Notes to Consolidated Financial Statements
(Dollars in millions, except as noted)
1. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of Motorola Solutions, Inc. (the “Company” or “Motorola Solutions”) and all controlled subsidiaries. All intercompany transactions and balances have been eliminated.
The consolidated financial statements as of
December 31, 2012
and
2011
and for the years ended
December 31, 2012
,
2011
and
2010
, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the Company's consolidated financial position, results of operations, statements of comprehensive income, statement of stockholder's equity, and cash flows for all periods presented.
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("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.
Changes in Presentation
Reverse Stock Split and Name Change
On November 30, 2010, Motorola Solutions announced the timing and details regarding the distribution of Motorola Mobility Holdings, Inc. ("Motorola Mobility") and the approval of a reverse stock split at a ratio of 1-for-7 (“the Reverse Stock Split”). On January 4, 2011, immediately following the distribution of Motorola Mobility common stock, the Company completed a the Reverse Stock Split and changed its name to Motorola Solutions, Inc. All consolidated share and per share information presented gives effect to the distribution of Motorola Mobility and Reverse Stock Split.
Revenue Recognition:
Net sales consist of a wide range of activities including the delivery of stand-alone equipment or services, custom design and installation over a period of time, and bundled sales of equipment, software and services. The Company enters into revenue arrangements that may consist of multiple deliverables of its product and service offerings due to the needs of its customers. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability of the sales price is reasonably assured. The Company recognizes revenue from the sale of equipment, software bundled with equipment that is essential to the functionality of the equipment, and most services in accordance with general revenue recognition accounting principles. The Company recognizes revenue in accordance with software accounting guidance for the following types of sales transactions: (i) standalone sales of software products or software upgrades, (ii) standalone sales of software maintenance agreements, and (iii) sales of software bundled with hardware not essential to the functionality of that hardware.
Products
—For product sales, revenue recognition occurs when products have been shipped, risk of loss has transferred to the customer, objective evidence exists that customer acceptance provisions have been met, no significant obligations remain and allowances for discounts, price protection, returns and customer incentives can be reliably estimated. Recorded revenues are reduced by these allowances. The Company bases its estimates of these allowances on historical experience taking into consideration the type of products sold, the type of customer, and the specific type of transaction in each arrangement. Where customer incentives cannot be reliably estimated, the Company defers revenue until the incentive has been finalized with the customer.
The Company sells software and equipment obtained from other companies. The Company establishes its own pricing and retains related inventory risk, is the primary obligor in sales transactions with customers, and assumes the credit risk for amounts billed to customers. Accordingly, the Company generally recognizes revenue for the sale of products obtained from other companies based on the gross amount billed.
Within the Enterprise segment, products are primarily sold through distributors and value-added resellers (collectively “channel partners”). Channel partners may provide a service or add componentry in order to resell the Company's products to end customers. For sales to channel partners where the Company cannot reliably estimate the final sales price or when a channel partner is unable to pay for the Company's products without reselling them to their customers, revenue is not recognized until the products are resold by the channel partner to the end customer.
Long-Term Contracts
—For long-term contracts that involve customization of equipment and/or software, the Company generally recognizes revenue using the percentage of completion method based on the percentage of costs incurred to date compared to the total estimated costs to complete the contract. In certain instances, when revenues or costs associated with long-term contracts cannot be reliably estimated or the contract contains other inherent uncertainties, revenues and costs are
deferred until the project is complete and customer acceptance is obtained. When current estimates of total contract revenue and contract costs indicate a contract loss, the loss is recognized in the period it becomes evident.
Services
—Revenue for services is generally recognized ratably over the contract term as services are performed.
Software and Licenses
—Revenue from pre-paid perpetual licenses is recognized at the inception of the arrangement, presuming all other relevant revenue recognition criteria are met. Revenue from non-perpetual licenses or term licenses is recognized ratably over the period that the licensee uses the license. Revenues from software maintenance, technical support and unspecified upgrades are recognized over the period that these services are delivered.
Multiple-Element Arrangements
—Arrangements with customers may include multiple deliverables, including any combination of products, services and software. These multiple element arrangements could also include an element accounted for as a long-term contract coupled with other products, services and software. For multiple-element arrangements that include products containing software essential to the equipment's functionality, undelivered software elements that relate to the product's essential software, and undelivered non-software services, deliverables are separated into more than one unit of accounting when (i) the delivered element(s) have value to the customer on a stand-alone basis, and (ii) delivery of the undelivered element(s) is probable and substantially in the control of the Company. In these arrangements, the Company allocates revenue to all deliverables based on their relative selling prices. The Company uses the following hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of selling price (“ESP”).
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•
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VSOE—In many instances, products are sold separately in stand-alone arrangements as customers may support the products themselves or purchase support on a time and materials basis. Additionally, advanced services such as general consulting, network management or advisory projects are often sold in stand-alone engagements. Technical support services are also often sold separately through renewals of annual contracts. The Company determines VSOE based on its normal pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range, generally evidenced by the pricing rates of approximately
80%
of such historical stand-alone transactions falling within plus or minus
15%
of the median rate. In addition, the Company considers the geographies in which the products or services are sold, major product and service groups, customer classification, and other environmental or marketing variables in determining VSOE.
|
|
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•
|
TPE—VSOE exists only when the Company sells the deliverable separately. When VSOE does not exist, the Company attempts to determine TPE based on competitor prices for similar deliverables when sold separately. Generally, the Company's go-to-market strategy for many of its products differs from that of its peers and its offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality sold by other companies cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, the Company is typically not able to determine TPE.
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•
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ESP—The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. When both VSOE and TPE do not exist, the Company determines ESP by first collecting all reasonably available data points including sales, cost and margin analysis of the product, and other inputs based on its normal pricing practices. Second, the Company makes any reasonably required adjustments to the data based on market and Company-specific factors. Third, the Company stratifies the data points, when appropriate, based on customer, magnitude of the transaction and sales volume.
|
Once elements of an arrangement are separated into more than one unit of accounting, revenue is recognized for each separate unit of accounting based on the nature of the revenue as described above.
The Company's arrangements with multiple deliverables may also contain a stand-alone software deliverable that is subject to software revenue recognition guidance. The revenue for these multiple-element arrangements is allocated to the software deliverable and the non-software deliverable(s) based on the relative selling prices of all of the deliverables in the arrangement using the fair value hierarchy outlined above. In circumstances where the Company cannot determine VSOE or TPE of the selling price for any of the deliverables in the arrangement, ESP is used for the purpose of allocating the arrangement consideration between software and non software deliverables.
The Company accounts for multiple-element arrangements that consist entirely of software or software-related products, including the sale of software upgrades or software support agreements to previously sold software, in accordance with software accounting guidance. For such arrangements, revenue is allocated to the deliverables based on the relative fair value of each element, and fair value is determined using VSOE. Where VSOE does not exist for the undelivered software element, revenue is deferred until either the undelivered element is delivered or VSOE is established, whichever occurs first. When VSOE of a delivered element has not been established, but VSOE exists for the undelivered elements, the Company uses the residual method to recognize revenue when the fair value of all undelivered elements is determinable. Under the residual
method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements and is recognized as revenue.
Cash Equivalents:
The Company considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. At both
December 31, 2012
and December 31,
2011
, restricted cash was
$63 million
.
Sigma Fund:
The Company and its wholly-owned subsidiaries invest a significant portion of their U.S. dollar-denominated cash in a fund (the “Sigma Fund”) that allows the Company to efficiently manage its cash around the world. The Sigma Fund portfolio is managed by four independent investment management firms. The investment guidelines of the Sigma Fund require that purchased investments must be in high-quality, investment grade (rated at least A/A-1 by Standard & Poor's or A2/P-1 by Moody's Investors Service), U.S. dollar-denominated fixed income obligations, including certificates of deposit, commercial paper, government bonds, corporate bonds and asset- and mortgage-backed securities. Under the Sigma Fund's investment policies, except for obligations of the U.S. government, agencies and government-sponsored enterprises, no more than
5%
of the Sigma Fund portfolio is to consist of securities of any one issuer. The Sigma Fund's investment policies further require that floating rate investments must have a maturity at purchase date that does not exceed thirty-six months with an interest rate that is reset at least annually. The average interest rate reset of the investments held by the funds must be
one hundred twenty
days or less. The actual average maturity of the portfolio (excluding cash) was less than one month at both
December 31, 2012
and
December 31, 2011
.
Investments in the Sigma Fund are carried at fair value. The Company primarily relies on valuation pricing models and broker quotes to determine the fair value of investments in the Sigma Fund. These pricing models utilize observable inputs which include, but are not limited to: market quotations, yields, maturities, call features, and the security's terms and conditions.
Investments:
Investments in equity and debt securities classified as available-for-sale are carried at fair value. Debt securities classified as held-to-maturity are carried at amortized cost. Equity securities that are restricted for more than
one
year or that are not publicly traded are carried at cost. Certain investments are accounted for using the equity method if the Company has significant influence over the issuing entity.
The Company assesses declines in the fair value of investments to determine whether such declines are other-than-temporary. This assessment is made considering all available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition and the near-term prospects of the entity issuing the security, and the Company’s ability and intent to hold the investment until recovery. Other-than-temporary impairments of investments are recorded to Other within Other income (expense) in the Company’s consolidated statements of operations in the period in which they become impaired.
Inventories:
Inventories are valued at the lower of average cost (which approximates cost on a first-in, first-out basis) or market (net realizable value or replacement cost).
Property, Plant and Equipment:
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using straight-line, based on the estimated useful lives of the assets (buildings and building equipment,
five
to
forty
years; machinery and equipment,
two
to
ten
years) and commences once the assets are ready for their intended use.
Goodwill and Intangible Assets:
Goodwill is assessed for impairment at least annually at the reporting unit level. In September 2011, the FASB issued guidance which provides an entity the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required. The Company adopted this guidance as of the fourth quarter of 2011.
If the two-step goodwill impairment test is required, first, the fair value of each reporting unit is compared to its book value. If the fair value of the reporting unit is less than its book value, the Company performs a hypothetical purchase price allocation based on the reporting unit's fair value to determine the fair value of the reporting unit's goodwill. Fair value is determined using a combination of present value techniques and market prices of comparable businesses.
Intangible assets are generally amortized on a straight line basis over their respective estimated useful lives ranging from
one
to
ten
years. The Company has no intangible assets with indefinite useful lives.
Impairment of Long-Lived Assets:
Long-lived assets, which include intangible assets, held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset (group) to future net undiscounted cash flows to be generated by the asset (group). If an asset (group) is considered to be impaired, the impairment to be recognized is equal to the amount by which the carrying amount of the asset (group) exceeds the asset's (group's) fair value calculated using a discounted future cash flows analysis or market comparables. Assets held for sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.
Income Taxes:
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.
Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred tax assets on a quarterly basis to determine if valuation allowances are required by considering available evidence. Deferred tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income, exclusive of reversing temporary differences and carryforwards, taxable income in carry-back years and tax planning strategies that are both prudent and feasible.
The Company recognizes the effect of income tax positions only if sustaining those positions is more-likely-than-not. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company records interest related to unrecognized tax benefits in Interest expense and penalties in Selling, general and administrative expenses in the Company’s consolidated statements of operations.
Sales and Use Taxes:
The Company records taxes imposed on revenue-producing transactions, including sales, use, value added and excise taxes, on a net basis with such taxes excluded from revenue.
Long-term Receivables:
Long-term receivables include trade receivables where contractual terms of the note agreement are greater than
one
year. Long-term receivables are considered impaired when management determines collection of all amounts due according to the contractual terms of the note agreement, including principal and interest, is no longer probable. Impaired long-term receivables are valued based on the present value of expected future cash flows discounted at the receivable’s effective interest rate, or the fair value of the collateral if the receivable is collateral dependent. Interest income and late fees on impaired long-term receivables are recognized only when payments are received. Previously impaired long-term receivables are no longer considered impaired and are reclassified to performing when they have performed under a workout or restructuring for four consecutive quarters.
