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)
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Other assets and liabilities
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(218
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)
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(93
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)
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Net cash provided by operating activities from continuing operations
|
504
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|
|
804
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Investing
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Acquisitions and investments, net
|
61
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|
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(26
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)
|
Proceeds from (used for) sales of investments and businesses, net
|
(38
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)
|
|
1,064
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|
Capital expenditures
|
(140
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)
|
|
(103
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)
|
Proceeds from sales of property, plant and equipment
|
9
|
|
|
6
|
|
Proceeds from sales of Sigma Fund investments, net
|
1,450
|
|
|
225
|
|
Proceeds from sales of short-term investments, net
|
—
|
|
|
6
|
|
Net cash provided by investing activities from continuing operations
|
1,342
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|
|
1,172
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|
Financing
|
|
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Repayment of debt
|
(412
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)
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|
(617
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)
|
Net proceeds from issuance of debt
|
747
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|
|
—
|
|
Contributions to Motorola Mobility
|
(73
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)
|
|
(3,275
|
)
|
Issuance of common stock
|
79
|
|
|
148
|
|
Purchase of common stock
|
(2,112
|
)
|
|
(744
|
)
|
Excess tax benefits from share-based compensation
|
17
|
|
|
39
|
|
Payments of dividends
|
(197
|
)
|
|
—
|
|
Distribution from (to) discontinued operations
|
(11
|
)
|
|
102
|
|
Net cash used for financing activities from continuing operations
|
(1,962
|
)
|
|
(4,347
|
)
|
Discontinued Operations
|
|
|
|
Net cash provided by operating activities from discontinued operations
|
2
|
|
|
65
|
|
Net cash used for investing activities from discontinued operations
|
—
|
|
|
(8
|
)
|
Net cash provided by (used for) financing activities from discontinued operations
|
11
|
|
|
(102
|
)
|
Effect of exchange rate changes on cash and cash equivalents from discontinued operations
|
(13
|
)
|
|
45
|
|
Net cash provided by (used for) discontinued operations
|
—
|
|
|
—
|
|
Effect of exchange rate changes on cash and cash equivalents from continuing operations
|
14
|
|
|
(52
|
)
|
Net decrease in cash and cash equivalents
|
(102
|
)
|
|
(2,423
|
)
|
Cash and cash equivalents, beginning of period
|
1,881
|
|
|
4,208
|
|
Cash and cash equivalents, end of period
|
$
|
1,779
|
|
|
$
|
1,785
|
|
Cash Flow Information
|
|
|
|
Cash paid during the period for:
|
|
|
|
Interest, net
|
$
|
61
|
|
|
$
|
110
|
|
Income and withholding taxes, net of refunds
|
104
|
|
|
57
|
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except as noted)
(Unaudited)
The condensed consolidated financial statements as of
September 29, 2012
and for the
three and nine months ended
September 29, 2012
and
October 1, 2011
, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statement of stockholder's equity, and statements of cash flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended
December 31, 2011
. The results of operations for the
three and nine months ended
September 29, 2012
are not necessarily indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-12, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements, as required by ASU 2011-05. The Company adopted all other requirements of ASU 2011-05 effective January 1, 2012.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11 “
Disclosures about Offsetting
Assets and Liabilities.”
The standard requires additional disclosure to enhance the comparability of U.S. GAAP and International Financial Reporting Standards ("IFRS") financial statements. The new standard is effective for annual and interim periods beginning January 1, 2013. Retrospective application is required. The guidance concerns disclosure only and will not have an impact on the Company's consolidated financial position or results of operations.
|
|
2.
|
Discontinued Operations
|
On January 1, 2012, the Company completed a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. The operating results of the amateur, marine and airband radio businesses, formerly included as part of the Government segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
On October 28, 2011, the Company completed the sale of its Wireless Broadband businesses. The operating results of the Wireless Broadband businesses, formerly included as part of the Enterprise segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
On April 29, 2011 the Company completed the sale of certain assets and liabilities of its Networks business to Nokia Siemens Networks ("NSN"). The results of operations of the portions of the Networks business sold to NSN are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
The following table displays summarized activity in the Company's condensed consolidated statements of operations for discontinued operations during the
three and nine months ended
September 29, 2012
and
October 1, 2011
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Net sales
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
—
|
|
|
$
|
1,309
|
|
Operating earnings
|
—
|
|
|
10
|
|
|
11
|
|
|
213
|
|
Gains (losses) on sales of investments and businesses, net
|
—
|
|
|
(52
|
)
|
|
(7
|
)
|
|
436
|
|
Earnings (loss) before income taxes
|
—
|
|
|
(37
|
)
|
|
8
|
|
|
642
|
|
Income tax expense (benefit)
|
—
|
|
|
(12
|
)
|
|
5
|
|
|
238
|
|
Earnings (loss) from discontinued operations, net of tax
|
—
|
|
|
(25
|
)
|
|
3
|
|
|
404
|
|
Statement of Operations Information
Other Charges
Other charges included in Operating earnings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Other charges (income):
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
$
|
6
|
|
|
$
|
50
|
|
|
$
|
18
|
|
|
$
|
150
|
|
Legal matters and intellectual property reserve adjustments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
Pension plan adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
Reorganization of business charges
|
10
|
|
|
10
|
|
|
30
|
|
|
32
|
|
|
$
|
16
|
|
|
$
|
60
|
|
|
$
|
48
|
|
|
$
|
221
|
|
Other Income (Expense)
Interest expense, net, and Other, both included in Other income (expense), consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Interest income (expense), net:
|
|
|
|
|
|
|
|
Interest expense
|
$
|
(29
|
)
|
|
$
|
(31
|
)
|
|
$
|
(79
|
)
|
|
$
|
(105
|
)
|
Interest income
|
13
|
|
|
13
|
|
|
33
|
|
|
46
|
|
|
$
|
(16
|
)
|
|
$
|
(18
|
)
|
|
$
|
(46
|
)
|
|
$
|
(59
|
)
|
Other:
|
|
|
|
|
|
|
|
Losses from the extinguishment of long-term debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
(81
|
)
|
Investment impairments
|
(6
|
)
|
|
—
|
|
|
(8
|
)
|
|
(3
|
)
|
Foreign currency gain (loss)
|
—
|
|
|
(6
|
)
|
|
(11
|
)
|
|
5
|
|
Loss on Sigma Fund investments
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Other
|
3
|
|
|
8
|
|
|
7
|
|
|
8
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
(18
|
)
|
|
$
|
(73
|
)
|
Earnings Per Common Share
The computation of basic and diluted earnings per common share attributable to Motorola Solutions, Inc. common stockholders is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Motorola Solutions, Inc.
common stockholders
|
|
Earnings from continuing operations
|
|
Net Earnings
|
Three Months Ended
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
Earnings
|
$
|
206
|
|
|
$
|
153
|
|
|
$
|
206
|
|
|
$
|
128
|
|
Weighted average common shares outstanding
|
283.1
|
|
|
335.4
|
|
|
283.1
|
|
|
335.4
|
|
Per share amount
|
$
|
0.73
|
|
|
$
|
0.46
|
|
|
$
|
0.73
|
|
|
$
|
0.38
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
Earnings
|
$
|
206
|
|
|
$
|
153
|
|
|
$
|
206
|
|
|
$
|
128
|
|
Weighted average common shares outstanding
|
283.1
|
|
|
335.4
|
|
|
283.1
|
|
|
335.4
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
Share-based awards
|
4.3
|
|
|
4.1
|
|
|
4.3
|
|
|
4.1
|
|
Diluted weighted average common shares outstanding
|
287.4
|
|
|
339.5
|
|
|
287.4
|
|
|
339.5
|
|
Per share amount
|
$
|
0.72
|
|
|
$
|
0.45
|
|
|
$
|
0.72
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Motorola Solutions, Inc.
common stockholders
|
|
Earnings from
Continuing Operations
|
|
Net Earnings
|
Nine Months Ended
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
Earnings
|
$
|
542
|
|
|
$
|
570
|
|
|
$
|
545
|
|
|
$
|
974
|
|
Weighted average common shares outstanding
|
296.1
|
|
|
337.3
|
|
|
296.1
|
|
|
337.3
|
|
Per share amount
|
$
|
1.83
|
|
|
$
|
1.69
|
|
|
$
|
1.84
|
|
|
$
|
2.89
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
Earnings
|
$
|
542
|
|
|
$
|
570
|
|
|
$
|
545
|
|
|
$
|
974
|
|
Weighted average common shares outstanding
|
296.1
|
|
|
337.3
|
|
|
296.1
|
|
|
337.3
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
Share-based awards
|
5.4
|
|
|
6.1
|
|
|
5.4
|
|
|
6.1
|
|
Diluted weighted average common shares outstanding
|
301.5
|
|
|
343.4
|
|
|
301.5
|
|
|
343.4
|
|
Per share amount
|
$
|
1.80
|
|
|
$
|
1.66
|
|
|
$
|
1.81
|
|
|
$
|
2.84
|
|
In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the
three and nine months ended
September 29, 2012
, the assumed exercise of
6.1 million
and
6.0 million
stock options, respectively, were excluded because their inclusion would have been antidilutive. In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the
three and nine months ended
October 1, 2011
, the assumed exercise of
8.9 million
and
8.8 million
stock options, respectively, and the assumed vesting of
0.3 million
and
0.2 million
restricted stock units, respectively, were excluded because their inclusion would have been antidilutive.
Balance Sheet Information
Cash and Cash Equivalents
The Company’s cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) were
$1.8 billion
and
$1.9 billion
at
September 29, 2012
and
December 31, 2011
, respectively. Of these amounts,
$63 million
at both
September 29, 2012
and
December 31, 2011
, was restricted.
Sigma Fund
The Sigma Fund consists of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Cash
|
$
|
—
|
|
|
$
|
264
|
|
Securities:
|
|
|
|
U.S. government, agency, and government-sponsored enterprise obligations
|
1,758
|
|
|
2,944
|
|
|
$
|
1,758
|
|
|
$
|
3,208
|
|
Investments
Investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
Less
|
|
|
September 29, 2012
|
Short-term
Investments
|
|
Investments
|
|
Unrealized
Gains
|
|
Unrealized
Loss
|
|
Cost
Basis
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
Corporate bonds
|
2
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Mortgage-backed securities
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Common stock and equivalents
|
—
|
|
|
30
|
|
|
4
|
|
|
—
|
|
|
26
|
|
|
2
|
|
|
58
|
|
|
4
|
|
|
—
|
|
|
56
|
|
Other securities, at cost
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
90
|
|
Equity method investments
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
$
|
2
|
|
|
$
|
162
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
Less
|
|
|
December 31, 2011
|
Short-term
Investments
|
|
Investments
|
|
Unrealized
Gains
|
|
Unrealized
Loss
|
|
Cost
Basis
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Corporate bonds
|
2
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Mortgage-backed securities
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Common stock and equivalents
|
—
|
|
|
11
|
|
|
2
|
|
|
(1
|
)
|
|
10
|
|
|
2
|
|
|
39
|
|
|
2
|
|
|
(1
|
)
|
|
40
|
|
Other securities, at cost
|
—
|
|
|
106
|
|
|
—
|
|
|
—
|
|
|
106
|
|
Equity method investments
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
$
|
2
|
|
|
$
|
166
|
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
167
|
|
Accounts Receivable, Net
Accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Accounts receivable
|
$
|
1,754
|
|
|
$
|
1,911
|
|
Less allowance for doubtful accounts
|
(50
|
)
|
|
(45
|
)
|
|
$
|
1,704
|
|
|
$
|
1,866
|
|
Inventories, Net
Inventories, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Finished goods
|
$
|
323
|
|
|
$
|
319
|
|
Work-in-process and production materials
|
378
|
|
|
363
|
|
|
701
|
|
|
682
|
|
Less inventory reserves
|
(163
|
)
|
|
(170
|
)
|
|
$
|
538
|
|
|
$
|
512
|
|
Other Current Assets
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Costs and earnings in excess of billings
|
$
|
445
|
|
|
$
|
302
|
|
Contract-related deferred costs
|
150
|
|
|
142
|
|
Tax-related refunds receivable
|
83
|
|
|
85
|
|
Other
|
150
|
|
|
157
|
|
|
$
|
828
|
|
|
$
|
686
|
|
Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Land
|
$
|
56
|
|
|
$
|
69
|
|
Building
|
760
|
|
|
774
|
|
Machinery and equipment
|
1,917
|
|
|
2,052
|
|
|
2,733
|
|
|
2,895
|
|
Less accumulated depreciation
|
(1,873
|
)
|
|
(1,999
|
)
|
|
$
|
860
|
|
|
$
|
896
|
|
Depreciation expense for the
three months ended
September 29, 2012
and
October 1, 2011
was
$39 million
and
$42 million
, respectively. Depreciation expense for the
nine months ended
September 29, 2012
and
October 1, 2011
was
$133 million
and
$123 million
, respectively.
Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Intangible assets
|
$
|
30
|
|
|
$
|
48
|
|
Long-term receivables
|
43
|
|
|
37
|
|
Other
|
207
|
|
|
211
|
|
|
$
|
280
|
|
|
$
|
296
|
|
Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Deferred revenue
|
$
|
799
|
|
|
$
|
774
|
|
Billings in excess of costs and earnings
|
389
|
|
|
250
|
|
Compensation
|
352
|
|
|
471
|
|
Tax liabilities
|
70
|
|
|
126
|
|
Customer reserves
|
126
|
|
|
125
|
|
Dividend payable
|
73
|
|
|
70
|
|
Networks purchase price adjustment
|
—
|
|
|
96
|
|
Other
|
666
|
|
|
821
|
|
|
$
|
2,475
|
|
|
$
|
2,733
|
|
Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Defined benefit plans, including split dollar life insurance policies
|
$
|
2,268
|
|
|
$
|
2,675
|
|
Postretirement health care benefit plan
|
164
|
|
|
295
|
|
Deferred revenue
|
278
|
|
|
275
|
|
Unrecognized tax benefits
|
97
|
|
|
112
|
|
Other
|
331
|
|
|
353
|
|
|
$
|
3,138
|
|
|
$
|
3,710
|
|
Stockholders’ Equity
Share Repurchase Program:
On
July 28, 2011
, the Company announced that its Board of Directors approved a share repurchase program that allows the Company to purchase up to
$2.0 billion
of its outstanding common stock through December 31, 2012. On
January 30, 2012
, the Company announced that its Board of Directors authorized up to
$1.0 billion
in additional funds for use under the existing share repurchase program through the end of 2012. On
February 26, 2012
, the Company entered into a stock purchase agreement with Carl C. Icahn and certain of his affiliates to purchase
23,739,362
shares of its common stock. On July 25, 2012, the Company announced that its Board of Directors authorized up to
$2.0 billion
in additional funds for share repurchase, bringing the aggregate amount of the share repurchase program to
$5.0 billion
, and extended the entire share repurchase program indefinitely with no expiration date. The Company paid an aggregate of
$308 million
during the
third
quarter of 2012, including transactions costs, to repurchase
6.5 million
shares at an average price of
$47.47
per share. During the
first nine months
of
2012
, the Company paid an aggregate of
$2.1 billion
, including transaction costs, to repurchase
43.5 million
shares at an average price of $
48.50
per share. As of
September 29, 2012
, the Company has used approximately
$3.2 billion
of the share repurchase authority, including transaction costs, to repurchase shares, leaving approximately
$1.8 billion
of authority available for repurchases. All repurchased shares have been retired.
Payment of Dividends:
During the
three and nine months ended
September 29, 2012
, the Company paid
$63 million
and
$197 million
, respectively, in cash dividends to holders of its common stock.
Noncontrolling Interest:
On January 1, 2012, the Company entered into a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. One of those transactions was acquiring the remaining
20%
of the land mobile radio business previously owned by our Japanese joint venture. The acquisition of the remaining
20%
of this land mobile radio business, in which the Company already had a controlling interest, resulted in a decrease of
$35 million
to the Company's noncontrolling interest, and an increase of
$20 million
to the Company's additional paid in capital, which primarily represents the increase in deferred tax assets from the acquisition of the
20%
of the land mobile radio business assets.
|
|
4.
|
Debt and Credit Facilities
|
During the second quarter of 2012, the Company issued an aggregate face principle amount of
$750 million
of
3.750%
Senior Notes due
May 15, 2022
(the “2022 Senior Notes”). Also during the second quarter of 2012, the Company called for the redemption of the
$400 million
aggregate principal amount outstanding of its
5.375%
Senior Notes due November 2012 (the “2012 Senior Notes”). All of the 2012 Senior Notes were redeemed in the second quarter of 2012 for an aggregate purchase price of approximately
$408 million
. During the second quarter of 2012, after accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately
$6 million
related to this redemption within Other income (expense) in the condensed consolidated statements of operations. This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
As of
September 29, 2012
, the Company had a
$1.5 billion
unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to mature on June 30, 2014. The 2011 Motorola Solutions Credit Agreement includes a provision pursuant to which the Company can increase the aggregate credit facility size up to a maximum of
$2.0 billion
by adding lenders or having existing lenders increase their commitments. The Company must comply with certain customary covenants, including maximum leverage and minimum interest coverage ratios as defined in the 2011 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of
September 29, 2012
. The Company did not borrow under the 2011 Motorola Solutions Credit Agreement during the
three and nine months ended
September 29, 2012
.
Foreign Currency Risk
At
September 29, 2012
, the Company had outstanding foreign exchange contracts with notional amounts totaling
$558 million
, compared to
$524 million
outstanding at
December 31, 2011
. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of
September 29, 2012
and the corresponding positions as of
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
Net Buy (Sell) by Currency
|
September 29,
2012
|
|
December 31,
2011
|
Chinese Renminbi
|
$
|
(266
|
)
|
|
$
|
(283
|
)
|
Euro
|
(64
|
)
|
|
8
|
|
British Pound
|
63
|
|
|
55
|
|
Malaysian Ringgit
|
34
|
|
|
37
|
|
Israeli Shekel
|
(32
|
)
|
|
8
|
|
Interest Rate Risk
At
September 29, 2012
, the Company had
$1.9 billion
of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
As part of its liability management program, one of the Company’s European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company’s condensed consolidated statements of operations. As of
September 29, 2012
, the fair value of the Interest Agreements was in a liability position of
$4 million
, compared to a liability position of
$3 million
at
December 31, 2011
.
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of
September 29, 2012
, all of the counterparties have investment grade credit ratings. The Company is not exposed to material net credit risk with any single counterparty. As of
September 29, 2012
, the Company was exposed to an aggregate net credit risk of approximately
$4 million
with all counterparties.
The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company, at
September 29, 2012
and
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
Assets
|
|
Liabilities
|
September 29, 2012
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
1
|
|
|
Other assets
|
|
$
|
—
|
|
|
Other liabilities
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
4
|
|
|
Other assets
|
|
1
|
|
|
Other liabilities
|
Interest agreement contracts
|
—
|
|
|
Other assets
|
|
4
|
|
|
Other liabilities
|
Total derivatives not designated as hedging instruments
|
4
|
|
|
|
|
5
|
|
|
|
Total derivatives
|
$
|
5
|
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
Assets
|
|
Liabilities
|
December 31, 2011
|
Fair
Value
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet
Location
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
—
|
|
|
Other assets
|
|
$
|
2
|
|
|
Other liabilities
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
1
|
|
|
Other assets
|
|
3
|
|
|
Other liabilities
|
Interest agreement contracts
|
—
|
|
|
Other assets
|
|
3
|
|
|
Other liabilities
|
Total derivatives not designated as hedging instruments
|
1
|
|
|
|
|
6
|
|
|
|
Total derivatives
|
$
|
1
|
|
|
|
|
$
|
8
|
|
|
|
The following tables summarize the effect of derivative instruments in our condensed consolidated statements of operations, including amounts related to discontinued operations, for the
three and nine months ended
September 29, 2012
and
October 1, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Statement of
Operations Location
|
Gain (loss) on Derivative Instruments
|
September 29,
2012
|
|
October 1,
2011
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
|
Other income (expense)
|
Foreign exchange contracts
|
(1
|
)
|
|
8
|
|
|
Other income (expense)
|
Total derivatives not designated as hedging instruments
|
$
|
(5
|
)
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Statement of
Operations Location
|
Loss on Derivative Instruments
|
September 29,
2012
|
|
October 1,
2011
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
$
|
(12
|
)
|
|
$
|
(8
|
)
|
|
Other income (expense)
|
Foreign exchange contracts
|
(5
|
)
|
|
(7
|
)
|
|
Other income (expense)
|
Total derivatives not designated as hedging instruments
|
$
|
(17
|
)
|
|
$
|
(15
|
)
|
|
|
The following tables summarize the gains and losses recognized in the condensed consolidated financial statements, including amounts related to discontinued operations, for the
three and nine months ended
September 29, 2012
and
October 1, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Financial Statement
Location
|
Foreign Exchange Contracts
|
September 29,
2012
|
|
October 1,
2011
|
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
Gain (loss) recognized in Accumulated other comprehensive loss
|
$
|
1
|
|
|
$
|
(4
|
)
|
|
Accumulated other
comprehensive loss
|
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings
|
(1
|
)
|
|
1
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Financial Statement
Location
|
Foreign Exchange Contracts
|
September 29,
2012
|
|
October 1,
2011
|
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
Gain (loss) recognized in Accumulated other comprehensive loss
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
Accumulated other
comprehensive loss
|
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings
|
(2
|
)
|
|
4
|
|
|
Cost of sales
|
At
September 29, 2012
and
December 31, 2011
, the Company had valuation allowances of
$352 million
and
$366 million
, respectively, including
$323 million
and
$336 million
, respectively, relating to deferred tax assets for non-U.S. subsidiaries. During the three months ended
April 2, 2011
, the Company reassessed its valuation allowance requirements taking into consideration the distribution of the shares of Motorola Mobility Holdings, Inc. ("Motorola Mobility"). The Company evaluated all available evidence in its analysis, including the historical and projected pre-tax profits generated by the Motorola Solutions U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. As a result, in the three months ended
April 2, 2011
, the Company recorded a
$244 million
tax benefit related to the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets.
The U.S. valuation allowance as of
September 29, 2012
relates primarily to state tax carryforwards. The valuation allowance relating to deferred tax assets of non-U.S. subsidiaries was reduced for tax attributes of a non-controlling interest disposed of during the first quarter, partially offset by increases for current year activity and exchange rate variances. The Company believes the remaining deferred tax assets are more-likely-than-not to be realized based on estimates of future taxable income and the implementation of tax planning strategies.
The Company had unrecognized tax benefits of
$160 million
and
$191 million
at
September 29, 2012
and
December 31, 2011
, respectively, of which
$118 million
and
$150 million
, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances. During the
nine months ended
September 29, 2012
, the Company reduced its unrecognized tax benefits primarily for settlements with tax authorities in the amount of
$34 million
, of which
$13 million
was recognized as a tax benefit and the remainder reduced tax carryforwards and prepaid tax assets. The decrease in the unrecognized tax benefits due to settlements with tax authorities is partially offset by an increase in unrecognized tax benefits related to current and prior year tax positions.
Based on the potential outcome of the Company’s global tax examinations or the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the effective tax rate, exclusive of valuation allowance changes, is estimated to be in the range of a
$50 million
tax charge to a
$50 million
tax benefit, with cash payments in the range of
$0
to
$25 million
.
During the
nine months ended
September 29, 2012
, the Internal Revenue Service (“IRS”) concluded its audit of Motorola Solutions, Inc.'s 2008 and 2009 tax years. The IRS is currently examining the Company's 2010 and 2011 tax years. The Company has audits pending in several tax jurisdictions. Although the final resolution of the Company's global tax disputes is uncertain, based on current information, in the opinion of the Company's management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company's global tax disputes could have a material adverse effect on the Company's results of operations in the periods in which the matters are ultimately resolved.
Pension Benefit Plans
The net periodic pension costs for the U.S. and Non-U.S. plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012
|
|
October 1, 2011
|
Three Months Ended
|
U.S.
|
|
Non
U.S.
|
|
U.S.
|
|
Non
U.S.
|
Service cost
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Interest cost
|
87
|
|
|
18
|
|
|
85
|
|
|
19
|
|
Expected return on plan assets
|
(105
|
)
|
|
(19
|
)
|
|
(97
|
)
|
|
(21
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
Unrecognized net loss
|
65
|
|
|
6
|
|
|
48
|
|
|
4
|
|
Unrecognized prior service credit
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
Settlement/curtailment loss
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Net periodic pension expense
|
$
|
47
|
|
|
$
|
7
|
|
|
$
|
40
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012
|
|
October 1, 2011
|
Nine Months Ended
|
U.S.
|
|
Non
U.S.
|
|
U.S.
|
|
Non
U.S.
|
Service cost
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
18
|
|
Interest cost
|
262
|
|
|
55
|
|
|
256
|
|
|
68
|
|
Expected return on plan assets
|
(316
|
)
|
|
(58
|
)
|
|
(291
|
)
|
|
(75
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
Unrecognized net loss
|
195
|
|
|
16
|
|
|
143
|
|
|
12
|
|
Unrecognized prior service cost
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(10
|
)
|
Settlement/curtailment loss (gain)
|
—
|
|
|
—
|
|
|
8
|
|
|
(9
|
)
|
Net periodic pension cost
|
$
|
141
|
|
|
$
|
19
|
|
|
$
|
116
|
|
|
$
|
4
|
|
During the
nine
months ended
September 29, 2012
, payments of
$340 million
were made to the Company’s U.S. plans, meeting the projected contributions for 2012, and
$24 million
to the Company’s Non-U.S. plans.