Foreign Currency:
Certain of the Company’s non-U.S. operations use their respective local currency as their functional currency. Those operations that do not have the U.S. dollar as their functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date and revenues and expenses using rates that approximate those in effect during the period. The resulting translation adjustments are included as a component of Accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. For those operations that have the U.S. dollar as their functional currency, transactions denominated in the local currency are measured in U.S. dollars using the current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets. Gains and losses from remeasurement of monetary assets and liabilities are included in Other within Other income (expense) within the Company’s consolidated statements of operations.
Derivative Instruments:
Gains and losses on hedges of existing assets or liabilities are marked-to-market and the result is included in Other within Other income (expense) within the Company’s consolidated statements of operations. Certain financial instruments are used to hedge firm future commitments or forecasted transactions. Gains and losses pertaining to those instruments that qualify for hedge accounting are deferred until such time as the underlying transactions are recognized and subsequently recognized in the same line within the consolidated statements of operations of the hedged item. Gains and losses pertaining to those instruments that do not qualify for hedge accounting are recorded immediately in Other income (expense) within the consolidated statements of operations.
Earnings Per Share:
The Company calculates its basic earnings per share based on the weighted-average effect of all common shares issued and outstanding. Net earnings attributable to Motorola Solutions, Inc. is divided by the weighted average common shares outstanding during the period to arrive at the basic earnings per share. Diluted earnings per share is calculated by dividing net earnings attributable to Motorola Solutions, Inc. by the sum of the weighted average number of common shares used in the basic earnings per share calculation and the weighted average number of common shares that would be issued assuming exercise or conversion of all potentially dilutive securities, excluding those securities that would be anti-dilutive to the earnings per share calculation. Both basic and diluted earnings per share amounts are calculated for earnings from continuing operations and net earnings attributable to Motorola Solutions, Inc. for all periods presented. All earnings per share information presented gives effect to the distribution of Motorola Mobility and Reverse Stock Split, which occurred on January 4, 2011.
Share-Based Compensation Costs:
The Company has incentive plans that reward employees with stock options, stock appreciation rights, restricted stock and restricted stock units, as well as an employee stock purchase plan. The amount of
compensation cost for these share-based awards is generally measured based on the fair value of the awards, as of the date that the share-based awards are issued and adjusted to the estimated number of awards that are expected to vest. The fair values of stock options and stock appreciation rights are generally determined using a Black-Scholes option pricing model which incorporates assumptions about expected volatility, risk free rate, dividend yield, and expected life. Compensation cost for share-based awards is recognized on a straight-line basis over the vesting period.
Retirement Benefits:
The Company records annual expenses relating to its pension benefit and postretirement plans based on calculations which include various actuarial assumptions, including discount rates, assumed asset rates of return, compensation increases, turnover rates and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends. The effects of the gains, losses, and prior service costs and credits are amortized either over the average service life or over the average remaining lifetime of the participant, depending on the number of active employees in the plan. The funding status, or projected benefit obligation less plan assets, for each plan, is reflected in the Company’s consolidated balance sheets using a December 31 measurement date.
Advertising Expense:
Advertising expenses, which are the external costs of marketing the Company’s products, are expensed as incurred. Advertising expenses were
$95 million
,
$98 million
and
$109 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively.
Use of Estimates:
The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable and long term receivables, inventories, Sigma Fund, investments, goodwill, intangible and other long-lived assets, legal contingencies, guarantee obligations, indemnifications, and assumptions used in the calculation of income taxes, retirement and other post-employment benefits and allowances for discounts, price protection, product returns, and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, energy markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
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 consolidated statements of operations for all periods presented.
On October 28, 2011, the Company completed the sale of its wireless broadband businesses. During the year ended December 31, 2011, the Company recorded a pre-tax gain related to the sale of the wireless broadband businesses of
$40 million
, net of closing costs, in its results from discontinued operations. The operating results of the wireless broadband businesses, formerly included as part of the Enterprise segment, are reported as discontinued operations in the 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 are reported as discontinued operations for all periods presented. Based on the terms and conditions of the Networks business divestiture, the sale was subject to a purchase price adjustment that was contingent upon the review of final assets and liabilities transferred to NSN and was based on the change in net assets from the original agreed upon sale date. During the year ended December 31, 2011, the Company received approximately
$1.0 billion
of net proceeds and recorded a pre-tax gain related to the completion of this sale of
$434 million
, net of closing costs, and an agreed upon purchase price adjustment of
$120 million
in its results from discontinued operations.
On January 4, 2011, the distribution of Motorola Mobility was completed. The stockholders of record as of the close of business on December 21, 2010 received one (1) share of Motorola Mobility common stock for each eight (8) shares of the Company’s common stock held as of the record date. Immediately following the distribution, the Company changed its name to Motorola Solutions, Inc. The distribution was structured to be tax-free to Motorola Solutions and its stockholders for U.S. tax purposes (other than with respect to any cash received in lieu of fractional shares). The historical financial results of Motorola Mobility are reflected in the Company’s consolidated financial statements and footnotes as discontinued operations for all periods presented.
On May 27, 2010, the Company completed the sale of its Israel-based wireless network operator business formerly included as part of the Government segment. The Company received
$170 million
in net cash and recorded a gain on sale of the business of
$20 million
before income taxes, which is included in Earnings from discontinued operations, net of tax, in the Company’s consolidated statements of operations.
The following table displays summarized activity in the Company’s consolidated statements of operations for discontinued operations during the years ended
December 31, 2012
,
2011
and
2010
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Net sales
|
$
|
—
|
|
|
$
|
1,346
|
|
|
$
|
15,256
|
|
Operating earnings
|
11
|
|
|
201
|
|
|
601
|
|
Gains (loss) on sales of investments and businesses, net
|
(7
|
)
|
|
474
|
|
|
20
|
|
Earnings before income taxes
|
8
|
|
|
667
|
|
|
600
|
|
Income tax expense
|
5
|
|
|
256
|
|
|
211
|
|
Earnings from discontinued operations, net of tax
|
3
|
|
|
411
|
|
|
389
|
|
3. Other Financial Data
Statement of Operations Information
Other Charges
Other charges included in Operating earnings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Other charges (income):
|
|
|
|
|
|
Intangibles amortization
|
$
|
29
|
|
|
$
|
200
|
|
|
$
|
203
|
|
Reorganization of businesses
|
41
|
|
|
52
|
|
|
54
|
|
Intellectual property settlements and reserve adjustment
|
—
|
|
|
—
|
|
|
(78
|
)
|
Legal and related insurance matters, net
|
(16
|
)
|
|
88
|
|
|
(29
|
)
|
Pension plan adjustments, net
|
—
|
|
|
(9
|
)
|
|
—
|
|
Long-term financing receivable reserve
|
—
|
|
|
10
|
|
|
—
|
|
|
$
|
54
|
|
|
$
|
341
|
|
|
$
|
150
|
|
During 2012, the Company recorded a
$16 million
gain in connection with the settlement of a legal matter involving the legacy paging business.
During 2011, the Company recorded
$88 million
of net charges for legal matters. These charges primarily relate to the
Silverman
litigation and legal matters related to the legacy paging business.
During 2010, the Company entered into a settlement agreement with another company to resolve certain intellectual property disputes between the two companies. As a result of the settlement agreement, the Company received
$65 million
in cash and was assigned certain patent properties. As a result of this agreement, the Company recorded a pre-tax gain of
$39 million
(and
$55 million
was recorded in discontinued operations) during the year ended December 31, 2010, related to the settlement of the outstanding litigation between the parties.
Other Income (Expense)
Interest expense, net, and Other both included in Other income (expense) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Interest expense, net:
|
|
|
|
|
|
Interest expense
|
$
|
(108
|
)
|
|
$
|
(132
|
)
|
|
$
|
(217
|
)
|
Interest income
|
42
|
|
|
58
|
|
|
88
|
|
|
$
|
(66
|
)
|
|
$
|
(74
|
)
|
|
$
|
(129
|
)
|
Other:
|
|
|
|
|
|
Investment impairments
|
$
|
(8
|
)
|
|
$
|
(4
|
)
|
|
$
|
(21
|
)
|
Loss from the extinguishment of the Company’s outstanding long-term debt
|
(6
|
)
|
|
(81
|
)
|
|
(12
|
)
|
Foreign currency gain (loss)
|
(13
|
)
|
|
8
|
|
|
12
|
|
Gain on Sigma Fund investments
|
—
|
|
|
—
|
|
|
11
|
|
Other
|
13
|
|
|
8
|
|
|
3
|
|
|
$
|
(14
|
)
|
|
$
|
(69
|
)
|
|
$
|
(7
|
)
|
Earnings Per Common Share
Basic and diluted earnings per common share from both continuing operations and net earnings attributable to Motorola Solutions, Inc., including discontinued operations, is computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
Net Earnings
attributable to
Motorola Solutions, Inc.
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
$
|
878
|
|
|
$
|
747
|
|
|
$
|
244
|
|
|
$
|
881
|
|
|
$
|
1,158
|
|
|
$
|
633
|
|
Weighted average common shares outstanding
|
292.1
|
|
|
333.8
|
|
|
333.3
|
|
|
292.1
|
|
|
333.8
|
|
|
333.3
|
|
Per share amount
|
$
|
3.01
|
|
|
$
|
2.24
|
|
|
$
|
0.73
|
|
|
$
|
3.01
|
|
|
$
|
3.47
|
|
|
$
|
1.90
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
$
|
878
|
|
|
$
|
747
|
|
|
$
|
244
|
|
|
$
|
881
|
|
|
$
|
1,158
|
|
|
$
|
633
|
|
Weighted average common shares outstanding
|
292.1
|
|
|
333.8
|
|
|
333.3
|
|
|
292.1
|
|
|
333.8
|
|
|
333.3
|
|
Add effect of dilutive securities:
Share-based awards and other
|
5.3
|
|
|
5.9
|
|
|
4.8
|
|
|
5.3
|
|
|
5.9
|
|
|
4.8
|
|
Diluted weighted average common shares outstanding
|
297.4
|
|
|
339.7
|
|
|
338.1
|
|
|
297.4
|
|
|
339.7
|
|
|
338.1
|
|
Per share amount
|
$
|
2.95
|
|
|
$
|
2.20
|
|
|
$
|
0.72
|
|
|
$
|
2.96
|
|
|
$
|
3.41
|
|
|
$
|
1.87
|
|
In the computation of diluted earnings per common share from both continuing operation and on a net earnings basis for the year ended
December 31, 2012
, the assumed exercise of
5.9 million
stock options was excluded because their inclusion would have been antidilutive. For the year ended
December 31, 2011
, the assumed exercise of
8.6 million
stock options and vesting of
0.2 million
restricted stock units were excluded because their inclusion would have been antidilutive. For the year ended
December 31, 2010
, the assumed exercise of
14.6 million
stock options and vesting of
0.7 million
restricted stock units were excluded because their inclusion would have been antidilutive.
During
2012
, the Company paid an aggregate of
$2.4 billion
, including transaction costs, to repurchase
49.6 million
shares. The share repurchase program is discussed in further detail in the “Stockholders’ Equity Information” section.
Balance Sheet Information
Sigma Fund
Sigma Fund consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
2011
|
Cash
|
$
|
149
|
|
|
$
|
264
|
|
Securities:
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
1,984
|
|
|
2,944
|
|
|
$
|
2,133
|
|
|
$
|
3,208
|
|
Investments
Investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
Less
|
|
|
December 31, 2012
|
Short-term
Investments
|
|
Investments
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
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
|
—
|
|
|
10
|
|
|
3
|
|
|
—
|
|
|
7
|
|
|
2
|
|
|
38
|
|
|
3
|
|
|
—
|
|
|
37
|
|
Other securities, at cost
|
—
|
|
|
93
|
|
|
—
|
|
|
—
|
|
|
93
|
|
Equity method investments
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
$
|
2
|
|
|
$
|
144
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
Less
|
|
|
December 31, 2011
|
Short-term
Investments
|
|
Investments
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
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
|
|
During the years ended
December 31, 2012
,
2011
and
2010
, the Company recorded investment impairment charges of
$8 million
,
$4 million
and
$21 million
, respectively, representing other-than-temporary declines in the value of the Company’s available-for-sale investment portfolio. Investment impairment charges are included in Other within Other income (expense) in the Company’s consolidated statements of operations.
Gains on sales of investments and businesses, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
2012
|
|
2011
|
|
2010
|
Gains on sales of investments, net
|
$
|
39
|
|
|
$
|
17
|
|
|
$
|
49
|
|
Gains on sales of businesses, net
|
—
|
|
|
6
|
|
|
—
|
|
|
$
|
39
|
|
|
$
|
23
|
|
|
$
|
49
|
|
During the year ended
December 31, 2010
, the
$49 million
of net gains primarily relate to sales of a number of the Company’s equity investments, of which
$31 million
of gain was attributable to a single investment.
Accounts Receivable, Net
Accounts receivable, net, consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Accounts receivable
|
$
|
1,932
|
|
|
$
|
1,911
|
|
Less allowance for doubtful accounts
|
(51
|
)
|
|
(45
|
)
|
|
$
|
1,881
|
|
|
$
|
1,866
|
|
Inventories, Net
Inventories, net, consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Finished goods
|
$
|
244
|
|
|
$
|
319
|
|
Work-in-process and production materials
|
432
|
|
|
363
|
|
|
676
|
|
|
682
|
|
Less inventory reserves
|
(163
|
)
|
|
(170
|
)
|
|
$
|
513
|
|
|
$
|
512
|
|
Other Current Assets
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Costs and earnings in excess of billings
|
$
|
416
|
|
|
$
|
302
|
|
Contract-related deferred costs
|
141
|
|
|
142
|
|
Tax-related refunds receivable
|
95
|
|
|
85
|
|
Other
|
148
|
|
|
157
|
|
|
$
|
800
|
|
|
$
|
686
|
|
Property, Plant and Equipment, Net
Property, plant and equipment, net, consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Land
|
$
|
38
|
|
|
$
|
69
|
|
Building
|
739
|
|
|
774
|
|
Machinery and equipment
|
1,932
|
|
|
2,052
|
|
|
2,709
|
|
|
2,895
|
|
Less accumulated depreciation
|
(1,870
|
)
|
|
(1,999
|
)
|
|
$
|
839
|
|
|
$
|
896
|
|
Depreciation expense for the years ended
December 31, 2012
,
2011
and
2010
was
$179 million
,
$165 million
and
$150 million
, respectively.
Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Intangible assets, net of accumulated amortization
|
$
|
109
|
|
|
$
|
48
|
|
Long-term receivables, net of allowances
|
60
|
|
|
37
|
|
Other
|
200
|
|
|
211
|
|
|
$
|
369
|
|
|
$
|
296
|
|
Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Deferred revenue
|
$
|
820
|
|
|
$
|
774
|
|
Compensation
|
424
|
|
|
471
|
|
Billings in excess of costs and earnings
|
387
|
|
|
250
|
|
Tax liabilities
|
95
|
|
|
126
|
|
Customer reserves
|
144
|
|
|
125
|
|
Networks purchase price adjustment
|
—
|
|
|
96
|
|
Dividend payable
|
72
|
|
|
70
|
|
Other
|
684
|
|
|
821
|
|
|
$
|
2,626
|
|
|
$
|
2,733
|
|
Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Defined benefit plans, including split dollar life insurance policies
|
$
|
3,389
|
|
|
$
|
2,675
|
|
Postretirement health care benefits plan
|
167
|
|
|
295
|
|
Deferred revenue
|
304
|
|
|
275
|
|
Unrecognized tax benefits
|
98
|
|
|
112
|
|
Other
|
237
|
|
|
353
|
|
|
$
|
4,195
|
|
|
$
|
3,710
|
|
Stockholders’ Equity Information
Share Repurchase Program:
On
July 28, 2011
, the Company announced that its Board of Directors approved a share repurchase program that allowed 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 in the existing stock repurchase program through the end of 2012. On February 26, 2012, the Company purchased
23,739,362
shares of its common stock for approximately
$1.2 billion
from Carl C. Icahn and certain of his affiliates. 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. During
2012
, the Company paid an aggregate of
$2.4 billion
, including transaction costs, to repurchase
49.6 million
shares at an average price of
$49.14
per share. During 2011, the Company paid an aggregate of
$1.1 billion
, including transaction costs to repurchase
26.6 million
shares at an average price of
$41.77
. As of
December 31, 2012
, the Company has used approximately
$3.5 billion
of the share repurchase authority, including transaction costs, to repurchase shares, leaving approximately
$1.5 billion
of authority available for repurchases. All repurchased shares have been retired. During the year ended December 31
2010
, the Company did not repurchase any of its common shares.
Payment of Dividends:
During the year ended
December 31, 2012
, the Company paid
$270 million
in cash dividends to holders of its common stock. During the year ended
December 31, 2011
, the Company paid
$72 million
in cash dividends to holders of its common stock. During the year ended
December 31, 2010
, the Company did not pay cash dividends to holders of its common stock.
During the years ended December 31,
2011
, and 2010, the Company paid
$8 million
and
$23 million
, respectively, of dividends to minority shareholders in connection with subsidiary common stock.
Motorola Mobility Distribution:
On January 4, 2011, the distribution of Motorola Mobility from Motorola Solutions was completed. On January 4, 2011, the stockholders of record as of the close of business on December 21, 2010 (the "Record Date") received one (1) share of Motorola Mobility common stock for each eight (8) shares of the Company's common stock held as of the Record Date. The distribution was completed pursuant to an Amended and Restated Master Separation and Distribution Agreement, effective as of July 31, 2010, among the Company, Motorola Mobility and Motorola Mobility, Inc.
As a result of the distribution on January 4, 2011, certain equity balances were transferred by the Company to Motorola
Mobility including: (i)
$1 million
in foreign currency translation adjustments, (ii)
$9 million
in fair value adjustments to available for sale securities, net of tax of
$5 million
, and (iii)
$8 million
in retirement benefit adjustments, net of tax of
$4 million
. The distribution of net assets and these equity balances were effected by way of a pro rata dividend to Motorola Solutions stockholders, which reduced Retained earnings and Additional paid in capital by
$5.3 billion
.
Reverse Stock Split:
On January 4, 2011, immediately foll
owing the distribution of Motorola Mobility common stock, the Company completed the Reverse Stock Split. All consolidated per share information presented gives effect to the distribution of Motorola Mobility and the Reverse Stock Split.
4. Debt and Credit Facilities
Long-Term Debt
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
5.375% senior notes due 2012
|
—
|
|
|
400
|
|
6.0% senior notes due 2017
|
399
|
|
|
399
|
|
3.75% senior notes due 2022
|
747
|
|
|
—
|
|
6.5% debentures due 2025
|
118
|
|
|
118
|
|
7.5% debentures due 2025
|
346
|
|
|
346
|
|
6.5% debentures due 2028
|
36
|
|
|
36
|
|
6.625% senior notes due 2037
|
54
|
|
|
54
|
|
5.22% debentures due 2097
|
89
|
|
|
89
|
|
Other long-term debt
|
45
|
|
|
50
|
|
|
1,834
|
|
|
1,492
|
|
Adjustments, primarily unamortized gains on interest rate swap terminations
|
29
|
|
|
43
|
|
Less: current portion
|
(4
|
)
|
|
(405
|
)
|
Long-term debt
|
$
|
1,859
|
|
|
$
|
1,130
|
|
During the year ended December 31, 2012, the Company issued an aggregate face principal amount of
$750 million
of
3.750%
Senior Notes due
May 15, 2022
(the “2022 Senior Notes”). The Company also redeemed
$400 million
aggregate principal amount outstanding of its
5.375%
Senior Notes due November 2012 for an aggregate purchase price of approximately
$408 million
. 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 consolidated statements of operations. This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
During the year ended December 31, 2011, the Company repurchased
$540 million
of its outstanding long-term debt for a purchase price of
$615 million
, excluding approximately
$6 million
of accrued interest, all of which occurred during the three months ended July 2, 2011. The
$540 million
of long-term debt repurchased included principal amounts of: (i)
$196 million
of the
$314 million
then outstanding of the
6.50%
Debentures due
2025
, (ii)
$174 million
of the
$210 million
then outstanding of the
6.50%
Debentures due
2028
, and (iii)
$170 million
of the
$225 million
then outstanding of the
6.625%
Senior Notes due
2037
. After accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately
$81 million
related to this debt tender in Other within Other income (expense) in the consolidated statements of operations.
Also, during the year ended December 31, 2011, the Company repaid, at maturity, the entire
$600 million
aggregate principal amount outstanding of its 8.0% Notes due November 1, 2011.
Aggregate requirements for long-term debt maturities during the next five years are as follows:
2013
—
$4 million
;
2014
—
$4 million
;
2015
—
$4 million
;
2016
—
$5 million
; and
2017
—
$405 million
.
Credit Facilities
As of
December 31, 2012
, the Company had a
$1.5 billion
unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) that is scheduled to expire 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 maintaining 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
December 31, 2012
. The Company has never borrowed under the 2011 Motorola Solutions Credit Agreement.
At
December 31, 2012
, the commitment fee assessed against the daily average unused amount was
25
basis points.
5. Risk Management
Derivative Financial Instruments
Foreign Currency Risk
The Company uses financial instruments to reduce its overall exposure to the effects of currency fluctuations on cash flows. The Company’s policy prohibits speculation in financial instruments for profit on exchange rate price fluctuations, trading in currencies for which there are no underlying exposures, or entering into transactions for any currency to intentionally increase the underlying exposure. Instruments that are designated as part of a hedging relationship must be effective at reducing the risk associated with the exposure being hedged and are designated as part of a hedging relationship at the inception of the contract. Accordingly, changes in the market values of hedge instruments must be highly correlated with changes in market values of the underlying hedged items both at the inception of the hedge and over the life of the hedge contract.
The Company’s strategy related to foreign exchange exposure management is to offset the gains or losses on the financial instruments against losses or gains on the underlying operational cash flows or investments based on the Company's assessment of risk. The Company enters into derivative contracts for some of the Company’s non-functional currency cash, receivables, and payables, which are primarily denominated in major currencies that can be traded on open markets. The Company typically uses forward contracts and options to hedge these currency exposures. In addition, the Company enters into derivative contracts for some forecasted transactions, which are designated as part of a hedging relationship if it is determined that the transaction qualifies for hedge accounting under the provisions of the authoritative accounting guidance for derivative instruments and hedging activities. A portion of the Company’s exposure is from currencies that are not traded in liquid markets and these are addressed, to the extent reasonably possible, by managing net asset positions, product pricing and component sourcing.
At
December 31, 2012
, the Company had outstanding foreign exchange contracts totaling
$523 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 losses and gains on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which is charged to Other within Other income (expense) in the Company’s 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
December 31, 2012
and the corresponding positions as of
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
Net Buy (Sell) by Currency
|
December 31, 2012
|
|
December 31, 2011
|
British Pound
|
$
|
225
|
|
|
$
|
55
|
|
Chinese Renminbi
|
(99
|
)
|
|
(283
|
)
|
Norwegian Krone
|
(48
|
)
|
|
—
|
|
Israeli Shekel
|
(35
|
)
|
|
8
|
|
Japanese Yen
|
32
|
|
|
46
|
|
At
December 31, 2012
, the maximum term of derivative instruments that hedge forecasted transactions was
seven
months. The weighted average duration of the Company’s derivative instruments that hedge forecasted transactions was
three
months.
Interest Rate Risk
At
December 31, 2012
, the Company has
$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 rate 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 consolidated statements of operations. The weighted average fixed rate payment on the Interest Agreement for the year ended December 31, 2012 was
4.92%
. The fair value of the Interest Agreements resulted in a liability position of
$4 million
at
December 31, 2012
, 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 nonperformance 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. At present time, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of
December 31, 2012
, the Company was exposed to an aggregate net credit risk of approximately
$3 million
with all counterparties.