In January 2011, the Pension Benefit Guaranty Corporation (“PBGC”) announced an agreement with Motorola Solutions under which we would contribute $100 million above and beyond our legal requirement to one of our U.S. pension plans over the next five years. The Company and the PBGC entered into the agreement as the Company was in the process of separating Motorola Mobility and pursuing the sale of certain assets of the Networks business. The Company made an additional $250 million of pension contributions to one of its U.S. pension plans over the amounts required in the fourth quarter 2011, of which $100 million fulfilled the PBGC obligation. As a result, the Company has no further obligations under this agreement with the PBGC.
During the nine months ended
October 1, 2011
, the Company recognized a curtailment gain in its United Kingdom defined benefit plan, offset by a settlement loss in its Japan defined benefit plan, due to the Networks transaction. As a result, the Company recorded a net gain of
$9 million
to Other charges in the Company’s condensed consolidated statements of operations.
Postretirement Health Care Benefits Plan
Net postretirement health care expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Interest cost
|
4
|
|
|
5
|
|
|
14
|
|
|
17
|
|
Expected return on plan assets
|
(3
|
)
|
|
(4
|
)
|
|
(9
|
)
|
|
(12
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
Unrecognized net loss
|
3
|
|
|
3
|
|
|
9
|
|
|
9
|
|
Unrecognized prior service cost
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
Net postretirement health care expense
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
12
|
|
|
$
|
17
|
|
The Company made no contributions to its postretirement health care fund during the
nine months ended
September 29, 2012
.
During the three months ended
September 29, 2012
, the Company announced an amendment to the Postretirement Health Care Benefits Plan. Starting January 1, 2013, benefits under the plan to participants over age 65 will be paid to a retiree health reimbursement account instead of directly providing health insurance coverage to the participants. These retirees will be able to use the annual subsidy they receive through this account toward the purchase of their own health care coverage from private insurance companies and for reimbursement of eligible health care expenses. This change has resulted in a remeasurement of the plan where
$139 million
of the accumulated postretirement benefit obligation was reduced through a decrease in accumulated other comprehensive loss of
$87 million
, net of taxes. The majority of the reduced liability will be recognized over 3.5 years, which is the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.
Defined Contribution Plans
The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the employees' contributions. Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to eligible employees. For the
nine months ended
September 29, 2012
, the Company has not made any discretionary matching contributions.
|
|
8.
|
Share-Based Compensation Plans
|
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plan, restricted stock and restricted stock units (“RSUs”) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Share-based compensation expense included in:
|
|
|
|
|
|
|
|
Costs of sales
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
19
|
|
|
$
|
14
|
|
Selling, general and administrative expenses
|
27
|
|
|
29
|
|
|
84
|
|
|
83
|
|
Research and development expenditures
|
11
|
|
|
10
|
|
|
36
|
|
|
26
|
|
Share-based compensation expense included in Operating earnings
|
44
|
|
|
45
|
|
|
139
|
|
|
123
|
|
Tax benefit
|
14
|
|
|
14
|
|
|
47
|
|
|
39
|
|
Share-based compensation expense, net of tax
|
$
|
30
|
|
|
$
|
31
|
|
|
$
|
92
|
|
|
$
|
84
|
|
Decrease in basic earnings per share
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.25
|
)
|
Decrease in diluted earnings per share
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.24
|
)
|
Share-based compensation expense in discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
For the
nine months ended
September 29, 2012
, the Company granted
1.5 million
RSUs and
1.2 million
stock options. The total compensation expense, net of estimated forfeitures, for these RSUs and stock options was
$65 million
and
$11 million
, respectively. The expense will be recognized over a weighted average vesting period of 3 years.
Employee Stock Purchase Plan
The employee stock purchase plan allows eligible participants to purchase shares of the Company's common stock through payroll deductions of eligible compensation on an after-tax basis. Effective April 1, 2012, the Company increased the maximum purchase from
10%
to
20%
of eligible compensation. Plan participants cannot purchase more than
$25,000
of stock in any calendar year.
|
|
9.
|
Fair Value Measurements
|
The Company holds certain fixed income securities, equity securities and derivatives, which are recognized and disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation methodologies as defined in the authoritative literature. This guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions about current market conditions. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1
—Quoted prices for identical instruments in active markets.
Level 2
—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3
—Valuations derived from valuation techniques, in which one or more significant inputs are unobservable.
The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of
September 29, 2012
and
December 31, 2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012
|
Level 1
|
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
|
|
Sigma Fund securities:
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
$
|
—
|
|
|
$
|
1,758
|
|
|
$
|
1,758
|
|
Foreign exchange derivative contracts
|
—
|
|
|
5
|
|
|
5
|
|
Available-for-sale securities:
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
—
|
|
|
15
|
|
|
15
|
|
Corporate bonds
|
—
|
|
|
11
|
|
|
11
|
|
Mortgage-backed securities
|
—
|
|
|
2
|
|
|
2
|
|
Common stock and equivalents
|
22
|
|
|
8
|
|
|
30
|
|
Liabilities:
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest agreement derivative contracts
|
—
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
Level 1
|
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
|
|
Sigma Fund securities:
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
$
|
—
|
|
|
$
|
2,944
|
|
|
$
|
2,944
|
|
Foreign exchange derivative contracts
|
—
|
|
|
1
|
|
|
1
|
|
Available-for-sale securities:
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
—
|
|
|
16
|
|
|
16
|
|
Corporate bonds
|
—
|
|
|
10
|
|
|
10
|
|
Mortgage-backed securities
|
—
|
|
|
2
|
|
|
2
|
|
Common stock and equivalents
|
3
|
|
|
8
|
|
|
11
|
|
Liabilities:
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
5
|
|
Interest agreement derivative contracts
|
—
|
|
|
3
|
|
|
3
|
|
The Company had no Level 3 holdings as of
September 29, 2012
and
December 31, 2011
.
The following table summarizes the changes in fair value of our Level 3 assets:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
October 1,
2011
|
|
October 1,
2011
|
Beginning balance
|
$
|
21
|
|
|
$
|
15
|
|
Transfers to Level 3
|
—
|
|
|
21
|
|
Payments received and securities sold
|
—
|
|
|
(18
|
)
|
Gain (loss) on Sigma Fund investments included in Other income (expense)
|
(2
|
)
|
|
1
|
|
Ending balance
|
$
|
19
|
|
|
$
|
19
|
|
At
September 29, 2012
, the Company had
$452 million
of investments in money market mutual funds classified as Cash and cash equivalents in its condensed consolidated balance sheet, compared to
$437 million
at
December 31, 2011
. The money market funds have quoted market prices that are equivalent to par.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at
September 29, 2012
was
$2.1 billion
(Level 2), compared to a face value of
$1.9 billion
. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.
All other financial instruments are carried at cost, which is not materially different than the instruments’ fair values.
|
|
10.
|
Long-term Customer Financing and Sales of Receivables
|
Long-term Customer Financing
Long-term receivables consist of trade receivables with payment terms greater than twelve months, long-term loans and lease receivables under sales-type leases. Long-term receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
September 29,
2012
|
|
December 31,
2011
|
Long-term receivables
|
$
|
114
|
|
|
$
|
177
|
|
Less allowance for losses
|
(1
|
)
|
|
(10
|
)
|
|
113
|
|
|
167
|
|
Less current portion
|
(70
|
)
|
|
(130
|
)
|
Non-current long-term receivables, net
|
$
|
43
|
|
|
$
|
37
|
|
The current portion of long-term receivables is included in Accounts receivable, net and the non-current portion of long-term receivables is included in Other assets in the Company’s condensed consolidated balance sheets.
Certain purchasers of the Company’s products and services may request that the Company provide long-term financing (defined as financing with a term of greater than one year) in connection with the sale of products and services. These requests may include all or a portion of the purchase price of the products and services. The Company’s obligation to provide long-term financing may be conditioned on the issuance of a letter of credit in favor of the Company by a reputable bank to support the purchaser’s credit or a pre-existing commitment from a reputable bank to purchase the long-term receivables from the Company. The Company had outstanding commitments to provide long-term financing to third parties totaling
$100 million
at
September 29, 2012
, compared to
$138 million
at
December 31, 2011
. The majority of the outstanding commitments at
September 29, 2012
are related to a variety of government and public safety customers.
The Company retained the funded portion of the financing arrangements related to the Networks business following the sale to NSN, which totaled a net amount of
$51 million
at
September 29, 2012
. Thes
e receivables have an allowance for uncollectable accounts of
$9 million
classified as current, and
$1 million
classified as non-current.
As of
September 29, 2012
,
$43 million
of net receivables are classified as long-term. Th
e remainder of the long-term receivables are current and included in Accounts receivable, net.
Sales of Receivables
The Company had no committed facilities for the sale of accounts receivable or long-term receivables at
September 29, 2012
or at
December 31, 2011
.
The following table summarizes the proceeds received from non-recourse sales of accounts receivable and long-term receivables for the
three and nine months ended
September 29, 2012
and
October 1, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Cumulative quarterly proceeds received from one-time sales:
|
|
|
|
|
|
|
|
Accounts receivable sales proceeds
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
12
|
|
|
$
|
4
|
|
Long-term receivable sales proceeds
|
32
|
|
|
170
|
|
|
156
|
|
|
193
|
|
Total proceeds from one-time sales of accounts receivable
|
$
|
37
|
|
|
$
|
173
|
|
|
$
|
168
|
|
|
$
|
197
|
|
At
September 29, 2012
, the Company had retained servicing obligations for
$349 million
of long-term receivables, compared to
$263 million
of long-term receivables at
December 31, 2011
. Servicing obligations are limited to collection activities related to the non-recourse sales of accounts receivables and long-term receivables.
At
September 29, 2012
, the Company was subject to a recourse obligation related to the sale of
$200 million
of accounts receivable sold during 2011 and the
nine months ended
September 29, 2012
generated by the Networks business and retained after the sale to NSN. This obligation is only triggered upon the insufficiency of a third party legally binding support letter backing the sold receivables. The conditions which must occur in order for the Company to be required to make a payment under this obligation are deemed remote and the fair value of this obligation at the outset of the arrangement and as of
September 29, 2012
, is
zero
.
Credit Quality of Customer Financing Receivables and Allowance for Credit Losses
An aging analysis of financing receivables at
September 29, 2012
and
December 31, 2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012
|
Total
Long-term
Receivable
|
|
Current Billed
Due
|
|
Past Due Under 90 Days
|
|
Past Due Over 90 Days
|
Municipal leases secured tax exempt
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial loans and leases secured
|
79
|
|
|
2
|
|
|
—
|
|
|
4
|
|
Commercial loans unsecured
|
30
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total gross long-term receivables, including current portion
|
$
|
114
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
Total
Long-term
Receivable
|
|
Current Billed
Due
|
|
Past Due Under 90 Days
|
|
Past Due Over 90 Days
|
Municipal leases secured tax exempt
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial loans and leases secured
|
61
|
|
|
1
|
|
|
2
|
|
|
—
|
|
Commercial loans unsecured
|
102
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total gross long-term receivables, including current portion
|
$
|
177
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
—
|
|
The Company did have financing receivables past due over
90
days as of
September 29, 2012
in relation to a loan related to the funded portion of a financing arrangement from the Networks business following the sale to NSN. The Company is no longer accruing interest on this loan as of
December 31, 2011
. A
$10 million
reserve was established for this loan due to collectability issues at
December 31, 2011
, of which
$9 million
is classified as current, and
$1 million
is classified as non-current at
September 29, 2012
.
|
|
11.
|
Commitments and Contingencies
|
Legal
The Company is a defendant in various suits, claims and investigations that arise in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution could have a material adverse effect on the Company’s results of operations in the periods in which the matters are ultimately resolved.
Other
The Company is a party to a variety of agreements pursuant to which it is obligated to indemnify the other party with respect to certain matters. In indemnification cases, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claims. In some instances, the Company may have recourse against third parties for certain payments made by the Company.
Some of these obligations arise as a result of divestitures of the Company's assets or businesses and require the Company to indemnify the other party against losses arising from breaches of representations and warranties and covenants and, in some cases, the settlement of pending obligations. The Company's obligations under divestiture agreements for indemnification based on breaches of representations and warranties are generally limited in terms of duration, and for amounts not in excess of a percentage of the contract value. The total amount of indemnification under these types of provisions is approximately
$214 million
, of which the Company had
no
accruals at
September 29, 2012
for potential claims under these provisions.
In addition, the Company may provide indemnifications for losses that result from the breach of general warranties contained in certain commercial and intellectual property agreements. Historically, the Company has not made significant payments under these agreements. However there is an increasing risk in relation to patent indemnities given the current legal climate.