The following tables summarize the fair values and location in the consolidated balance sheets of all derivative financial instruments held by the Company, at
December 31, 2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
Assets
|
|
Liabilities
|
December 31, 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
|
2
|
|
|
Other assets
|
|
3
|
|
|
Other liabilities
|
Interest agreement contracts
|
—
|
|
|
Other assets
|
|
4
|
|
|
Other liabilities
|
Total derivatives not designated as hedging instruments
|
2
|
|
|
|
|
7
|
|
|
|
Total derivatives
|
$
|
3
|
|
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 table summarizes the effect of derivative instruments in the Company's consolidated statements of operations, including immaterial amounts related to discontinued operations, for the years ended
December 31, 2012
,
2011
, and
2010
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Statement of
Operations Location
|
Loss on Derivative Instruments
|
2012
|
|
2011
|
|
2010
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
(16
|
)
|
|
$
|
(11
|
)
|
|
$
|
(16
|
)
|
Other income (expense)
|
Foreign exchange contracts
|
(13
|
)
|
|
(17
|
)
|
|
(33
|
)
|
Other income (expense)
|
Total derivatives not designated as hedging instruments
|
$
|
(29
|
)
|
|
$
|
(28
|
)
|
|
$
|
(49
|
)
|
|
The following table summarizes the gains and losses recognized in the consolidated financial statements, including immaterial amounts related to discontinued operations, for the years ended
December 31, 2012
,
2011
, and
2010
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Foreign Exchange Contracts
|
2012
|
|
2011
|
|
2010
|
Financial Statement
Location
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
|
Gain (loss) recognized in Accumulated other comprehensive loss (effective portion)
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
(9
|
)
|
Accumulated other
comprehensive loss
|
Gain (loss) reclassified from Accumulated other
comprehensive loss into Net earnings (effective portion)
|
(1
|
)
|
|
2
|
|
|
(6
|
)
|
Cost of sales
|
Gain recognized in Net earnings on derivative (ineffective portion and amount excluded from effectiveness testing)
|
—
|
|
|
1
|
|
|
1
|
|
Other income (expense)
|
Stockholders’ Equity
Derivative instruments activity, net of tax, included in Accumulated other comprehensive income (loss) within the consolidated statements of stockholders’ equity for the years ended
December 31, 2012
,
2011
and
2010
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Balance at January 1
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
2
|
|
Increase (decrease) in fair value
|
5
|
|
|
(5
|
)
|
|
3
|
|
Reclassifications to earnings, net of tax
|
(1
|
)
|
|
2
|
|
|
(5
|
)
|
Balance at December 31
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
6. Income Taxes
Components of earnings from continuing operations before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
United States
|
$
|
851
|
|
|
$
|
462
|
|
|
$
|
368
|
|
Other nations
|
364
|
|
|
276
|
|
|
296
|
|
|
$
|
1,215
|
|
|
$
|
738
|
|
|
$
|
664
|
|
Components of income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
United States
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
(45
|
)
|
Other nations
|
89
|
|
|
30
|
|
|
183
|
|
States (U.S.)
|
1
|
|
|
3
|
|
|
74
|
|
Current income tax expense
|
95
|
|
|
35
|
|
|
212
|
|
United States
|
296
|
|
|
(118
|
)
|
|
373
|
|
Other nations
|
(12
|
)
|
|
111
|
|
|
(54
|
)
|
States (U.S.)
|
(42
|
)
|
|
(31
|
)
|
|
(128
|
)
|
Deferred income tax expense (benefit)
|
242
|
|
|
(38
|
)
|
|
191
|
|
Total income tax expense (benefit)
|
$
|
337
|
|
|
$
|
(3
|
)
|
|
$
|
403
|
|
Deferred tax charges that were recorded within Accumulated other comprehensive loss in the Company’s consolidated balance sheets resulted from retirement benefit adjustments, currency translation adjustments, net gains (losses) on derivative instruments and fair value adjustments to available-for-sale securities. The adjustments were
$(272) million
,
$(259) million
and
$41 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively.
The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period and, except for certain earnings that the Company intends to reinvest indefinitely due to the capital requirements of the foreign
subsidiaries or due to local country restrictions, accrues for the U.S. federal and foreign income tax applicable to the earnings.
Undistributed earnings that the Company intends to reinvest indefinitely, and for which no income taxes have been
provided, aggregate to
$1.0 billion
,
$1.0 billion
and
$1.3 billion
at
December 31, 2012
,
2011
and
2010
, respectively. The Company currently has no plans to repatriate the foreign earnings permanently reinvested and therefore, the time and manner of repatriation is uncertain. If circumstances change and it becomes apparent that some or all of the permanently reinvested earnings will be remitted to the U.S. in the foreseeable future, an additional income tax charge may be necessary. On a cash basis, these repatriations from the Company's non-U.S. subsidiaries could require the payment of additional taxes. The portion of earnings not reinvested indefinitely may be distributed 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.
Differences between income tax expense computed at the U.S. federal statutory tax rate of
35%
and income tax expense (benefit) as reflected in the consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Income tax expense at statutory rate
|
$
|
425
|
|
|
$
|
258
|
|
|
$
|
232
|
|
Taxes on non-U.S. earnings
|
(10
|
)
|
|
(23
|
)
|
|
(10
|
)
|
State income taxes
|
(27
|
)
|
|
(2
|
)
|
|
(35
|
)
|
Valuation allowances
|
(60
|
)
|
|
(237
|
)
|
|
(18
|
)
|
Tax on undistributed non-U.S. earnings
|
30
|
|
|
51
|
|
|
287
|
|
Other provisions
|
(7
|
)
|
|
(17
|
)
|
|
(45
|
)
|
Research credits
|
—
|
|
|
(11
|
)
|
|
(6
|
)
|
Tax law changes
|
—
|
|
|
—
|
|
|
18
|
|
Section 199 deduction
|
(14
|
)
|
|
(22
|
)
|
|
(20
|
)
|
|
$
|
337
|
|
|
$
|
(3
|
)
|
|
$
|
403
|
|
Gross deferred tax assets were
$4.7 billion
and
$5.1 billion
at
December 31, 2012
and
2011
, respectively. Deferred tax assets, net of valuation allowances, were
$4.4 billion
and
$4.7 billion
at
December 31, 2012
and
2011
, respectively. Gross deferred tax liabilities were
$1.4 billion
and
$1.7 billion
at
December 31, 2012
and
2011
, respectively.
Significant components of deferred tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Inventory
|
$
|
1
|
|
|
$
|
38
|
|
Accrued liabilities and allowances
|
134
|
|
|
254
|
|
Employee benefits
|
1,544
|
|
|
1,279
|
|
Capitalized items
|
254
|
|
|
290
|
|
Tax basis differences on investments
|
28
|
|
|
44
|
|
Depreciation tax basis differences on fixed assets
|
19
|
|
|
13
|
|
Undistributed non-U.S. earnings
|
(150
|
)
|
|
(275
|
)
|
Tax carryforwards
|
1,155
|
|
|
1,438
|
|
Business reorganization
|
12
|
|
|
13
|
|
Warranty and customer reserves
|
45
|
|
|
44
|
|
Deferred revenue and costs
|
310
|
|
|
218
|
|
Valuation allowances
|
(308
|
)
|
|
(366
|
)
|
Deferred charges
|
36
|
|
|
39
|
|
Other
|
(63
|
)
|
|
(46
|
)
|
|
$
|
3,017
|
|
|
$
|
2,983
|
|
At
December 31, 2012
and
2011
, the Company had valuation allowances of
$308 million
and
$366 million
, respectively, against its deferred tax assets, including
$272 million
and
$336 million
, respectively, relating to deferred tax assets for non-U.S. subsidiaries. The Company’s valuation allowances for its non-U.S. subsidiaries had a net decrease of
$64 million
during 2012. The decrease in the valuation allowance relating to deferred tax assets of non-U.S. subsidiaries includes a
$60 million
reduction for loss carryforwards the Company now expects to utilize, decreases related to current year activity and exchange rate variances, offset by an increase related to foreign subsidiaries acquired during 2012.
In the first quarter of 2011, the Company reassessed its valuation allowance requirements taking into consideration the distribution of Motorola Mobility. The Company evaluated all available evidence in its analysis, including the historical and projected pre-tax profits generated by the Company's U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. During 2011, the Company recorded
$274 million
of tax benefits 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
December 31, 2012
relates to state tax carryforwards and deferred tax assets of a U.S. subsidiary the Company expects to expire unutilized. The Company believes that the remaining deferred tax assets are more-likely-than-not to be realizable based on estimates of future taxable income and the implementation of tax planning strategies.
Tax carryforwards are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Gross
Tax Loss
|
|
Tax
Effected
|
|
Expiration
Period
|
United States:
|
|
|
|
|
|
U.S. tax losses
|
$
|
94
|
|
|
$
|
33
|
|
|
2018-2032
|
Foreign tax credits
|
n/a
|
|
|
400
|
|
|
2017-2019
|
General business credits
|
n/a
|
|
|
214
|
|
|
2024-2032
|
Minimum tax credits
|
n/a
|
|
|
104
|
|
|
Unlimited
|
State tax losses
|
2,245
|
|
|
54
|
|
|
2013-2031
|
State tax credits
|
n/a
|
|
|
27
|
|
|
2013-2026
|
Non-U.S. Subsidiaries:
|
|
|
|
|
|
Canada tax losses
|
35
|
|
|
9
|
|
|
Unlimited
|
China tax losses
|
429
|
|
|
107
|
|
|
2013-2017
|
Japan tax losses
|
128
|
|
|
47
|
|
|
2017-2021
|
United Kingdom tax losses
|
93
|
|
|
21
|
|
|
Unlimited
|
Germany tax losses
|
177
|
|
|
53
|
|
|
Unlimited
|
Singapore tax losses
|
80
|
|
|
14
|
|
|
Unlimited
|
Other subsidiaries tax losses
|
62
|
|
|
15
|
|
|
Various
|
Canada tax credits
|
n/a
|
|
|
23
|
|
|
2024-2032
|
Spain tax credits
|
n/a
|
|
|
29
|
|
|
2017-2021
|
Other subsidiaries tax credits
|
n/a
|
|
|
5
|
|
|
Various
|
|
|
|
$
|
1,155
|
|
|
|
The Company had unrecognized tax benefits of
$161 million
and
$191 million
at
December 31, 2012
and
December 31, 2011
, respectively, of which approximately
$138 million
and
$150 million
, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances.
A roll-forward of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Balance at January 1
|
$
|
191
|
|
|
$
|
198
|
|
Additions based on tax positions related to current year
|
11
|
|
|
45
|
|
Additions for tax positions of prior years
|
11
|
|
|
38
|
|
Reductions for tax positions of prior years
|
(24
|
)
|
|
(63
|
)
|
Settlements and agreements
|
(24
|
)
|
|
(22
|
)
|
Lapse of statute of limitations
|
(4
|
)
|
|
(5
|
)
|
Balance at December 31
|
$
|
161
|
|
|
$
|
191
|
|
During
2012
, the Company reduced its prior year unrecognized tax benefits by
$24 million
and increased its prior year unrecognized tax benefits by
$11 million
for facts that indicate the extent to which certain tax positions are more-likely-than-not of being sustained. The net reduction resulted in the recording of an income tax benefit of
$13 million
. Additionally, the Company reduced its unrecognized tax benefits by
$24 million
for settlements and agreements with tax authorities, the majority of which reduced tax carryforwards and prepaid tax assets.
The IRS is currently examining the Company's 2010 and 2011 tax years. The Company also has several state and non-U.S. audits pending. A summary of open tax years by major jurisdiction is presented below:
|
|
|
|
Jurisdiction
|
Tax Years
|
|
United States
|
2008—2012
|
|
China
|
2002—2012
|
|
France
|
2009—2012
|
|
Germany
|
2008—2012
|
|
India
|
1997—2012
|
|
Israel
|
2007—2012
|
|
Japan
|
2009—2012
|
|
Malaysia
|
2007—2012
|
|
Singapore
|
2007—2012
|
|
United Kingdom
|
2005—2012
|
|
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 will not 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 consolidated financial position, liquidity or results of operations in the periods in which the matters are ultimately resolved.
Based on the potential outcome of the Company’s global tax examinations, the expiration of the statute of limitations for specific jurisdictions, or the continued ability to satisfy tax incentive obligations, it is reasonably possible that the unrecognized tax benefits will change within the next twelve 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 not to exceed
$25 million
.
At
December 31, 2012
, the Company had
$24 million
and
$31 million
accrued for interest and penalties, respectively, on unrecognized tax benefits. At
December 31, 2011
, the Company had
$17 million
and
$32 million
accrued for interest and penalties, respectively, on unrecognized tax benefits.
7. Retirement Benefits
Pension Benefit Plans
The Company’s noncontributory pension plan (the “Regular Pension Plan”) covers U.S. employees who became eligible after one year of service. The benefit formula is dependent upon employee earnings and years of service. Effective January 1, 2005, newly-hired employees were not eligible to participate in the Regular Pension Plan. The Company also provides defined benefit plans which cover non-U.S. employees in certain jurisdictions, principally the United Kingdom, Germany, and Japan (the “Non-U.S. plans”). Other pension plans are not material to the Company either individually or in the aggregate.
The Company has a noncontributory supplemental retirement benefit plan (the “Officers’ Plan”) for its officers elected prior to December 31, 1999. The Officers’ Plan contains provisions for vesting and funding the participants’ expected retirement benefits when the participants meet the minimum age and years of service requirements. Elected officers who were not yet vested in the Officers’ Plan as of December 31, 1999 had the option to remain in the Officers’ Plan or elect to have their benefit bought out in restricted stock units. Effective December 31, 1999, newly elected officers were not eligible to participate in the Officers’ Plan. Effective June 30, 2005, salaries were frozen for this plan.
The Company has an additional noncontributory supplemental retirement benefit plan, the Motorola Supplemental Pension Plan (“MSPP”), which provides supplemental benefits to individuals by replacing the Regular Pension Plan benefits that are lost by such individuals under the retirement formula due to application of the limitations imposed by the Internal Revenue Code. However, elected officers who are covered under the Officers’ Plan or who participated in the restricted stock buy-out are not eligible to participate in MSPP. Effective January 1, 2007, eligible compensation was capped at the IRS limit plus
$175,000
(the “Cap”) or, for those already in excess of the Cap as of January 1, 2007, the eligible compensation used to compute such employee’s MSPP benefit for all future years will be the greater of: (i) such employee’s eligible compensation as of January 1, 2007 (frozen at that amount), or (ii) the relevant Cap for the given year. Additionally, effective January 1, 2009, the MSPP was closed to new participants unless such participation was required under a prior contractual entitlement.
In February 2007, the Company amended the Regular Pension Plan and the MSPP, modifying the definition of average earnings. For the years ended prior to December 31, 2007, benefits were calculated using the rolling average of the highest annual earnings in any five years within the previous ten calendar year period. Beginning in January 2008, the benefit calculation was based on the set of the five highest years of earnings within the ten calendar years prior to December 31, 2007,
averaged with earnings from each year after 2007. In addition, effective January 2008, the Company amended the Regular Pension Plan, modifying the vesting period from
five
years to
three
years.
In December 2008, the Company amended the Regular Pension Plan, the Officers’ Plan and the MSPP. Effective March 1, 2009: (i) no participant shall accrue any benefit or additional benefit on and after March 1, 2009, and (ii) no compensation increases earned by a participant on and after March 1, 2009 shall be used to compute any accrued benefit.
Beginning in 2012, for disclosure purposes, the Company has changed its presentation to include the Regular Pension Plan, the Officers' Plan and the MSPP as "U.S. plans."
The net periodic pension cost for U.S. and Non-U.S. plans was as follows:
U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Interest cost
|
$
|
349
|
|
|
$
|
344
|
|
|
$
|
344
|
|
Expected return on plan assets
|
(421
|
)
|
|
(390
|
)
|
|
(378
|
)
|
Amortization of unrecognized net loss
|
260
|
|
|
189
|
|
|
151
|
|
Settlement/curtailment loss
|
—
|
|
|
8
|
|
|
2
|
|
Net periodic pension cost
|
$
|
188
|
|
|
$
|
151
|
|
|
$
|
119
|
|
Non-U.S. plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Service cost
|
$
|
10
|
|
|
$
|
17
|
|
|
$
|
24
|
|
Interest cost
|
75
|
|
|
72
|
|
|
84
|
|
Expected return on plan assets
|
(78
|
)
|
|
(77
|
)
|
|
(81
|
)
|
Amortization of:
|
|
|
|
|
|
Unrecognized net loss
|
22
|
|
|
17
|
|
|
19
|
|
Unrecognized prior service cost
|
(3
|
)
|
|
(9
|
)
|
|
(4
|
)
|
Settlement/curtailment gain
|
—
|
|
|
(9
|
)
|
|
(4
|
)
|
Net periodic pension cost
|
$
|
26
|
|
|
$
|
11
|
|
|
$
|
38
|
|
The status of the Company’s plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
U.S
|
|
Non
U.S.
|
|
U.S.
|
|
Non
U.S.
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
$
|
6,986
|
|
|
$
|
1,588
|
|
|
$
|
6,173
|
|
|
$
|
1,423
|
|
Service cost
|
—
|
|
|
10
|
|
|
—
|
|
|
17
|
|
Interest cost
|
349
|
|
|
75
|
|
|
344
|
|
|
72
|
|
Plan amendments
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Settlement/curtailment
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Actuarial loss
|
1,277
|
|
|
103
|
|
|
714
|
|
|
123
|
|
Foreign exchange valuation adjustment
|
—
|
|
|
48
|
|
|
—
|
|
|
(10
|
)
|
Employee contributions
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Tax payments
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
Benefit payments
|
(324
|
)
|
|
(39
|
)
|
|
(240
|
)
|
|
(38
|
)
|
Benefit obligation at December 31
|
8,288
|
|
|
1,787
|
|
|
6,986
|
|
|
1,588
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value at January 1
|
4,747
|
|
|
1,219
|
|
|
4,320
|
|
|
1,214
|
|
Return on plan assets
|
660
|
|
|
111
|
|
|
178
|
|
|
23
|
|
Company contributions
|
340
|
|
|
31
|
|
|
489
|
|
|
38
|
|
Settlements/curtailments
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Employee contributions
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Foreign exchange valuation adjustment
|
—
|
|
|
38
|
|
|
—
|
|
|
1
|
|
Benefit payments from plan assets
|
(321
|
)
|
|
(39
|
)
|
|
(240
|
)
|
|
(38
|
)
|
Fair value at December 31
|
5,426
|
|
|
1,362
|
|
|
4,747
|
|
|
1,219
|
|
Funded status of the plan
|
(2,862
|
)
|
|
(425
|
)
|
|
(2,238
|
)
|
|
(369
|
)
|
Unrecognized net loss
|
4,313
|
|
|
520
|
|
|
3,536
|
|
|
462
|
|
Unrecognized prior service cost
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
(55
|
)
|
Prepaid pension cost
|
$
|
1,451
|
|
|
$
|
44
|
|
|
$
|
1,298
|
|
|
$
|
38
|
|
Components of prepaid (accrued) pension cost:
|
|
|
|
|
|
|
|
Non-current benefit liability
|
$
|
(2,862
|
)
|
|
$
|
(425
|
)
|
|
$
|
(2,238
|
)
|
|
$
|
(369
|
)
|
Deferred income taxes
|
1,592
|
|
|
41
|
|
|
1,295
|
|
|
26
|
|
Accumulated other comprehensive income
|
2,721
|
|
|
428
|
|
|
2,241
|
|
|
381
|
|
Prepaid pension cost
|
$
|
1,451
|
|
|
$
|
44
|
|
|
$
|
1,298
|
|
|
$
|
38
|
|
It is estimated that the net periodic cost for
2013
will include amortization of the unrecognized net loss and prior service costs for the U.S. and Non-U.S. plans, currently included in Accumulated other comprehensive loss, of
$131 million
, and
$8 million
, respectively. For 2013, it was determined that the majority of the Company's plan participants in its Regular and United Kingdom pension plans are no longer actively employed by the Company due to significant employee exits as a result of the Company's recent divestitures. Under relevant accounting rules, when almost all of the plan participants are considered inactive, the amortization period for unrecognized losses changes from the average remaining service period to the average remaining lifetime of the participant.
The Company has utilized a five-year, market-related asset value method of recognizing asset-related gains and losses. Unrecognized gains and losses have been amortized over periods ranging from
three
to
thirteen
years. For 2013, depending on the plan, the Company will amortize gains and losses over periods ranging from five to 28 years. Prior service costs are being amortized over periods ranging from
ten
to
twelve
years. Benefits under all pension plans are valued based on the projected unit credit cost method.
In April 2011, the Company recognized a curtailment gain in its United Kingdom defined benefit plan, and a settlement loss in its Japanese defined benefit plan, due to the sale of certain assets of the Networks business. As a result, the Company recorded a net gain to its consolidated statement of operations of
$9 million
.
Certain actuarial assumptions such as the discount rate and the long-term rate of return on plan assets have a significant effect on the amounts reported for net periodic cost and benefit obligation. The assumed discount rates reflect the prevailing market rates of a universe of high-quality, non-callable, corporate bonds currently available that, if the obligation were settled at the measurement date, would provide the necessary future cash flows to pay the benefit obligation when due. The long-term rates of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income, cash and other investments similar to the actual investment mix. In determining the long-term return on plan assets, the Company considers long-term rates of return on the asset classes (both historical and forecasted) in which the Company expects the plan funds to be invested.
Weighted average actuarial assumptions used to determine costs for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
December 31
|
U.S.
|
|
Non U.S.
|
|
U.S.
|
|
Non U.S.
|
Discount rate
|
5.10
|
%
|
|
4.61
|
%
|
|
5.75
|
%
|
|
5.01
|
%
|
Investment return assumption
|
8.25
|
%
|
|
6.24
|
%
|
|
8.25
|
%
|
|
6.50
|
%
|
Weighted average actuarial assumptions used to determine benefit obligations for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
December 31
|
U.S.
|
|
Non U.S.
|
|
U.S.
|
|
Non U.S.
|
Discount rate
|
4.35
|
%
|
|
4.11
|
%
|
|
5.10
|
%
|
|
4.58
|
%
|
Future compensation increase rate
|
0.00
|
%
|
|
2.58
|
%
|
|
0.00
|
%
|
|
2.56
|
%
|
The accumulated benefit obligations for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
December 31
|
U.S.
|
|
Non
U.S.
|
|
U.S.
|
|
Non
U.S.
|
Accumulated benefit obligation
|
$
|
8,288
|
|
|
$
|
1,770
|
|
|
$
|
6,986
|
|
|
$
|
1,588
|
|
The Company has adopted a pension investment policy designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the pension plans retain professional investment managers that invest plan assets in equity, fixed income securities, and cash. In addition, some plans invest in insurance contracts. The Company’s measurement date of its plan assets and obligations is
December 31
. The Company has the following target mixes for these asset classes for all plans, which are readjusted periodically, when an asset class weighting deviates from the target mix, with the goal of achieving the required return at a reasonable risk level:
|
|
|
|
|
|
|
|
Target Mix
|
Asset Category
|
2012
|
|
2011
|
Equity securities
|
64
|
%
|
|
63
|
%
|
Fixed income securities
|
35
|
%
|
|
35
|
%
|
Cash and other investments
|
1
|
%
|
|
2
|
%
|
The weighted-average pension plan asset allocation by asset categories:
|
|
|
|
|
|
|
|
Actual Mix
|
December 31
|
2012
|
|
2011
|
Equity securities
|
64
|
%
|
|
60
|
%
|
Fixed income securities
|
34
|
%
|
|
35
|
%
|
Cash and other investments
|
2
|
%
|
|
5
|
%
|
Within the equity securities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and foreign stocks. Within the fixed income securities asset class, the investment policy provides for investments in a broad range of publicly-traded debt securities including U.S. Treasury issues, corporate debt securities, mortgage and asset-backed securities, as well as foreign debt securities. In the cash and other investments asset class, investments may be in cash, cash equivalents or insurance contracts.