In addition, pursuant to the Master Separation and Distribution Agreement and certain other agreements with Motorola Mobility, Motorola Mobility agreed to indemnify the Company for certain liabilities, and the Company agreed to indemnify Motorola Mobility for certain liabilities, in each case for uncapped amounts.
The following table summarizes the Net sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Government
|
$
|
1,521
|
|
|
$
|
1,360
|
|
|
$
|
4,281
|
|
|
$
|
3,811
|
|
Enterprise
|
632
|
|
|
725
|
|
|
1,976
|
|
|
2,092
|
|
|
$
|
2,153
|
|
|
$
|
2,085
|
|
|
$
|
6,257
|
|
|
$
|
5,903
|
|
The following table summarizes the Operating earnings by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29,
2012
|
|
October 1,
2011
|
|
September 29,
2012
|
|
October 1,
2011
|
Government
|
$
|
273
|
|
|
$
|
186
|
|
|
$
|
620
|
|
|
$
|
390
|
|
Enterprise
|
51
|
|
|
68
|
|
|
213
|
|
|
192
|
|
Operating earnings
|
324
|
|
|
254
|
|
|
833
|
|
|
582
|
|
Total other income (expense)
|
—
|
|
|
(16
|
)
|
|
(25
|
)
|
|
(111
|
)
|
Earnings from continuing operations before income taxes
|
$
|
324
|
|
|
$
|
238
|
|
|
$
|
808
|
|
|
$
|
471
|
|
|
|
13.
|
Reorganization of Businesses
|
2012 Charges
During the three months ended
September 29, 2012
, the Company recorded net reorganization of business charges of
$13 million
including
$10 million
of charges in Other charges, and
$3 million
of charges in Costs of sales in our condensed consolidated statements of operations. The
$13 million
of charges all relate to employee separation costs.
During the
nine months ended
September 29, 2012
, the Company recorded net reorganization of business charges of
$36 million
, including
$30 million
of charges in Other charges and
$6 million
of charges in Costs of sales in the Company's condensed consolidated statements of operations. Included in the aggregate of
$36 million
are charges of
$43 million
for employee separation costs, and
$1 million
for building impairment charges, partially offset by
$8 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
|
|
|
|
September 29, 2012
|
Three Months Ended
|
|
Nine Months Ended
|
Government
|
$
|
8
|
|
|
$
|
24
|
|
Enterprise
|
5
|
|
|
12
|
|
|
$
|
13
|
|
|
$
|
36
|
|
The following table displays a rollforward of the reorganization of businesses accruals established for lease exit costs and employee separation costs from
January 1, 2012
to
September 29, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at January 1, 2012
|
|
Additional
Charges
|
|
Adjustments
|
|
Amount
Used
|
|
Accruals at September 29, 2012
|
Exit costs
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
(8
|
)
|
|
$
|
8
|
|
Employee separation costs
|
30
|
|
|
43
|
|
|
(7
|
)
|
|
(33
|
)
|
|
33
|
|
|
$
|
44
|
|
|
$
|
43
|
|
|
$
|
(5
|
)
|
|
$
|
(41
|
)
|
|
$
|
41
|
|
Exit Costs
At
January 1, 2012
, the Company had an accrual of
$14 million
for exit costs attributable to lease terminations. During the
nine months ended
September 29, 2012
, there were no additional charges related to the exit of leased facilities. The
$8 million
used reflects cash payments. The remaining accrual of
$8 million
, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at
September 29, 2012
, primarily represents future cash payments for lease termination obligations that are expected to be paid over a number of years.
Employee Separation Costs
At
January 1, 2012
, the Company had an accrual of
$30 million
for employee separation costs, representing the severance costs for: (i) severed employees who began receiving payments in
2011
, and (ii) approximately
500
employees who began receiving payments in
2012
. The
2012
additional charges of
$43 million
represent severance costs for approximately
700
employees, of which
500
were indirect employees and
200
were direct employees. The adjustment of
$7 million
reflects reversals of accruals no longer needed. The
$33 million
used reflects cash payments. The remaining accrual of
$33 million
, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at
September 29, 2012
, is expected to be paid, generally, within one year to approximately
700
employees, who have either been severed or have been notified of their severance and have begun or will begin receiving payments.
2011 Charges
During the three months ended
October 1, 2011
, the Company recorded net reorganization of business charges of
$10 million
, primarily under Other charges in the Company’s condensed consolidated statements of operations. Included in the
$10 million
are charges of
$8 million
for employee separation costs and
$2 million
for exit costs.
During the
nine months ended
October 1, 2011
, the Company recorded net reorganization of business charges of
$35 million
, including
$3 million
of charges in Costs of sales and
$32 million
of charges under Other charges in the Company’s condensed consolidated statements of operations. Included in the
$35 million
are charges of
$22 million
related to the separation of approximately
400
indirect employees, and
$15 million
related to the exit of leased facilities, partially offset by
$2 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
|
|
|
|
October 1, 2011
|
Three Months Ended
|
|
Nine Months Ended
|
Government
|
$
|
7
|
|
|
$
|
25
|
|
Enterprise
|
3
|
|
|
10
|
|
|
$
|
10
|
|
|
$
|
35
|
|
|
|
14.
|
Intangible Assets and Goodwill
|
Intangible Assets
Amortized intangible assets were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012
|
|
December 31, 2011
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Completed technology
|
$
|
635
|
|
|
$
|
630
|
|
|
$
|
635
|
|
|
$
|
627
|
|
Patents
|
277
|
|
|
277
|
|
|
277
|
|
|
277
|
|
Customer-related
|
137
|
|
|
118
|
|
|
137
|
|
|
103
|
|
Licensed technology
|
23
|
|
|
18
|
|
|
23
|
|
|
18
|
|
Other intangibles
|
90
|
|
|
89
|
|
|
90
|
|
|
89
|
|
|
$
|
1,162
|
|
|
$
|
1,132
|
|
|
$
|
1,162
|
|
|
$
|
1,114
|
|
Amortization expense on intangible assets was
$6 million
for the three months ended
September 29, 2012
and
$50 million
for the three months ended
October 1, 2011
. For the
nine months ended
September 29, 2012
and
October 1, 2011
, amortization expense on intangible assets was
$18 million
and
$150 million
, respectively. As of
September 29, 2012
, annual amortization expense is estimated to be
$25 million
in
2012
,
$10 million
in
2013
,
$8 million
in
2014
,
$3 million
in
2015
and
$2 million
in
2016
.
Amortized intangible assets, excluding goodwill, by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2012
|
|
December 31, 2011
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Government
|
$
|
53
|
|
|
$
|
48
|
|
|
$
|
53
|
|
|
$
|
48
|
|
Enterprise
|
1,109
|
|
|
1,084
|
|
|
1,109
|
|
|
1,066
|
|
|
$
|
1,162
|
|
|
$
|
1,132
|
|
|
$
|
1,162
|
|
|
$
|
1,114
|
|
Goodwill
The following table displays a rollforward of the carrying amount of goodwill by segment from
January 1, 2012
to
September 29, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
Enterprise
|
|
Total
|
Balances as of January 1, 2012:
|
|
|
|
|
|
Aggregate goodwill acquired/divested
|
$
|
350
|
|
|
$
|
2,642
|
|
|
$
|
2,992
|
|
Accumulated impairment losses
|
—
|
|
|
(1,564
|
)
|
|
(1,564
|
)
|
Goodwill, net of impairment losses
|
$
|
350
|
|
|
$
|
1,078
|
|
|
$
|
1,428
|
|
Goodwill acquired
|
—
|
|
|
3
|
|
|
3
|
|
Goodwill divested
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Balance as of September 29, 2012:
|
|
|
|
|
|
Aggregate goodwill acquired/divested
|
$
|
349
|
|
|
$
|
2,645
|
|
|
$
|
2,994
|
|
Accumulated impairment losses
|
—
|
|
|
(1,564
|
)
|
|
(1,564
|
)
|
Goodwill, net of impairment losses
|
$
|
349
|
|
|
$
|
1,081
|
|
|
$
|
1,430
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company,” “we,” “our,” or “us”) for the three and
nine
months ended
September 29, 2012
and
October 1, 2011
, as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended
December 31, 2011
.
Executive Overview
We are a leading provider of mission-critical communication infrastructure, devices, software and services. Our communications-focused products and services help government and enterprise customers improve their operations through increased effectiveness and efficiency of their mobile workforces. Our customers benefit from our global footprint and thought leadership. We are positioned for success with sales in more than 100 countries, 21,000 employees worldwide, an industry leadership position, an unmatched portfolio of products and services and a strong patent portfolio.
We report financial results for two segments:
Government:
Our Government segment includes sales of public safety mission-critical communications systems, commercial two-way radio systems and devices, software and services. In the
third
quarter of
2012
, the segment’s net sales were
$1.5 billion
, representing
71%
of our consolidated net sales.
Enterprise:
Our Enterprise segment includes sales of rugged and enterprise-grade mobile computers and tablets, laser/imaging/RFID-based data capture products, wireless local area network (“WLAN”) and integrated digital enhanced network (“iDEN”) infrastructure, software and services. In the
third
quarter of
2012
, the segment’s net sales were
$632 million
, representing
29%
of our consolidated net sales.
Recent Developments
On October 1, 2012, we announced the completion of the acquisition of Psion plc, a U.K. based leader in mobile computing solutions, for approximately $200 million in cash. The results and operations of Psion will be included in the Enterprise segment in our consolidated financial statements subsequent to the date of the acquisition.
On January 1, 2012, we completed a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. The operating results of the amateur, marine and airband radio businesses, formerly included as part of the Government segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
Third Quarter Summary
|
|
•
|
We
increased
net sales by
3%
to
$2.2 billion
in the
third
quarter of
2012
, compared to net sales of
$2.1 billion
in the
third
quarter of
2011
.
|
|
|
•
|
We generated operating earnings of
$324 million
, or
15.0%
of net sales, in the
third
quarter of
2012
, compared to
$254 million
, or
12.2%
of net sales, in the
third
quarter of
2011
.
|
|
|
•
|
We had earnings from continuing operations, net of tax, of
$206 million
, or
$0.72
per diluted common share, in the
third
quarter of
2012
, compared to earnings from continuing operations, net of tax, of
$153 million
, or
$0.45
per diluted common share, in the
third
quarter of
2011
.
|
|
|
•
|
We generated cash from operating activities of
$504 million
during the
first nine months
of
2012
, compared to
$804 million
in the
first nine months
of
2011
.
|
|
|
•
|
We returned
$2.3 billion
in capital to shareholders through share repurchases and dividends during the
first nine months
of
2012
.
|
Highlights for each of our segments are as follows:
|
|
•
|
Government:
Net sales were
$1.5 billion
in the
third
quarter of
2012
,
an increase
of
12%
compared to net sales of
$1.4 billion
during the
third
quarter of
2011
. On a geographic basis, net sales increased in North America, Latin America and Europe, Middle East and Africa region ("EMEA"), and remained approximately flat in Asia, compared to the year-ago quarter.
|
|
|
•
|
Enterprise:
Net sales were
$632 million
in the
third
quarter of
2012
,
a decrease
of
13%
compared to net sales of
$725 million
in the
third
quarter of
2011
.
On a geographic basis, net sales declined in all regions compared to the year-ago quarter.
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(Dollars in millions, except per
share amounts)
|
September 29, 2012
|
|
% of
Sales**
|
|
October 1, 2011
|
|
% of
Sales**
|
|
September 29, 2012
|
|
% of
Sales**
|
|
October 1, 2011
|
|
% of
Sales**
|
Net sales from products
|
$
|
1,567
|
|
|
|
|
$
|
1,552
|
|
|
|
|
$
|
4,574
|
|
|
|
|
$
|
4,379
|
|
|
|
Net sales from services
|
586
|
|
|
|
|
533
|
|
|
|
|
1,683
|
|
|
|
|
1,524
|
|
|
|
Net sales
|
2,153
|
|
|
|
|
2,085
|
|
|
|
|
6,257
|
|
|
|
|
5,903
|
|
|
|
Costs of product sales
|
682
|
|
|
43.5
|
%
|
|
679
|
|
|
43.8
|
%
|
|
2,052
|
|
|
44.9
|
%
|
|
1,949
|
|
|
44.5
|
%
|
Costs of service sales
|
384
|
|
|
65.5
|
%
|
|
351
|
|
|
65.9
|
%
|
|
1,085
|
|
|
64.5
|
%
|
|
968
|
|
|
63.5
|
%
|
Costs of sales
|
1,066
|
|
|
|
|
1,030
|
|
|
|
|
3,137
|
|
|
|
|
2,917
|
|
|
|
Gross margin
|
1,087
|
|
|
50.5
|
%
|
|
1,055
|
|
|
50.6
|
%
|
|
3,120
|
|
|
49.9
|
%
|
|
2,986
|
|
|
50.6
|
%
|
Selling, general and administrative expenses
|
485
|
|
|
22.5
|
%
|
|
471
|
|
|
22.6
|
%
|
|
1,454
|
|
|
23.2
|
%
|
|
1,414
|
|
|
24.0
|
%
|
Research and development expenditures
|
262
|
|
|
12.2
|
%
|
|
270
|
|
|
12.9
|
%
|
|
785
|
|
|
12.5
|
%
|
|
769
|
|
|
13.0
|
%
|
Other charges
|
16
|
|
|
0.7
|
%
|
|
60
|
|
|
2.9
|
%
|
|
48
|
|
|
0.8
|
%
|
|
221
|
|
|
3.7
|
%
|
Operating earnings
|
324
|
|
|
15.0
|
%
|
|
254
|
|
|
12.2
|
%
|
|
833
|
|
|
13.3
|
%
|
|
582
|
|
|
9.9
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(16
|
)
|
|
(0.7
|
)%
|
|
(18
|
)
|
|
(0.9
|
)%
|
|
(46
|
)
|
|
(0.7
|
)%
|
|
(59
|
)
|
|
(1.0
|
)%
|
Gain on sales of investments and businesses, net
|
19
|
|
|
0.9
|
%
|
|
2
|
|
|
0.1
|
%
|
|
39
|
|
|
0.6
|
%
|
|
21
|
|
|
0.4
|
%
|
Other expense
|
(3
|
)
|
|
(0.1
|
)%
|
|
—
|
|
|
—
|
%
|
|
(18
|
)
|
|
(0.3
|
)%
|
|
(73
|
)
|
|
(1.2
|
)%
|
Total other expense
|
—
|
|
|
—
|
%
|
|
(16
|
)
|
|
(0.8
|
)%
|
|
(25
|
)
|
|
(0.4
|
)%
|
|
(111
|
)
|
|
(1.9
|
)%
|
Earnings from continuing operations before income taxes
|
324
|
|
|
15.0
|
%
|
|
238
|
|
|
11.4
|
%
|
|
808
|
|
|
12.9
|
%
|
|
471
|
|
|
8.0
|
%
|
Income tax expense (benefit)
|
118
|
|
|
5.5
|
%
|
|
83
|
|
|
4.0
|
%
|
|
266
|
|
|
4.3
|
%
|
|
(93
|
)
|
|
(1.6
|
)%
|
|
206
|
|
|
9.6
|
%
|
|
155
|
|
|
7.4
|
%
|
|
542
|
|
|
8.7
|
%
|
|
564
|
|
|
9.6
|
%
|
Less: Earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
%
|
|
2
|
|
|
0.1
|
%
|
|
—
|
|
|
—
|
%
|
|
(6
|
)
|
|
(0.1
|
)%
|
Earnings from continuing operations*
|
206
|
|
|
9.6
|
%
|
|
153
|
|
|
7.3
|
%
|
|
542
|
|
|
8.7
|
%
|
|
570
|
|
|
9.7
|
%
|
Earnings (loss) from discontinued operations, net of tax
|
—
|
|
|
—
|
%
|
|
(25
|
)
|
|
(1.2
|
)%
|
|
3
|
|
|
—
|
%
|
|
404
|
|
|
6.8
|
%
|
Net earnings
|
$
|
206
|
|
|
9.6
|
%
|
|
$
|
128
|
|
|
6.1
|
%
|
|
$
|
545
|
|
|
8.7
|
%
|
|
$
|
974
|
|
|
16.5
|
%
|
Earnings (loss) per diluted common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.72
|
|
|
|
|
$
|
0.45
|
|
|
|
|
$
|
1.80
|
|
|
|
|
$
|
1.66
|
|
|
|
Discontinued operations
|
—
|
|
|
|
|
(0.07
|
)
|
|
|
|
0.01
|
|
|
|
|
1.18
|
|
|
|
|
$
|
0.72
|
|
|
|
|
|
$
|
0.38
|
|
|
|
|
|
$
|
1.81
|
|
|
|
|
$
|
2.84
|
|
|
|
* Amounts attributable to Motorola Solutions, Inc. common stockholders.
** Percentages may not add due to rounding
Results of Operations—Three months ended
September 29, 2012
compared to three months ended
October 1, 2011
Net Sales
Net sales were
$2.2 billion
in the
third
quarter of
2012
, up
3%
compared to net sales of
$2.1 billion
in the
third
quarter of
2011
. The
increase
in net sales reflects a
$161 million
, or
12%
,
increase
in net sales in the Government segment driven by broad based growth across the portfolio, partially offset by a
$93 million
, or
13%
,
decrease
in net sales in the Enterprise segment driven by a decline in volume, which includes the anticipated decline in iDEN infrastructure sales, fewer large deals, and unfavorable foreign currency fluctuations.
Gross Margin
Gross margin was
$1.1 billion
, or
50.5%
of net sales, in the
third
quarter of
2012
, compared to
$1.1 billion
, or
50.6%
of net sales, in the
third
quarter of
2011
. The
increase
in gross margin of
$32 million
reflects an increase in gross margin in our Government segment driven by the
12%
increase in net sales, offset by a decrease in gross margin in our Enterprise segment primarily related to a decline in volume, including the anticipated decline in iDEN, as well as unfavorable foreign currency effects. We increased gross margin as a percentage of sales in both product and service sales. The increase in gross margin percentage from product sales primarily relates to favorable mix change quarter over quarter. The increase in gross margin percentage from service sales primarily relates to leverage from increased volume. Gross margin as a percentage of net sales in the
third
quarter of
2012
slightly decreased compared to the
third
quarter of
2011
, as sales from services, which generally have lower gross margins than our sales from products, comprised a higher percent of sales in the third quarter of 2012 compared to 2011.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses
increased
3%
to
$485 million
, or
22.5%
of net sales, in the
third
quarter of
2012
, compared to
$471 million
, or
22.6%
of net sales, in the
third
quarter of
2011
. The
increase
in expense is driven by an increase in pension and employee benefit related expenses.
Research and Development Expenditures
Research and development (“R&D”) expenditures
decreased
3%
to
$262 million
, or
12.2%
of net sales, in the
third
quarter of
2012
, compared to
$270 million
, or
12.9%
of net sales, in the
third
quarter of
2011
. The
decrease
in R&D expenditures reflects decreased R&D expenditures in our Government segment and roughly flat in our Enterprise segment, primarily due to a decrease in employee benefit related expenses, partially offset by increased investment in next-generation technologies, including small strategic acquisitions closed during and subsequent to the third quarter of 2011.
Other Charges
We recorded net charges of
$16 million
in Other charges in the
third
quarter of
2012
, compared to net charges of
$60 million
in the
third
quarter of
2011
. The net charges in the
third
quarter of
2012
included: (i)
$10 million
of net reorganization of business charges, and (ii)
$6 million
of charges relating to the amortization of intangibles. The charges in the
third
quarter of
2011
included: (i)
$50 million
of charges relating to the amortization of intangibles, and (ii)
$10 million
of net reorganization of business charges. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was
$16 million
in the
third
quarter of
2012
, compared to net interest expense of
$18 million
in the
third
quarter of
2011
. Net interest expense in the
third
quarter of
2012
included interest expense of
$29 million
, partially offset by interest income of
$13 million
. Net interest expense in the
third
quarter of
2011
includes interest expense of
$31 million
, partially offset by interest income of
$13 million
. The decrease in net interest expense in the
third
quarter of
2012
is primarily attributable to a decline in interest expense due to lower average debt outstanding during the
third
quarter of
2012
compared to the
third
quarter of
2011
.
Net Gains on Sales of Investments and Businesses
Net gains on sales of investments and businesses were
$19 million
in the
third
quarter of
2012
, compared to
$2 million
in the
third
quarter of
2011
. In the
third
quarter of
2012
, the net gains were primarily comprised of a gain related to the sale of one of our equity investments.
Other
Net Other expense was
$3 million
in the
third
quarter of
2012
, compared to a de minimis net Other expense in the
third
quarter of
2011
. The net Other expense in the
third
quarter of
2012
was primarily comprised of a $6 million investment write-down expense, partially offset by $3 million of other net investment earnings. The net Other expense in the
third
quarter of
2011
included: (i) $6 million of foreign currency loss, and (ii) $2 million loss from Sigma Fund investments, partially offset by $8 million of other net investment earnings.
Effective Tax Rate
We recorded
$118 million
of net tax expense in the
third
quarter of
2012
, resulting in an effective tax rate of
36%
, compared to
$83 million
of net tax expense in the
third
quarter of
2011
, resulting in an effective tax rate of
35%
.
While our effective tax rate may change from period to period due to non-recurring events, such as settlements of income tax audits and changes in valuation allowances, we expect our effective tax rate to be close to the U.S. statutory tax rate primarily due to our current repatriation strategy and the U.S. federal income tax accrual on undistributed foreign earnings.
Earnings from Continuing Operations
After taxes, and excluding the Earnings attributable to noncontrolling interests, we had net earnings from continuing operations of
$206 million
, or
$0.72
per diluted share, in the
third
quarter of
2012
, compared to net earnings from continuing operations of
$153 million
, or
$0.45
per diluted share, in the
third
quarter of
2011
.
The increase in net earnings from continuing operations was primarily driven by: (i) a
3%
increase in sales with improved operating leverage, (ii) a decrease of
$44 million
in Other charges related to lower intangible asset amortization, and (iii) a decrease of
$16 million
of Total other expense driven by net investment gains. The increase in earnings per diluted share was primarily due to the reduction in shares outstanding as a result of our share repurchase program.
Earnings from Discontinued Operations
In the
third
quarter of
2012
, we had no after-tax earnings from discontinued operations, compared to an after tax loss from discontinued operations of
$25 million
, or
$0.07
per diluted share, in the
third
quarter of
2011
. The after-tax loss from discontinued operations in the
third
quarter of
2011
is primarily from a pre-tax post closing purchase price reduction of $52 million related to the sale of the Networks business.
Results of Operations—
Nine months ended
September 29, 2012
compared to
nine months ended
October 1, 2011
Net Sales
Net sales were
$6.3 billion
in the
first nine months
of
2012
, up
6%
compared to net sales of
$5.9 billion
in the
first nine months
of
2011
. The increase in net sales reflects a
$470 million
, or
12%
,
increase
in net sales in the Government segment driven by growth in all regions, partially offset by a
$116 million
, or
6%
,
decrease
in net sales in the Enterprise segment driven by a decline in volume, including the anticipated decline in iDEN infrastructure sales and fewer large deals, and unfavorable foreign currency fluctuations.
Gross Margin
Gross margin was
$3.1 billion
, or
49.9%
of net sales, in the
first nine months
of
2012
, compared to
$3.0 billion
, or
50.6%
of net sales, in the
first nine months
of
2011
. The
increase
in gross margin of
$134 million
reflects higher gross margin in our Government segment driven by the
12%
increase in net sales, offset by lower gross margin in our Enterprise segment primarily related to a decline in volume, including the anticipated decline in iDEN infrastructure sales, and unfavorable foreign currency effects. The
decrease
in gross margin as a percentage of net sales in the
first nine months
of
2012
, compared to the
first nine months
of
2011
reflects a decrease in gross margin percentage from product sales and
a decrease
in gross margin percentage from service sales. The decline in gross margin percentage from product sales primarily relates to unfavorable mix change year over year during the
first nine months
of 2012 than the
first nine months
of 2011, as well as unfavorable foreign currency effects. The decline in gross margin percentage from service sales primarily relates to the expansion of managed services which generally have lower gross margin than our traditional service contracts.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses
increased
3%
to
$1.5 billion
, or
23.2%
of net sales, in the
first nine months
of
2012
, compared to
$1.4 billion
, or
24.0%
of net sales, in the
first nine months
of
2011
. The increase is driven by an increase in pension and employee benefit related expenses.
Research and Development Expenditures
Research and development (“R&D”) expenditures
increased
2%
to
$785 million
, or
12.5%
of net sales, in the
first nine months
of
2012
, compared to
$769 million
, or
13.0%
of net sales, in the
first nine months
of
2011
. The increase in R&D expenditures reflects higher R&D expenditures in both segments, primarily due to: (i) an increase in employee benefit related
expenses, and (ii) increased investment in next-generation technologies, including small strategic acquisitions closed during and subsequent to the third quarter of 2011.