The Company contributed
$340 million
to its U.S. pension plans during
2012
, compared to
$489 million
contributed in
2011
. In January 2011, the Pension Benefit Guaranty Corporation (“PBGC”) announced an agreement with the Company under which it would contribute
$100 million
above and beyond its legal requirement to its 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 a
$250 million
pension contribution to its U.S. pension plans over the amounts required in the fourth quarter 2011, of which $100 million fulfilled the PBGC financial obligation. As a result, the Company has no further financial obligations under this agreement with the PBGC.
The Company currently expects to make cash contributions of approximately
$300 million
to its U.S. pension plans and approximately
$30 million
to its non-U.S. pension plans in
2013
.
The following benefit payments are expected to be paid:
|
|
|
|
|
|
|
|
|
Year
|
U.S.
|
|
Non
U.S.
|
2013
|
$
|
276
|
|
|
$
|
39
|
|
2014
|
284
|
|
|
40
|
|
2015
|
297
|
|
|
41
|
|
2016
|
313
|
|
|
42
|
|
2017
|
333
|
|
|
43
|
|
2018-2022
|
2,008
|
|
|
233
|
|
Postretirement Health Care Benefits Plan
Certain health care benefits are available to eligible domestic employees meeting certain age and service requirements upon termination of employment (the “Postretirement Health Care Benefits Plan”). For eligible employees hired prior to January 1, 2002, the Company offsets a portion of the postretirement medical costs to the retired participant. As of January 1, 2005, the Postretirement Health Care Benefits Plan was closed to new participants. The benefit obligation and plan assets for the Postretirement Health Care Benefits Plan have been measured as of December 31, 2012.
The assumptions used were as follows:
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Discount rate for obligations
|
3.80
|
%
|
|
4.75
|
%
|
Investment return assumptions
|
8.25
|
%
|
|
8.25
|
%
|
Net Postretirement Health Care Benefits Plan expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Service cost
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
6
|
|
Interest cost
|
16
|
|
|
22
|
|
|
23
|
|
Expected return on plan assets
|
(12
|
)
|
|
(16
|
)
|
|
(16
|
)
|
Amortization of:
|
|
|
|
|
|
Unrecognized net loss
|
12
|
|
|
10
|
|
|
7
|
|
Unrecognized prior service cost
|
(16
|
)
|
|
—
|
|
|
(2
|
)
|
Net Postretirement Health Care Benefit Plan expenses
|
$
|
3
|
|
|
$
|
20
|
|
|
$
|
18
|
|
During the year ended
December 31, 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. Covered 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 net liability 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 approximately
three
years, which is the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.
It is estimated that the 2013 net periodic expense for the Postretirement Health Care Benefits Plan will include amortization of a net credit of
$28 million
, comprised of the unrecognized prior service gain and unrecognized actuarial loss, currently included in Accumulated other comprehensive loss.
The funded status of the plan is as follows:
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Change in benefit obligation:
|
|
|
|
Benefit obligation at January 1
|
$
|
450
|
|
|
$
|
447
|
|
Service cost
|
3
|
|
|
4
|
|
Interest cost
|
16
|
|
|
22
|
|
Plan amendments
|
(151
|
)
|
|
—
|
|
Actuarial gain
|
24
|
|
|
—
|
|
Benefit payments
|
(20
|
)
|
|
(23
|
)
|
Benefit obligation at December 31
|
322
|
|
|
450
|
|
Change in plan assets:
|
|
|
|
Fair value at January 1
|
155
|
|
|
170
|
|
Return on plan assets
|
20
|
|
|
7
|
|
Benefit payments made with plan assets
|
(20
|
)
|
|
(22
|
)
|
Fair value at December 31
|
155
|
|
|
155
|
|
Funded status of the plan
|
(167
|
)
|
|
(295
|
)
|
Unrecognized net loss
|
206
|
|
|
202
|
|
Unrecognized prior service cost
|
(135
|
)
|
|
—
|
|
Accrued postretirement health care costs
|
$
|
(96
|
)
|
|
$
|
(93
|
)
|
Components of accrued postretirement health care cost:
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
Non-current liability
|
$
|
(167
|
)
|
|
$
|
(295
|
)
|
Deferred income taxes
|
26
|
|
|
92
|
|
Accumulated other comprehensive income
|
45
|
|
|
110
|
|
Accrued postretirement health care cost
|
$
|
(96
|
)
|
|
$
|
(93
|
)
|
During the first quarter of 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law, which eliminated the favorable income tax treatment of Medicare Part D Subsidy receipts effective for tax years starting in 2013. As a result of the tax law change, the Company recorded an
$18 million
non-cash tax charge in 2010 to reduce its deferred tax asset associated with Medicare Part D subsidies estimated to be received after 2012.
The Company has adopted an investment policy for plan assets designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the plan retains professional investment managers that invest plan assets in equity and fixed income securities and cash. The Company uses long-term historical actual return experience with consideration of the expected investment mix of the plans’ assets, as well as future estimates of long-term investment returns, to develop its expected rate of return assumption used in calculating the net periodic cost and the net retirement healthcare expense. The Company has the following target mixes for these asset classes, which are readjusted periodically, when an asset class weighting deviates from the target mix, with the goal of achieving the required return at a reasonable risk level:
|
|
|
|
|
|
|
|
Target Mix
|
Asset Category
|
2012
|
|
2011
|
Equity securities
|
65
|
%
|
|
65
|
%
|
Fixed income securities
|
34
|
%
|
|
34
|
%
|
Cash and other investments
|
1
|
%
|
|
1
|
%
|
The weighted-average asset allocation for plan assets by asset categories:
|
|
|
|
|
|
|
|
Actual Mix
|
December 31
|
2012
|
|
2011
|
Equity securities
|
64
|
%
|
|
59
|
%
|
Fixed income securities
|
32
|
%
|
|
36
|
%
|
Cash and other investments
|
4
|
%
|
|
5
|
%
|
Within the equity securities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and foreign stocks. Within the fixed income securities asset class, the investment policy provides for investments in a broad range of publicly-traded debt securities including U.S. Treasury issues, corporate debt securities, mortgages and asset-backed issues, as well as foreign debt securities. In the cash asset class, investments may be in cash and cash equivalents.
The Company expects to make no cash contributions to the Postretirement Health Care Benefits Plan in 2013. The following benefit payments are expected to be paid:
|
|
|
|
|
Year
|
|
2013
|
$
|
28
|
|
2014
|
26
|
|
2015
|
25
|
|
2016
|
24
|
|
2017
|
23
|
|
2018-2022
|
101
|
|
The health care cost trend rate used to determine the
December 31, 2012
accumulated postretirement benefit obligation is
8.50%
for
2013
, then grading down to a rate of
5%
in
2020
. The health care cost trend rate used to determine the
December 31, 2011
accumulated postretirement benefit obligation was
7.25%
for
2012
, remaining flat at
7.25%
through 2015, then grading down to a rate of
5%
in 2019.
Changing the health care trend rate by one percentage point would change the accumulated postretirement benefit obligation and the net Postretirement Health Care Benefits Plan expenses as follows:
|
|
|
|
|
|
|
|
|
|
1% Point
Increase
|
|
1% Point
Decrease
|
Increase (decrease) in:
|
|
|
|
Accumulated postretirement benefit obligation
|
$
|
2
|
|
|
$
|
(2
|
)
|
Net Postretirement Health Care Benefit Plan expenses
|
—
|
|
|
—
|
|
The Company maintains a lifetime cap on postretirement health care costs, which reduces the liability duration of the plan. A result of this lower duration is a decreased sensitivity to a change in the discount rate trend assumption with respect to the liability and related expense.
The Company has no significant Postretirement Health Care Benefit Plans outside the United States.
Other Benefit Plans
The Company maintains a number of endorsement split-dollar life insurance policies that were taken out on now-retired officers under a plan that was frozen prior to December 31, 2004. The Company had purchased the life insurance policies to insure the lives of employees and then entered into a separate agreement with the employees that split the policy benefits between the Company and the employee. Motorola Solutions owns the policies, controls all rights of ownership, and may terminate the insurance policies. To effect the split-dollar arrangement, Motorola Solutions endorsed a portion of the death benefits to the employee and upon the death of the employee, the employee’s beneficiary typically receives the designated portion of the death benefits directly from the insurance company and the Company receives the remainder of the death benefits. It is currently expected that minimal cash payments will be required to fund these policies.
The net periodic pension cost for these split-dollar life insurance arrangements was
$5 million
for the years ended
December 31, 2012
,
2011
, and 2010. The Company has recorded a liability representing the actuarial present value of the future death benefits as of the employees’ expected retirement date of
$58 million
and
$56 million
as of
December 31, 2012
and
December 31, 2011
, respectively.
Defined Contribution Plan
The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees may participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the employees’ contributions. After temporarily suspending all matching contributions, eff
ective
July 1, 2010, the Company reinstated matching contributions and provides a dollar for dollar (100%) match on the first
4%
of employee contributions. The maximum matching contribution for 2010 was pro-rated to account for the number of months remaining after the reinstatement. The Company’s expenses for material defined contribution plans for the years ended
December 31, 2012
,
2011
and
2010
were
$42 million
,
$48 million
and
$23 million
, respectively.
Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to eligible employees. For the year ended
December 31, 2012
, the Company made no discretionary matching contributions.
8. Share-Based Compensation Plans and Other Incentive Plans
Stock Options, Stock Appreciation Rights and Employee Stock Purchase Plan
The Company grants options to acquire shares of common stock to certain employees and to existing option holders of acquired companies in connection with the merging of option plans following an acquisition. Each option granted and stock appreciation right has an exercise price of no less than
100%
of the fair market value of the common stock on the date of the grant. The awards have a contractual life of
five
to
ten
years and vest over
two
to
four
years. Stock options and stock appreciation rights assumed or replaced with comparable stock options or stock appreciation rights in conjunction with a change in control of the Company only become exercisable if the holder is also involuntarily terminated (for a reason other than cause) or quits for good reason within
24
months of a change in control.
The employee stock purchase plan allows eligible participants to purchase shares of the Company’s common stock through payroll deductions of up to
20%
of eligible compensation on an after-tax basis. Plan participants cannot purchase more than
$25,000
of stock in any calendar year. The price an employee pays per share is
85%
of the lower of the fair market value of the Company’s stock on the close of the first trading day or last trading day of the purchase period. The plan has two purchase periods, the first one from October 1 through March 31 and the second one from April 1 through September 30. For the years ended
December 31, 2012
,
2011
and
2010
, employees purchased
1.4 million
,
2.2 million
and
2.7 million
shares, respectively, at purchase prices of
$34.52
and
$42.96
,
$30.56
and
$35.61
, and
$41.79
and
$42.00
, respectively.
The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model. The weighted-average estimated fair value of employee stock options granted during
2012
,
2011
and
2010
was
$9.60
,
$13.25
and
$21.43
, respectively, using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Expected volatility
|
24.0
|
%
|
|
28.8
|
%
|
|
41.7
|
%
|
Risk-free interest rate
|
0.8
|
%
|
|
2.1
|
%
|
|
2.1
|
%
|
Dividend yield
|
2.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Expected life (years)
|
6.1
|
|
|
6.0
|
|
|
6.1
|
|
The Company uses the implied volatility for traded options on the Company’s stock as the expected volatility assumption required in the Black-Scholes model. The selection of the implied volatility approach was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that implied volatility is more representative of future stock price trends than historical volatility.