Other Charges
We recorded net charges of
$48 million
in Other charges in the
first nine months
of
2012
, compared to net charges of
$221 million
in the
first nine months
of
2011
. The net charges in the
first nine months
of
2012
included: (i)
$30 million
of net reorganization of business charges, and (ii)
$18 million
of charges relating to the amortization of intangibles. The charges in the
first nine months
of
2011
included: (i)
$150 million
of charges relating to the amortization of intangibles, (ii)
$48 million
of net charges related to legal matters and intellectual property reserve adjustments, and (iii)
$32 million
of net reorganization of business charges, partially offset by $9 million of pension plan adjustments. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was
$46 million
in the
first nine months
of
2012
, compared to net interest expense of
$59 million
in the
first nine months
of
2011
. Net interest expense in the
first nine months
of
2012
included interest expense of
$79 million
, partially offset by interest income of
$33 million
. Net interest expense in the
first nine months
of
2011
includes interest expense of
$105 million
, partially offset by interest income of
$46 million
. The decrease in net interest expense in the
first nine months
of
2012
is primarily attributable to a decline in interest expense due to lower average debt outstanding during the
first nine months
of
2012
compared to the
first nine months
of
2011
, this was partially offset as interest income decreased due to lower average cash and cash equivalents during the
first nine months
of
2012
compared to the
first nine months
of
2011
.
Net Gains on Sales of Investments and Businesses
Net gains on sales of investments and businesses were
$39 million
in the
first nine months
of
2012
, compared to
$21 million
in the
first nine months
of
2011
. In both the
first nine months
of
2012
and the
first nine months
of
2011
, the net gains were primarily related to sales of our equity investments.
Other
Net Other expense was
$18 million
in the
first nine months
of
2012
, compared to net Other expense of
$73 million
in the
first nine months
of
2011
. The net Other expense in the
first nine months
of
2012
was primarily comprised of: (i)
$11 million
foreign currency expense, (ii) $6 million loss from the extinguishment of debt, and (iii) $8 million investment write down expense, partially offset by
$7 million
of other net investment earnings. The net Other expense in the
first nine months
of
2011
was primarily comprised of
$81 million
of charges related to a loss from the extinguishment of our outstanding long-term debt, partially offset by $8 million of other net investment earnings.
Effective Tax Rate
We recorded
$266 million
of net tax expense in the
first nine months
of
2012
, resulting in an effective tax rate of
33%
, compared to
$93 million
of net tax benefit in the
first nine months
of
2011
, resulting in a negative effective tax rate. Our effective tax rate in the
first nine months
of
2012
is lower than the U.S. statutory tax rate of 35% primarily due to a reduction in unrecognized tax benefits for facts that now indicate the extent to which certain tax positions are more-likely-than-not of being sustained. Our negative effective tax rate in the
first nine months
of
2011
was primarily related to the recording of a $244 million non-cash tax benefit for the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets.
While our effective tax rate may change from period to period due to non-recurring events, such as settlements of income tax audits and changes in valuation allowances, we expect our effective tax rate to be close to the U.S. statutory tax rate primarily due to our current repatriation strategy and the U.S. federal income tax accrual on undistributed foreign earnings.
Earnings from Continuing Operations
After taxes, and excluding the Loss attributable to noncontrolling interests, we had net earnings from continuing operations of
$542 million
, or
$1.80
per diluted share, in the
first nine months
of
2012
, compared to net earnings from continuing operations of
$570 million
, or
$1.66
per diluted share, in the
first nine months
of
2011
.
The decrease in net earnings from continuing operations was primarily driven by the $244 million benefit for the valuation allowance reversal recorded during the
first nine months
of
2011
. The decrease in income tax benefit was partially offset by: (i)
$173 million
decrease in Other charges related to lower intangible asset amortization, and (ii)
$134 million
increase in gross margin. The increase in earnings per diluted share was primarily due to the reduction in shares outstanding as a result of our share repurchase program.
Earnings from Discontinued Operations
In the
first nine months
of
2012
, we had after-tax earnings from discontinued operations of
$3 million
, or
$0.01
per diluted share, compared to
$404 million
, or
$1.18
per diluted share, in the
first nine months
of
2011
. The gain in the
first nine months
of
2011
was primarily from the operations and gain on the sale of the Networks business.
Segment Information
The following commentary should be read in conjunction with the financial results of each reporting segment for the
three and nine months ended
September 29, 2012
and
October 1, 2011
as detailed in Note 12, “Segment Information,” of our condensed consolidated financial statements.
Government Segment
For the
third
quarter of
2012
the segment’s net sales represented
71%
of our consolidated net sales, and
65%
of our consolidated net sales in the
third
quarter of
2011
. For the
first nine months
of
2012
, the segment's net sales represented
68%
of our consolidated net sales, compared to
65%
in the
first nine months
of
2011
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
September 29,
2012
|
|
October 1,
2011
|
|
% Change
|
|
September 29,
2012
|
|
October 1,
2011
|
|
% Change
|
Segment net sales
|
$
|
1,521
|
|
|
$
|
1,360
|
|
|
12
|
%
|
|
$
|
4,281
|
|
|
$
|
3,811
|
|
|
12
|
%
|
Operating earnings
|
273
|
|
|
186
|
|
|
47
|
%
|
|
620
|
|
|
390
|
|
|
59
|
%
|
Three months ended
September 29, 2012
compared to
three months ended
October 1, 2011
The segment’s net sales were
$1.5 billion
in the
third
quarter of
2012
and
$1.4 billion
during the
third
quarter of
2011
. The
increase
in net sales in the Government segment reflects an increase in sales of: (i) mission-critical infrastructure, (ii) professional commercial radio products, (iii) consoles and other command and control equipment, and (iv) services. On a geographic basis, net sales increased in North America, Latin America and EMEA, and remained approximately flat in Asia, compared to the year-ago quarter. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately
65%
of the segment’s sales in the
third
quarter of
2012
and
62%
of the segment’s sales in the
third
quarter
2011
.
The segment had operating earnings of
$273 million
in the
third
quarter of
2012
, compared to operating earnings of
$186 million
in the
third
quarter of
2011
. As a percentage of net sales in the
third
quarter of
2012
as compared to the
third
quarter of
2011
, gross margin increased, and SG&A and R&D expenditures decreased. The increase in operating earnings was primarily due to: (i) an increase in gross margin, driven by the
12%
increase in net sales, and (ii) a decrease in R&D expenditures, partially offset by an increase in SG&A expenses. The decrease in R&D expenditures was driven by lower employee benefit related expenses and the increase in SG&A expenses was primarily due to increases in pension and employee benefit related expenses.
Nine months ended
September 29, 2012
compared to
nine months ended
October 1, 2011
The segment’s net sales were
$4.3 billion
in the
first nine months
of
2012
and
$3.8 billion
during the
first nine months
of
2011
. The
increase
in net sales in the Government segment reflects an increase in sales of: (i) mission-critical infrastructure, (ii) professional commercial radio products, (iii) consoles and other command and control equipment, and (iv) services. On a geographic basis, net sales increased in all regions compared to the
first nine months
of
2011
. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately
64%
of the segment’s sales in the
first nine months
of
2012
and
63%
in the
first nine months
of
2011
.
The segment had operating earnings of
$620 million
in the
first nine months
of
2012
, compared to operating earnings of
$390 million
in the
first nine months
of
2011
. As a percentage of net sales in the
first nine months
of
2012
as compared to the
first nine months
of
2011
, gross margin, SG&A and R&D expenditures decreased. The increase in operating earnings was primarily due to: (i) an increase in gross margin, driven by the
12%
increase in net sales, and (ii) a decline in Other charges, driven by net legal matters that occurred in the
first nine months
of 2011, partially offset by an increase in SG&A expenses and R&D expenditures. The increase in SG&A expenses was due to increases in pension and employee benefit related expenses, and the increase in R&D expenditures was driven by higher employee benefit related expenses and increased investment in next-generation technologies.
Enterprise Segment
For the
third
quarter of
2012
the segment’s net sales represented
29%
of our consolidated net sales, and
35%
of our consolidated net sales in the
third
quarter of
2011
For the
first nine months
of
2012
, the segment's net sales represented
32%
of our consolidated net sales, compared to
35%
in the
first nine months
of
2011
.
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
September 29,
2012
|
|
October 1,
2011
|
|
% Change
|
|
September 29,
2012
|
|
October 1,
2011
|
|
% Change
|
Segment net sales
|
$
|
632
|
|
|
$
|
725
|
|
|
(13
|
)%
|
|
$
|
1,976
|
|
|
2,092
|
|
|
(6
|
)%
|
Operating earnings
|
51
|
|
|
68
|
|
|
(25
|
)%
|
|
213
|
|
|
192
|
|
|
11
|
%
|
Three months ended
September 29, 2012
compared to
three months ended
October 1, 2011
In the
third
quarter of
2012
, the segment’s net sales were
$632 million
, a
13%
decrease
compared to net sales of
$725 million
in the
third
quarter of
2011
. The
13%
decrease
in net sales in the Enterprise segment reflects a decrease in: (i) mobile computing, (ii) iDEN infrastructure, and (iii) WLAN, partially offset by an increase in data capture solutions. On a geographic basis, net sales declined in all regions compared to the year-ago quarter, driven by fewer large deals similar in size to those recorded in the third quarter of 2011, and unfavorable foreign currency fluctuations. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately
46%
of the segment’s net sales in both the
third
quarter of
2012
and
2011
.
The segment had operating earnings of
$51 million
in the
third
quarter of
2012
, compared to operating earnings of
$68 million
in the
third
quarter of
2011
. As a percentage of net sales in the
third
quarter of
2012
as compared to the
third
quarter of
2011
, gross margin decreased, and SG&A expenses and R&D expenditures increased. The decrease in operating earnings was primarily due to a decline in gross margin primarily attributable to a decline in volume as well as unfavorable foreign currency fluctuations, partially offset by a decrease in Other charges, as a result of a reduction in intangibles amortization as certain intangible assets associated with the Symbol acquisition are fully amortized. SG&A expenses and R&D expenditures were approximately flat in the
third
quarter of
2012
, compared to the
third
quarter of
2011
.
Nine months ended
September 29, 2012
compared to
nine months ended
October 1, 2011
The segment’s net sales were
$2.0 billion
in the
first nine months
of
2012
and
$2.1 billion
during the
first nine months
of
2011
. The
6%
decrease
in net sales in the Enterprise segment reflects a decrease in (i) iDEN infrastructure, (ii) mobile computing, and (iii) WLAN, partially offset by an increase in data capture solutions. On a geographic basis, net sales increased in Asia, and decreased in North America, Latin America and EMEA. The decreases in these regions were primarily driven by the anticipated decline in iDEN infrastructure sales, fewer large deals similar in size to those recorded in the
first nine months
of 2011, and unfavorable foreign currency fluctuations. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately
47%
and
45%
of the segment’s net sales in the
first nine months
of
2012
and the
first nine months
of
2011
, respectively.
The segment had operating earnings of
$213 million
in the
first nine months
of
2012
, compared to operating earnings of
$192 million
in the
first nine months
of
2011
. As a percentage of net sales in the
first nine months
of
2012
as compared to the
first nine months
of
2011
, gross margin decreased, and SG&A and R&D expenditures increased. The increase in operating earnings was primarily due to a decrease in Other charges, as a result of a reduction in intangibles amortization as certain intangible assets associated with the Symbol acquisition are fully amortized, as well as a decline from net legal matters that occurred in the second quarter of 2011. The decrease in Other charges was partially offset by: (i) a decrease in gross margin, primarily attributable to a decline in volume, as well as unfavorable foreign currency fluctuations, (ii) increased SG&A expenses due to increases in pension and employee benefit related expenses, and (iii) an increase in R&D expenditures, driven by higher employee benefit expenses and increased investment in next-generation technologies, including small strategic acquisitions closed subsequent to the third quarter of 2011.
Reorganization of Businesses
During the
first nine months
of
2012
, we implemented various productivity improvement plans aimed at achieving long term, sustainable profitability by driving efficiencies and reducing operating costs. During the
third
quarter of
2012
, we recorded net reorganization of business charges of
$13 million
related to the separation of approximately
700
employees, of which
500
were indirect employees and
200
were direct employees. Included in the aggregate
$13 million
of charges were
$10 million
of charges under Other charges and
$3 million
of charges in Costs of sales in our condensed consolidated statements of operations.
During the
nine months ended
September 29, 2012
, we recorded net reorganization of business charges of
$36 million
, including
$30 million
of charges under Other charges and
$6 million
of charges in Costs of sales in our condensed consolidated statements of operations. Included in the aggregate
$36 million
are charges of
$43 million
for employee separation costs and
$1 million
for building impairment charges, partially offset by
$8 million
of reversals for accruals no longer needed.
During the three months ended
October 1, 2011
, we recorded net reorganization of business charges of
$10 million
, primarily under Other charges in our condensed consolidated statements of operations. Included in the
$10 million
are charges of
$8 million
for employee separation costs and
$2 million
for lease exit costs.
During the
nine months ended
October 1, 2011
, we recorded net reorganization of business charges of
$35 million
, including
$3 million
of charges in Costs of sales and
$32 million
of charges under Other charges in our condensed consolidated statements of operations. Included in the
$35 million
are charges of
$22 million
for employee separation costs and
$15 million
related to the exit of leased facilities, partially offset by
$2 million
of reversals for accruals no longer needed.