The risk-free interest rate assumption is based upon the average daily closing rates during the year for U.S. Treasury notes that have a life which approximates the expected life of the option. The dividend yield assumption is based on the Company’s future expectation of dividend payouts. The expected life of employee stock options represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches.
The Company has applied forfeiture rates, estimated based on historical data, of
13%
-
50%
to the option fair values calculated by the Black-Scholes option pricing model. These estimated forfeiture rates are applied to grants based on their remaining vesting term and may be revised in subsequent periods if actual forfeitures differ from these estimates.
Stock option activity was as follows (in thousands, except exercise price and employee data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Years ended December 31
|
Shares
Subject to
Options
|
|
Wtd. Avg.
Exercise
Price
|
|
Shares
Subject to
Options
|
|
Wtd. Avg.
Exercise
Price
|
|
Shares
Subject to
Options
|
|
Wtd. Avg.
Exercise
Price
|
Options outstanding at January 1
|
15,729
|
|
|
$
|
63
|
|
|
19,614
|
|
|
$
|
81
|
|
|
23,061
|
|
|
$
|
84
|
|
Options granted
|
1,286
|
|
|
51
|
|
|
3,155
|
|
|
39
|
|
|
1,630
|
|
|
50
|
|
Options exercised
|
(2,831
|
)
|
|
29
|
|
|
(4,475
|
)
|
|
27
|
|
|
(1,559
|
)
|
|
42
|
|
Adjustments to options outstanding to reflect Motorola Mobility distribution
|
—
|
|
|
—
|
|
|
7,756
|
|
|
39
|
|
|
—
|
|
|
—
|
|
Options terminated, cancelled or expired
|
(1,052
|
)
|
|
60
|
|
|
(10,321
|
)
|
|
59
|
|
|
(3,518
|
)
|
|
104
|
|
Options outstanding at December 31
|
13,132
|
|
|
70
|
|
|
15,729
|
|
|
63
|
|
|
19,614
|
|
|
81
|
|
Options exercisable at December 31
|
9,242
|
|
|
81
|
|
|
11,184
|
|
|
74
|
|
|
12,429
|
|
|
99
|
|
Approx. number of employees granted options
|
115
|
|
|
|
|
270
|
|
|
|
|
529
|
|
|
|
At
December 31, 2012
, the Company had
$30 million
of total unrecognized compensation expense, net of estimated forfeitures, related to stock option plans and the employee stock purchase plan that will be recognized over the weighted average period of approximately
two
years. Cash received from stock option exercises and the employee stock purchase plan was
$133 million
,
$192 million
and
$179 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2012
,
2011
and
2010
was
$59 million
,
$73 million
and
$17 million
, respectively. The aggregate intrinsic value for options outstanding and exercisable as of
December 31, 2012
was
$170 million
and
$118 million
, respectively, based on a
December 31, 2012
stock price of
$55.68
per share.
The following table summarizes information about stock options outstanding and exercisable at
December 31, 2012
(in thousands, except exercise price and years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options
Exercisable
|
Exercise price range
|
No. of
options
|
|
Wtd. avg.
Exercise
Price
|
|
Wtd. avg.
contractual
life (in yrs.)
|
|
No. of
options
|
|
Wtd. avg.
Exercise
Price
|
Under $30
|
3,099
|
|
|
$
|
26
|
|
7
|
|
2,617
|
|
|
$
|
26
|
|
$30-$40
|
3,728
|
|
|
38
|
|
7
|
|
2,064
|
|
|
37
|
|
$41-$50
|
620
|
|
|
45
|
|
8
|
|
246
|
|
|
44
|
|
$51-$60
|
1,377
|
|
|
52
|
|
9
|
|
7
|
|
|
54
|
|
$61-$70
|
836
|
|
|
67
|
|
2
|
|
836
|
|
|
67
|
|
$71-$80
|
255
|
|
|
74
|
|
4
|
|
255
|
|
|
74
|
|
$81 and over
|
3,217
|
|
|
161
|
|
2
|
|
3,217
|
|
|
161
|
|
|
13,132
|
|
|
|
|
|
|
9,242
|
|
|
|
As of
December 31, 2012
, the weighted average contractual life for options outstanding and exercisable was
five
and
four
years, respectively.
Restricted Stock and Restricted Stock Units
Restricted stock (“RS”) and restricted stock unit (“RSU”) grants consist of shares or the rights to shares of the Company’s common stock which are awarded to employees and non-employee directors. The grants are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee. Shares of RS and RSUs assumed or replaced with comparable shares of RS or RSUs in conjunction with a change in control will only have the restrictions lapse if the holder is also involuntarily terminated (for a reason other than cause) or quits for good reason within
24
months of a change in control.
Restricted stock and restricted stock unit activity was as follows (in thousands, except fair value and employee data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Years ended December 31
|
RS and RSU
|
|
Wtd. Avg.
Grant
Date Fair
Value
|
|
RS and RSU
|
|
Wtd Avg.
Grant
Date Fair
Value
|
|
RS and RSU
|
|
Wtd Avg.
Grant
Date Fair
Value
|
RS and RSU outstanding at January 1
|
8,990
|
|
|
$
|
40
|
|
|
9,559
|
|
|
$
|
51
|
|
|
8,061
|
|
|
$
|
55
|
|
Granted
|
1,657
|
|
|
49
|
|
|
5,150
|
|
|
44
|
|
|
4,772
|
|
|
49
|
|
Adjustments to RSUs outstanding to reflect Motorola Mobility distribution
|
—
|
|
|
—
|
|
|
3,638
|
|
|
20
|
|
|
—
|
|
|
—
|
|
Vested
|
(3,845
|
)
|
|
41
|
|
|
(3,230
|
)
|
|
31
|
|
|
(2,407
|
)
|
|
58
|
|
Terminated or canceled
|
(503
|
)
|
|
33
|
|
|
(6,127
|
)
|
|
44
|
|
|
(867
|
)
|
|
56
|
|
RS and RSU outstanding at December 31
|
6,299
|
|
|
41
|
|
|
8,990
|
|
|
40
|
|
|
9,559
|
|
|
51
|
|
Approx. number of employees granted RSUs
|
2,355
|
|
|
|
|
12,351
|
|
|
|
|
29,973
|
|
|
|
At
December 31, 2012
, the Company had unrecognized compensation expense related to RS and RSUs of
$144 million
, net of estimated forfeitures, expected to be recognized over the weighted average period of approximately
two
years. The total fair value of RS and RSU shares vested during the years ended
December 31, 2012
,
2011
and
2010
was
$144 million
,
$146 million
and
$114 million
, respectively. The aggregate fair value of outstanding RSUs as of
December 31, 2012
was
$351 million
. Pursuant to the completion of the distribution of Motorola Mobility on January 4, 2011, approximately
3.8 million
unvested RSUs held by the employees of Motorola Mobility were cancelled. Upon the completed divestiture of certain assets of the Networks business on April 29, 2011, approximately
1.4 million
unvested RSUs were cancelled.
Total Share-Based Compensation Expense
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plans, RS and RSUs was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Share-based compensation expense included in:
|
|
|
|
|
|
Costs of sales
|
$
|
25
|
|
|
$
|
20
|
|
|
$
|
19
|
|
Selling, general and administrative expenses
|
112
|
|
|
112
|
|
|
82
|
|
Research and development expenditures
|
47
|
|
|
36
|
|
|
43
|
|
Share-based compensation expense included in Operating earnings
|
184
|
|
|
168
|
|
|
144
|
|
Tax benefit
|
62
|
|
|
51
|
|
|
43
|
|
Share-based compensation expense, net of tax
|
$
|
122
|
|
|
$
|
117
|
|
|
$
|
101
|
|
Decrease in basic earnings per share
|
$
|
(0.42
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.30
|
)
|
Decrease in diluted earnings per share
|
$
|
(0.41
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.30
|
)
|
Share-based compensation expense in discontinued operations
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
164
|
|
At
December 31, 2012
and
2011
,
22.2 million
shares and
23.7 million
shares, respectively, were available for future share-based award grants under the current share-based compensation plan, covering all equity awards to employees and non-employee directors.
Motorola Solutions Incentive Plans
The Company's incentive plans provide eligible employees with an annual payment, calculated as a percentage of an employee’s eligible earnings, in the year after the close of the current calendar year if specified business goals and individual performance targets are met. The expense for awards under this incentive plan for the years ended
December 31, 2012
,
2011
and
2010
was
$201 million
,
$203 million
and
$201 million
, respectively.
Long-Range Incentive Plan
The Long-Range Incentive Plan (“LRIP”) rewards participating elected officers for the Company’s achievement of specified business goals during the period, based on two performance objectives measured over three-year cycles. The expense for LRIP (net of the reversals of previously recognized reserves) for the years ended
December 31, 2012
,
2011
and
2010
was
$12 million
,
$3 million
and
$11 million
, respectively.
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
December 31, 2012
and
2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Level 1
|
|
Level 2
|
|
Total
|
Assets:
|
|
|
|
|
|
Sigma Fund securities:
|
|
|
|
|
|
U.S. government, agency and government-sponsored enterprise obligations
|
$
|
—
|
|
|
$
|
1,984
|
|
|
$
|
1,984
|
|
Foreign exchange derivative contracts
|
—
|
|
|
3
|
|
|
3
|
|
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
|
3
|
|
|
7
|
|
|
10
|
|
Liabilities:
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
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
December 31, 2012
and
December 31, 2011
.
The following table summarizes the changes in fair value of the Company's Level 3 assets for 2011:
|
|
|
|
|
|
2011
|
Balance at January 1
|
$
|
15
|
|
Transfers to Level 3
|
21
|
|
Payments received for securities sold
|
(39
|
)
|
Gain on Sigma Fund investments included in Other income (expense)
|
3
|
|
Balance at December 31
|
$
|
—
|
|
There were no significant transfers between Level 1 and Level 2 during 2012 or 2011.
Pension and Postretirement Health Care Benefits Plan Assets
The fair values of the various pension and postretirement health care benefits plans’ assets by level in the fair value hierarchy as of
December 31, 2012
and 2011 were as follows:
U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Level 1
|
|
Level 2
|
|
Total
|
Common stock and equivalents
|
$
|
1,592
|
|
|
$
|
3
|
|
|
$
|
1,595
|
|
Commingled equity funds
|
—
|
|
|
1,965
|
|
|
1,965
|
|
Preferred stock
|
9
|
|
|
—
|
|
|
9
|
|
U.S. government and agency obligations
|
—
|
|
|
317
|
|
|
317
|
|
Other government bonds
|
—
|
|
|
49
|
|
|
49
|
|
Corporate bonds
|
—
|
|
|
327
|
|
|
327
|
|
Mortgage-backed bonds
|
—
|
|
|
14
|
|
|
14
|
|
Commingled bond funds
|
—
|
|
|
1,082
|
|
|
1,082
|
|
Commingled short-term investment funds
|
—
|
|
|
58
|
|
|
58
|
|
Total investment securities
|
$
|
1,601
|
|
|
$
|
3,815
|
|
|
$
|
5,416
|
|
Accrued income receivable
|
|
|
|
|
10
|
|
Fair value plan assets
|
|
|
|
|
$
|
5,426
|
|
The table above includes securities on loan as part of a securities lending arrangement of
$117 million
of common stock and equivalents,
$260 million
of U.S. government and agency obligations, and
$17 million
of corporate bonds. All securities on loan are fully cash collateralized.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
Level 1
|
|
Level 2
|
|
Total
|
Common stock and equivalents
|
$
|
1,128
|
|
|
$
|
3
|
|
|
$
|
1,131
|
|
Commingled equity funds
|
—
|
|
|
1,705
|
|
|
1,705
|
|
Preferred stock
|
9
|
|
|
—
|
|
|
9
|
|
U.S. government and agency obligations
|
—
|
|
|
261
|
|
|
261
|
|
Other government bonds
|
—
|
|
|
40
|
|
|
40
|
|
Corporate bonds
|
—
|
|
|
322
|
|
|
322
|
|
Mortgage-backed bonds
|
—
|
|
|
18
|
|
|
18
|
|
Commingled bond funds
|
—
|
|
|
1,018
|
|
|
1,018
|
|
Commingled short-term investment funds
|
—
|
|
|
232
|
|
|
232
|
|
Total investment securities
|
$
|
1,137
|
|
|
$
|
3,599
|
|
|
$
|
4,736
|
|
Accrued income receivable
|
|
|
|
|
11
|
|
Fair value plan assets
|
|
|
|
|
$
|
4,747
|
|
The table above includes securities on loan as part of a securities lending arrangement of
$173 million
of common stock and equivalents,
$182 million
of U.S. government and agency obligations, and
$39 million
of corporate bonds. All securities on loan are fully cash collateralized.