We expect to realize cost-saving benefits of approximately $9 million during the remaining three months of
2012
from the plans that were initiated during the first
nine
months of
2012
, primarily in operating expenses. Beyond
2012
, we expect the reorganization plans initiated during the first
nine
months of
2012
to provide annualized cost savings of approximately $58 million, consisting of: (i) $32 million of savings in SG&A expenses, (ii) $13 million of savings in R&D expenditures, and (iii) $13 million of savings in Cost of sales.
The following table displays the net charges incurred by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29, 2012
|
|
October 1, 2011
|
|
September 29, 2012
|
|
October 1, 2011
|
Government
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
24
|
|
|
$
|
25
|
|
Enterprise
|
5
|
|
|
3
|
|
|
12
|
|
|
10
|
|
|
$
|
13
|
|
|
$
|
10
|
|
|
$
|
36
|
|
|
$
|
35
|
|
Cash payments for employee severance and exit costs in connection with the reorganization of business plans were
$41 million
in the first
nine
months of
2012
, as compared to $67 million in the first
nine
months of
2011
. Of the
$41 million
of reorganization of businesses accruals at
September 29, 2012
,
$33 million
relate to employee separation costs and are expected to be paid in
2012
and
2013
. The remaining
$8 million
in accruals relate to lease termination obligations that are expected to be paid over a number of years.
Liquidity and Capital Resources
We
decreased
the aggregate of our (i) cash and cash equivalent balances, and (ii) Sigma Fund and short-term investments by
$1.6 billion
from
$5.1 billion
as of
December 31, 2011
to
$3.5 billion
as of
September 29, 2012
, primarily due to: (i) the return of
$2.3 billion
of capital to shareholders through share repurchases and dividends paid during the
first nine months
of
2012
and (ii) the
$412 million
used for the retirement of debt, offset by: (i) $747 million of net proceeds from the issuance of debt and (ii) $504 million of operating cash flow.
As highlighted in the condensed consolidated statements of cash flows, our liquidity and available capital resources are impacted by four key components: (i) cash and cash equivalents, (ii) operating activities, (iii) investing activities, and (iv) financing activities.
Cash and Cash Equivalents
Our cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) were
$1.8 billion
at
September 29, 2012
, compared to
$1.9 billion
at
December 31, 2011
. At
September 29, 2012
, approximately
$385 million
of this amount was held in the U.S. and
$1.4 billion
was held by the Company or its subsidiaries in other countries (including $373 million in China). At both
September 29, 2012
and
December 31, 2011
restricted cash was
$63 million
(including
$3 million
held outside the U.S.).
Repatriation of foreign funds continues to be important given our domestic cash needs. We continuously analyze and review various repatriation strategies to efficiently repatriate funds in the context of meeting our business needs in a tax efficient manner. During the first
nine
months of 2012, we repatriated $780 million in funds to the U.S. from international jurisdictions. We have approximately
$1.3 billion
of earnings in foreign subsidiaries that are not permanently reinvested and may be repatriated without an additional income tax charge, given the U.S. federal and foreign income tax accrued on undistributed earnings and the utilization of available foreign tax credits. Where appropriate, we may also pursue capital reduction activities; however, such activities can be more involved and lengthy. While we regularly repatriate funds, and a
portion of offshore funds can be repatriated with minimal adverse financial impact, repatriation of some of these funds may be subject to delay for local country approvals and could have potential adverse cash tax consequences.
Operating Activities
Cash provided by operating activities from continuing operations in the
first nine months
of
2012
was
$504 million
, compared to
$804 million
in
2011
. Operating cash flows in the
first nine months
of 2012, as compared to the
first nine months
of
2011
, were positively impacted by increased sales and expanded operating margins, increased accounts receivable collection, and lower interest payments. These impacts were offset by increased contributions to our U.S. pension plans in
first nine months
of 2012, as compared to the
first nine months
of
2011
, lower proceeds from the factoring of long-term receivables, and higher tax payments driven by repatriation activities.
We contributed
$340 million
to our U.S. pension plans during the
first nine months
of
2012
, reflecting $72 million of contributions scheduled for the fourth quarter but paid during the third quarter of 2012, compared to
$176 million
contributed in the
first nine months
of
2011
. Our payments of $340 million during the first nine months of 2012 fulfilled our projected U.S. pension contributions for 2012. We contributed
$24 million
to our non-U.S. pension plans during the
first nine months
of
2012
, compared to $30 million contributed in the
first nine months
of
2011
. In January 2011, the Pension Benefit Guaranty Corporation (“PBGC”) announced an agreement with Motorola Solutions under which we would contribute $100 million above and beyond our legal requirement to one of our U.S. pension plans over the next five years. We and the PBGC entered into the agreement as we were in the process of separating Motorola Mobility and pursuing the sale of certain assets of the Networks business. We made an additional $250 million of pension contributions to one of our U.S. pension plans over the amounts required in the fourth quarter 2011, of which $100 million fulfilled the PBGC obligation. As a result, we have no further obligations under this agreement with the PBGC.
Investing Activities
Net cash provided by investing activities was
$1.3 billion
in the first
nine
months of
2012
, compared to net cash provided of
$1.2 billion
in the first
nine
months of
2011
. This
$170 million
increase
was primarily due to an increase in proceeds from sales of Sigma Fund investments, offset by the proceeds from the sale of the Networks business received in the
first nine months
of 2011.
Sigma Fund:
We and our wholly-owned subsidiaries invest most of our U.S. dollar-denominated cash in a fund (the “Sigma Fund”) that allows us to efficiently manage our cash around the world. We had net proceeds from sales of
$1.5 billion
of Sigma Fund investments in the first
nine
months of
2012
, compared to
$225 million
in net proceeds from sales of Sigma Fund investments in the first
nine
months of
2011
. The aggregate fair value of Sigma Fund investments was
$1.8 billion
at
September 29, 2012
(including
$957 million
held outside the U.S.), compared to
$3.2 billion
at
December 31, 2011
(including
$1.3 billion
held outside the U.S.).
At
September 29, 2012
and
December 31, 2011
, the Sigma Fund was invested in cash and U.S. government, agency and government-sponsored enterprise obligations. The investments had a weighted average maturity of less than 30 days. This reflects a strategic decision to prioritize liquidity and capital preservation.
We continuously assess our cash needs and continue to believe that the balance of cash and cash equivalents, short-term investments and investments in the Sigma Fund are more than adequate to meet our current operating requirements over the next twelve months.
Acquisition and Investments
: On February 27, 2012, we completed an agreement with Nokia Siemens Networks B.V. ("NSN") to take over the Norwegian nationwide Terrestrial Trunked Radio ("TETRA") public safety network. With this transaction, we have broadened our scope from being a sub-supplier of the technology for the core TETRA digital radio communications infrastructure to become the prime contractor, including all managed services for the rollout, implementation, and operation of the system.
We received
$61 million
in net proceeds from acquisitions and investments in the first
nine
months of
2012
, primarily related to the agreement with NSN to take over responsibility to implement Norway´s TETRA public safety network.
Subsequent to
September 29, 2012
, we completed the acquisition of Psion plc, a U.K. based leader in mobile computing solutions, for approximately $200 million, primarily utilizing cash held outside the U.S.
Capital Expenditures:
Capital expenditures
increased
in the first
nine
months of
2012
to
$140 million
, compared to
$103 million
in the first
nine
months of
2011
, primarily due to an increase in investments in Company-owned infrastructure related to our managed services and an increase in information technology investments.
Sales of Investments and Businesses
: We made
$38 million
of disbursements related to the sales of investments and businesses in the first
nine
months of
2012
, compared to proceeds of
$1.1 billion
in the first
nine
months of
2011
. The disbursements in the first
nine
months of
2012
were primarily comprised of payments to NSN related to the purchase price adjustment from the sale of the Networks business, partially offset by proceeds from sales of certain of our equity investments.
The proceeds in the first
nine
months of
2011
were primarily comprised of net proceeds received in connection with sales of: (i) the Networks business, (ii) certain of our equity investments, and (iii) the Israel-based module business.
Financing Activities
Net cash used for financing activities was
$2.0 billion
in the first
nine
months of
2012
, compared to net cash used of
$4.3 billion
in the first
nine
months of
2011
. Cash used for financing activities in the first
nine
months of
2012
was primarily comprised of: (i)
$2.1 billion
used for purchases of our common stock under our share repurchase program, (ii) $412 million of cash used for the repayment of debt, and (iii)
$197 million
of cash used for the payment of dividends, partially offset by: (i) $747 million of net proceeds from the issuance of debt, and (ii)
$79 million
of net cash received from the issuance of common stock in connection with our employee stock option plans and employee stock purchase plan. Net cash used for financing activities in the first
nine
months of
2011
was primarily comprised of: (i)
$3.3 billion
cash contribution relating to the Distribution of Motorola Mobility, (ii)
$744 million
used for purchases of our common stock under our share repurchase program and (iii)
$617 million
of cash used for the repayment of debt, partially offset by: (i)
$148 million
of net cash received from the issuance of common stock in connection with our employee stock option plans and employee stock purchase plans and (ii)
$102 million
of distributions from discontinued operations.
Current Portion of Long-Term Debt:
Our current portion of long-term debt was
$4 million
at
September 29, 2012
, and
$405 million
at
December 31, 2011
.
Long-Term Portion of Long-Term Debt:
We had outstanding long-term debt of
$1.9 billion
at
September 29, 2012
, and
$1.1 billion
at
December 31, 2011
.
In the second quarter of 2012, we issued an aggregate face principle amount of $750 million of 3.750% Senior Notes due May 15, 2022 (the “2022 Senior Notes”). Also in the second quarter of 2012, we called for the redemption of the $400 million aggregate principal amount outstanding of our 5.375% Senior Notes due November 2012 (the “2012 Senior Notes”). All of the 2012 Senior Notes were redeemed in the second quarter of 2012 for an aggregate purchase price of approximately $408 million. This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
We have investment grade ratings on our senior unsecured long-term debt from the three largest U.S. national rating agencies. We believe that we will be able to maintain sufficient access to the capital markets at our current ratings. Any future disruptions, uncertainty or volatility in the capital markets may result in higher funding costs for us and adversely affect our ability to access funds.
We may, from time to time, seek to retire certain of our outstanding debt through open market cash purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Share Repurchase Program:
On
July 28, 2011
, we announced that our Board of Directors approved a share repurchase program that allows us to purchase up to
$2.0 billion
of our outstanding common stock through December 31, 2012. On
January 30, 2012
, we announced that our Board of Directors authorized up to
$1.0 billion
in additional funds for use under the existing share repurchase program through the end of 2012. On
February 26, 2012
, we entered into a stock purchase agreement with Carl C. Icahn and certain of his affiliates to purchase
23,739,362
shares of our common stock. On July 25, 2012, we announced that our Board of Directors authorized up to
$2.0 billion
in additional funds for share repurchase, bringing the aggregate amount of the share repurchase program to
$5.0 billion
, and extended the entire share repurchase program indefinitely with no expiration date. We paid an aggregate of
$308 million
during the
third
quarter of 2012, including transactions costs, to repurchase
6.5 million
shares at an average price of
$47.47
per share. During the
first nine months
of
2012
, we paid an aggregate of
$2.1 billion
, including transaction costs, to repurchase
43.5 million
shares at an average price of $
48.50
per share. As of
September 29, 2012
, we have used approximately
$3.2 billion
of the share repurchase authority, including transaction costs, to repurchase shares, leaving approximately
$1.8 billion
of authority available for repurchases. All repurchased shares have been retired.
Payment of Dividends:
During the
nine months ended
September 29, 2012
, we paid
$197 million
in cash dividends to holders of our common stock. Subsequent to
September 29, 2012
, we paid $73 million in cash dividends to holders of our common stock.
Credit Facilities
As of
September 29, 2012
, we had a
$1.5 billion
unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to mature on June 30, 2014. The 2011 Motorola Solutions Credit Agreement includes a provision pursuant to which we can increase the aggregate credit facility size up to a maximum of
$2.0 billion
by adding lenders or having existing lenders increase their commitments. We must comply with certain customary covenants, including maximum leverage and minimum interest coverage ratios as defined in the 2011 Motorola Solutions Credit Agreement. We were in compliance with our financial covenants as of
September 29, 2012
. We did not borrow under the 2011 Motorola Solutions Credit Agreement during the
three and nine months ended
September 29, 2012
.
Long-Term Customer Financing Commitments
Outstanding Commitments:
Certain purchasers of our products and services may request that we provide long-term financing (defined as financing with a term of greater than one year) in connection with the sale of products and services. These requests may include all or a portion of the purchase price of the products and services. Our obligation to provide long-term financing may be conditioned on the issuance of a letter of credit in favor of us by a reputable bank to support the purchaser’s credit or a pre-existing commitment from a reputable bank to purchase the long-term receivables from us. We had outstanding commitments to provide long-term financing to third parties totaling
$100 million
at
September 29, 2012
, compared to
$138 million
at
December 31, 2011
. The majority of the outstanding commitments at
September 29, 2012
are related to a variety of government and public safety customers.
Outstanding Long-Term Receivables:
We had net non-current long-term receivables of
$43 million
(net of allowances for losses of
$1 million
) at
September 29, 2012
, compared to net long-term receivables of
$37 million
(net of allowances for losses of
$10 million
) at
December 31, 2011
. These long-term receivables are generally interest bearing, with interest rates generally ranging from 3% to 13%.
Sales of Receivables
We had no committed facilities for the sale of long-term receivables or short-term receivables at
September 29, 2012
or at
December 31, 2011
.
The following table summarizes the proceeds received from non-recourse sales of accounts receivable and long-term receivables for the
three and nine months ended
September 29, 2012
and
October 1, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 29, 2012
|
|
October 1, 2011
|
|
September 29, 2012
|
|
October 1, 2011
|
Cumulative quarterly proceeds received from one-time sales:
|
|
|
|
|
|
|
|
Accounts receivable sales proceeds
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
12
|
|
|
$
|
4
|
|
Long-term receivables sales proceeds
|
32
|
|
|
170
|
|
|
156
|
|
|
193
|
|
Total proceeds from one-time sales of accounts receivable
|
$
|
37
|
|
|
$
|
173
|
|
|
$
|
168
|
|
|
$
|
197
|
|
At
September 29, 2012
, we had retained servicing obligations for
$349 million
of sold long-term receivables, compared to
$263 million
of sold long-term receivables at
December 31, 2011
. Servicing obligations are limited to collection activities related to the non-recourse sales of accounts receivables and long-term receivables.
Other Contingencies
Potential Contractual Damage Claims in Excess of Underlying Contract Value:
In certain circumstances, we may enter into contracts with customers pursuant to which the damages that could be claimed by the other party for failed performance might exceed the revenue we receive from the contract. Contracts with these types of uncapped damage provisions are fairly rare, but individual contracts could still represent meaningful risk. There is a possibility that a damage claim by a counterparty to one of these contracts could result in expenses to us that are far in excess of the revenue received from the counterparty in connection with the contract.
Indemnification Provisions:
In addition, we may provide indemnifications for losses that result from the breach of general warranties contained in certain commercial, intellectual property and divestiture agreements. Historically, we have not made significant payments under these agreements, nor have there been significant claims asserted against us. However, there is an increasing risk in relation to intellectual property indemnities given the current legal climate. In indemnification cases, our payment is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, for which procedures typically allow us to challenge the other party’s claims. Further, our obligations under divestiture agreements for indemnification based on breach of representations and warranties are generally limited in terms of duration, typically not more than 24 months, and for amounts not in excess of the contract value, and in some instances we may have recourse against third parties for certain payments made by us.
Legal Matters:
We are a defendant in various lawsuits, claims and actions, which arise in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, an unfavorable resolution could have a material adverse effect on our consolidated financial position, liquidity or results of operations in the periods in which the matters are ultimately resolved.
In addition, pursuant to the Master Separation and Distribution Agreement and certain other agreements with Motorola Mobility, Motorola Mobility agreed to indemnify us for certain liabilities, and we agreed to indemnify Motorola Mobility for certain liabilities, in each case for uncapped amounts.
Significant Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following significant accounting policies require significant judgment and estimates:
|
|
|
|
|
|
–
|
|
Valuation of the Sigma Fund and investment portfolios
|
|
|
|
|
|
|
–
|
|
Restructuring activities
|
|
|
|
|
|
|
–
|
|
Retirement-related benefits
|
|
|
|
|
|
|
–
|
|
Valuation and recoverability of goodwill and long-lived assets
|
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-12, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements, as required by ASU 2011-05. We adopted all other requirements of ASU 2011-05 effective January 1, 2012.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11 “
Disclosures about Offsetting Assets and Liabilities.”
The standard requires additional disclosure to enhance the comparability of U.S. GAAP and International Financial Reporting Standards ("IFRS") financial statements. The new standard is effective for annual and interim periods beginning January 1, 2013. Retrospective application is required. The guidance concerns disclosure only and will not have an impact on our consolidated financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Financial Instruments
At
September 29, 2012
, we had outstanding foreign exchange contracts with notional amounts totaling
$558 million
, compared to
$524 million
outstanding at
December 31, 2011
. Management believes that these financial instruments should not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in our condensed consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of
September 29, 2012
and the corresponding positions as of
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
Net Buy (Sell) by Currency
|
September 29,
2012
|
|
December 31,
2011
|
Chinese Renminbi
|
$
|
(266
|
)
|
|
$
|
(283
|
)
|
Euro
|
(64
|
)
|
|
8
|
|
British Pound
|
63
|
|
|
55
|
|
Malaysian Ringgit
|
34
|
|
|
37
|
|
Israeli Shekel
|
(32
|
)
|
|
8
|
|
Forward-Looking Statements
Except for historical matters, the matters discussed in this Form 10-Q are forward-looking statements within the meaning of applicable federal securities law. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions. We can give no assurance that any future results or events discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Readers are cautioned that such forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this Form 10-Q. Forward-looking statements include, but are not limited to, statements included in: (1) the Executive Overview about: (a) our business strategies and expected results, and (b) our industry and market expectations including demand levels and customer priorities for our business, (2) “Management's Discussion and Analysis,” about: (a) our commitment to and investment in R&D, (b) our expected effective tax rate, (c) future payments, charges, use of accruals and expected cost-saving benefits associated with our reorganization of business programs and employee separation costs, (d) our ability and cost to repatriate funds, (e) future cash contributions to pension plans or retiree health benefit plans, (f) our ability to collect on our Sigma Fund and other investments, (g) the completion and impact of pending acquisitions and divestitures, (h) our ability and cost to access the capital markets, (i) our plans with respect to the level of outstanding debt, (j) the return of capital to shareholders through dividends and/or repurchasing shares, (k) expected payments pursuant to commitments under long-term agreements, (l) our ability to sell accounts receivable and the terms and amounts of such sales, (m) potential contractual damages claims, (n) the outcome and effect of ongoing and future legal proceedings, and (o) the impact of recent accounting pronouncements, (3) “Quantitative and Qualitative Disclosures about Market Risk,” about the impact of foreign currency exchange risks, (4) “Legal Proceedings,” about the ultimate disposition of pending legal matters, and (5)"Controls and Procedures," about the implementation of our enterprise resource planning systems. Motorola Solutions undertakes no obligation to publicly update any forward-looking statement or risk factor, whether as a result of new information, future events or otherwise.
Some of the risk factors that affect our business and financial results are discussed in Part I, “Item 1A: Risk Factors” on pages 9 through 22 of our 2011 Annual Report on Form 10-K, and in our other SEC filings available for free on the SEC's website at www.sec.gov and on Motorola Solutions' website at www.motorolasolutions.com. We wish to caution the reader that the risk factors discussed in each of these documents and those described in our other Securities and Exchange Commission filings, could cause our actual results to differ materially from those stated in the forward-looking statements.
Item 4. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to Motorola Solutions, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to Motorola Solutions’ management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended
September 29, 2012
, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
We are in the process of a multi-year phased upgrade and consolidation of our enterprise resource planning (“ERP”) systems into a single global platform across our business. The first phase was successfully implemented during the third quarter of 2012 with no significant changes to our internal controls over financial reporting.
Continuing to implement the remaining phased approaches of our ERP system on a widespread basis involves significant changes in business processes and extensive organizational training. A phased approach reduces the risks associated with making these changes. We believe we are taking the necessary steps to monitor and maintain appropriate internal controls during these transition periods. Such steps include deploying resources to mitigate internal control risks and performing additional verifications and testing to ensure data integrity. In connection with the continued implementation of our global ERP system, we expect there will be certain redesigns of our business processes throughout the implementation, some of which may be related to internal control over financial reporting and disclosure controls and procedures.
Part II—Other Information
Item 1. Legal Proceedings
The proceedings referenced below refer to Motorola, Inc., our former name, and we have not changed the court descriptions to refer to Motorola Solutions, Inc.
Silverman Federal Securities Class Action Case
A purported class action lawsuit on behalf of the purchasers of Motorola securities between July 19, 2006 and January 5, 2007,
Silverman v. Motorola, Inc., et al
., was filed against the Company and certain current and former officers and directors of the Company on August 9, 2007, in the United States District Court for the Northern District of Illinois. The complaint alleges violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, as well as, in the case of the individual defendants, the control person provisions of the Securities Exchange Act. The operative amended complaint primarily alleges that the defendants knowingly made incorrect statements concerning Motorola's projected revenues for the third and fourth quarter of 2006. The complaint also challenges Motorola's accounting and disclosures for certain transactions entered into in the third quarter of 2006. The complaint seeks unspecified damages and other relief relating to the purported inflation in the price of Motorola shares during the class period. On August 25, 2009, the district court granted plaintiff's motion for class certification. On February 1, 2012, the parties in the
Silverman
litigation signed a settlement agreement to resolve all claims in that case for $200 million, $150 million of which is being paid by the Company's insurance carriers. The district court approved the settlement agreement on May 9, 2012. Two appeals have been filed from the judgment entered pursuant to the settlement - one challenging the court's approval of certain terms of the settlement, and the other challenging the fee award to the attorneys for the class.
Those appeals are pending and oral argument is scheduled for November 1, 2012.
Item 1A. Risk Factors
The reader should carefully consider, in connection with the other information in this report, the factors discussed in Part I, “Item 1A: Risk Factors” on pages 9 through 23 of the Company’s 2011 Annual Report on Form 10-K. These factors could cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to acquisitions by the Company of shares of its common stock during the quarter ended
September 29, 2012
.
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
(a) Total Number
of Shares
Purchased
(1)
|
|
(b) Average Price
Paid per
Share
(2)
|
|
(c) Total Number
of Shares Purchased
as Part of Publicly
Announced Plans
or Program
(3)
|
|
(d) Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Program
(3)
|
7/1/12 to 7/27/12
|
1,801,432
|
|
|
$
|
46.99
|
|
|
1,801,432
|
|
|
$
|
2,000,915,011
|
|
7/28/12 to 8/24/12
|
4,263,163
|
|
|
$
|
47.66
|
|
|
4,259,802
|
|
|
$
|
1,797,983,676
|
|
8/25/12 to 9/29/12
|
424,756
|
|
|
$
|
47.55
|
|
|
424,756
|
|
|
$
|
1,777,794,222
|
|
Total
|
6,489,351
|
|
|
$
|
47.47
|
|
|
6,485,990
|
|
|
|
|
|
(1)
|
In addition to purchases under the share repurchase program (as defined below), included in this column are transactions under the Company's equity compensation plans involving the delivery to the Company of 3,361 shares of Motorola Solutions common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock granted to Company employees.
|
|
|
(2)
|
Average price paid per share of common stock repurchased is the execution price, including commissions paid to brokers.
|
|
|
(3)
|
Through actions taken on July 28, 2011, January 30, 2012 and July 25, 2012, the Board of Directors has authorized the Company to repurchase an aggregate amount of up to $5.0 billion of its outstanding shares of common stock (the “share repurchase program”). The share repurchase program does not have an expiration date.
|
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information.
None.
Item 6. Exhibits
|
|
|
|
Exhibit No.
|
|
Exhibit
|
*31.1
|
|
Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
*31.2
|
|
Certification of Edward J. Fitzpatrick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
*32.1
|
|
Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
*32.2
|
|
Certification of Edward J. Fitzpatrick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
**101.INS
|
|
XBRL Instance Document
|
**101.SCH
|
|
XBRL Taxonomy Extension Scheme Document
|
**101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
**101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
**101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
**101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
___________________________________
|
|
|
*
|
Filed herewith
|
**
|
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securii4es Exchange Act of 1934, and otherwise is not subject to liability under these sections.
|
|
MOTOROLA, MOTO, MOTOROLA SOLUTIONS and the Stylized M Logo, as well as iDEN are trademarks or registered trademarks of Motorola Trademark Holdings, LLC and are used under license.
|
|
All other product or service names are the property of their respective owners.
©
2012 Motorola Solutions, Inc. All rights reserved.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
MOTOROLA SOLUTIONS, INC.
|
|
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By:
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/
S
/ J
OHN
K. W
OZNIAK
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John K. Wozniak
Corporate Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
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Date: October 24, 2012
EXHIBIT INDEX
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Exhibit No.
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Exhibit
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*31.1
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Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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*31.2
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Certification of Edward J. Fitzpatrick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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*32.1
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Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*32.2
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Certification of Edward J. Fitzpatrick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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**101.INS
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XBRL Instance Document
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**101.SCH
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XBRL Taxonomy Extension Scheme Document
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**101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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**101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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**101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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**101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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___________________________________
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*
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Filed herewith
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**
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XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
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