There were no significant transfers between Level 1 and Level 2 during 2012 or 2011.
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Level 1
|
|
Level 2
|
|
Total
|
Common stock and equivalents
|
$
|
346
|
|
|
$
|
—
|
|
|
$
|
346
|
|
Commingled equity funds
|
—
|
|
|
434
|
|
|
434
|
|
Corporate bonds
|
—
|
|
|
18
|
|
|
18
|
|
Government and agency obligations
|
—
|
|
|
233
|
|
|
233
|
|
Commingled bond funds
|
—
|
|
|
257
|
|
|
257
|
|
Commingled short-term investment funds
|
—
|
|
|
7
|
|
|
7
|
|
Total investment securities
|
$
|
346
|
|
|
$
|
949
|
|
|
$
|
1,295
|
|
Cash
|
|
|
|
|
8
|
|
Insurance contracts*
|
|
|
|
|
59
|
|
Fair value plan assets
|
|
|
|
|
$
|
1,362
|
|
* Comprised of annuity contracts issued by life insurance companies for one of the Company's non-U.S. pension plans
The table above includes securities on loan as part of a securities lending arrangement of
$29 million
of common stock and equivalents,
$2 million
of U.S. government and agency obligations, and
$27 million
of corporate bonds. All securities on loan are fully cash collateralized.
There were no significant transfers between Level 1 and Level 2 during 2012 or 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
Level 1
|
|
Level 2
|
|
Total
|
Common stock and equivalents
|
$
|
312
|
|
|
$
|
—
|
|
|
$
|
312
|
|
Commingled equity funds
|
—
|
|
|
375
|
|
|
375
|
|
Corporate bonds
|
—
|
|
|
206
|
|
|
206
|
|
Government and agency obligations
|
—
|
|
|
10
|
|
|
10
|
|
Commingled bond funds
|
—
|
|
|
248
|
|
|
248
|
|
Commingled short-term investment funds
|
—
|
|
|
2
|
|
|
2
|
|
Total investment securities
|
$
|
312
|
|
|
$
|
841
|
|
|
$
|
1,153
|
|
Cash
|
|
|
|
|
7
|
|
Accrued income receivable
|
|
|
|
|
3
|
|
Insurance contracts*
|
|
|
|
|
56
|
|
Fair value plan assets
|
|
|
|
|
$
|
1,219
|
|
* Comprised of annuity contracts issued by life insurance companies for one of the Company's non-U.S. pension plans
Postretirement Health Care Benefits Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Level 1
|
|
Level 2
|
|
Total
|
Common stock and equivalents
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
44
|
|
Commingled equity funds
|
—
|
|
|
56
|
|
|
56
|
|
U.S. government and agency obligations
|
—
|
|
|
9
|
|
|
9
|
|
Corporate bonds
|
—
|
|
|
9
|
|
|
9
|
|
Mortgage-backed bonds
|
—
|
|
|
1
|
|
|
1
|
|
Commingled bond funds
|
—
|
|
|
30
|
|
|
30
|
|
Commingled short-term investment funds
|
—
|
|
|
6
|
|
|
6
|
|
Fair value plan assets
|
$
|
44
|
|
|
$
|
111
|
|
|
$
|
155
|
|
The table above includes securities on loan as part of a securities lending arrangement of
$4 million
of common stock and equivalents and
$7 million
of U.S. government and agency obligations. All securities on loan are fully cash collateralized.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
Level 1
|
|
Level 2
|
|
Total
|
Common stock and equivalents
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
38
|
|
Commingled equity funds
|
—
|
|
|
54
|
|
|
54
|
|
U.S. government and agency obligations
|
—
|
|
|
10
|
|
|
10
|
|
Corporate bonds
|
—
|
|
|
11
|
|
|
11
|
|
Mortgage-backed bonds
|
—
|
|
|
1
|
|
|
1
|
|
Commingled bond funds
|
—
|
|
|
34
|
|
|
34
|
|
Commingled short-term investment funds
|
—
|
|
|
7
|
|
|
7
|
|
Fair value plan assets
|
$
|
38
|
|
|
$
|
117
|
|
|
$
|
155
|
|
The table above includes securities on loan as part of a securities lending arrangement of
$6 million
of common stock and equivalents,
$6 million
of U.S. government and agency obligations, and
$1 million
of corporate bonds. All securities on loan are fully cash collateralized.
There were no significant transfers between Level 1 and Level 2 during 2012 or 2011.
Valuation Methodologies
Level 1- Quoted market prices in active markets are available for investments in common and preferred stock and common stock equivalents. As such, these investments are classified within Level 1.
Level 2- The securities classified as Level 2 are comprised primarily of corporate, government, agency and government
sponsored enterprise fixed income securities. These securities are priced using pricing services, bid/offer, and last trade. Prices
may also be obtained from brokers, counterparties, fund administrators, online securities data services, or investment managers.
Fixed income securities, including short-term instruments, may be priced using pricing models comprised of observable inputs
which include, but are not limited to, market quotations, yields, maturities, call features, and the security's terms and conditions.
In determining the fair value of the Company's foreign currency derivatives, the Company uses forward contract and option valuation models employing market observable inputs, such as spot currency rates, time value and option volatilities. Since the Company primarily uses observable inputs in its valuation of its derivative assets and liabilities, they are classified as Level 2 assets.
Level 3- Securities that do not have actively traded quotes as of the financial statement date. Determining the fair value of these securities requires the use of unobservable inputs, such as indicative quotes from dealers, extrapolated data, proprietary models and qualitative input from investment advisors. The Company had no Level 3 assets at December 31, 2012 and 2011.
At
December 31, 2012
, the Company has
$422 million
of investments in money market mutual funds classified as Cash and cash equivalents in its consolidated balance sheet. The money market funds have quoted market prices that are generally equivalent to par.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term
debt at
December 31, 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:
|
|
|
|
|
|
|
|
|
December 31
|
2012
|
|
2011
|
Long-term receivables
|
$
|
101
|
|
|
$
|
177
|
|
Less allowance for losses
|
—
|
|
|
(10
|
)
|
|
101
|
|
|
167
|
|
Less current portion
|
(41
|
)
|
|
(130
|
)
|
Non-current long-term receivables, net
|
$
|
60
|
|
|
$
|
37
|
|
The current portion of long-term receivables is included in Accounts receivable and the non-current portion of long-term receivables is included in Other assets in the Company’s consolidated balance sheets. Interest income recognized on long-term receivables for the years ended
December 31, 2012
,
2011
and
2010
was
$7 million
,
$15 million
and
$14 million
, respectively.
Certain purchasers of the Company's infrastructure equipment 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 equipment. These requests may include all or a portion of the purchase price of the equipment. 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
$84 million
at
December 31, 2012
, compared to
$138 million
at
December 31, 2011
.
As of
December 31, 2012
,
$60 million
of net long-term receivables are classified as non-current. The remainder of the long-term receivables are current and included in Accounts receivable, net.
Sales of Receivables
From time to time, the Company sells accounts receivable and long-term receivables on a non-recourse basis to third-parties under one-time arrangements while others are sold to third-parties under committed facilities. The Company may or may not retain the obligation to service the sold accounts receivable and long-term receivables.
The Company had no sales facilities and no significant committed facilities for the sale of long-term receivables at
December 31, 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 years ended
December 31, 2012
,
2011
, and
2010
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
Cumulative annual proceeds received from one-time sales:
|
|
|
|
|
|
Accounts receivable sales proceeds
|
$
|
12
|
|
|
$
|
8
|
|
|
$
|
30
|
|
Long-term receivables sales proceeds
|
178
|
|
|
224
|
|
|
67
|
|
Total proceeds from one-time sales
|
190
|
|
|
232
|
|
|
97
|
|
Cumulative annual proceeds received from sales under committed facilities
|
—
|
|
|
—
|
|
|
70
|
|
Total proceeds from receivables sales
|
$
|
190
|
|
|
$
|
232
|
|
|
$
|
167
|
|
At
December 31, 2012
, the Company had retained servicing obligations for
$375 million
of long-term receivables, compared to
$263 million
of long-term receivables at
December 31, 2011
. Servicing obligations are limited to collection activities of the non-recourse sales of accounts receivables and long-term receivables.
Credit Quality of Customer Financing Receivables and Allowance for Credit Losses
An aging analysis of financing receivables at
December 31, 2012
and
December 31, 2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Total
Long-term
Receivable
|
|
Current Billed
Due
|
|
Past Due
Under 90 Days
|
|
Past Due
Over 90 Days
|
Municipal leases secured tax exempt
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial loans and leases secured
|
$
|
78
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Total gross long-term receivables, including current portion
|
$
|
101
|
|
|
$
|
1
|
|
|
$
|
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 uses an internally developed credit risk rating system for establishing customer credit limits. This system is aligned and comparable to the rating systems utilized by independent rating agencies.
The Company’s policy for valuing the allowance for credit losses is to review for collectability on an individual receivable basis. All customer financing receivables are reviewed for collectability. For those receivables where collection risk is probable, the Company calculates the value of impairment based on the net present value of expected future cash flows from the customer.
The Company did have financing receivables past due over
90
days as of
December 31, 2012
in relation to a single loan. 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
, all of which is classified as current as of December 31, 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, based on the current facts and circumstances, 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.
Other
Leases:
The Company leases certain office, factory and warehouse space, land, and information technology and other equipment under principally non-cancelable operating leases. Rental expense, net of sublease income, for the years ended
December 31, 2012
,
2011
and
2010
was
$65 million
,
$92 million
, and
$123 million
, respectively. At
December 31, 2012
, future minimum lease obligations, net of minimum sublease rentals, for the next five years and beyond are as follows:
2013
—
$69 million
;
2014
—
$54 million
;
2015
—
$36 million
;
2016
—
$28 million
;
2017
—
$20 million
and beyond—
$149 million
.
Indemnifications:
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 for breaches of such representation and warranties in connection with prior divestitures not in excess of a percentage of the contract value. The total amount of potential claims is approximately
$14 million
, of which the Company had
no
accruals at
December 31, 2012
.
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.
Intellectual Property Matters:
During 2010, the Company entered into a settlement agreement with another company to resolve certain intellectual property disputes between the two companies. As a result of the settlement agreement, the Company received
$65 million
in cash and was assigned certain patent assets. As a result of this agreement, the Company recorded a pre-tax gain of
$39 million
(and
$55 million
was allocated to discontinued operations) during the year ended December 31, 2010, related to the settlement of the outstanding litigation between the parties.
12. Information by Segment and Geographic Region
We report financial results for two segments, based on products and services provided:
Government:
The Government segment includes sales of public safety communication systems, commercial two-way radio systems and devices, and software. Service revenues included in the Government segment are primarily those associated with the design, installation, maintenance and optimization of equipment for public safety networks.
Enterprise:
The 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 networks ("iDEN") and software. Service revenues included in the Enterprise segment are primarily maintenance contracts associated with the above products.
For the years ended
December 31, 2012
,
2011
and
2010
, no single customer accounted for more than
10%
of net sales.
Segment information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Operating Earnings (Loss)
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Government
|
$
|
5,989
|
|
|
$
|
5,358
|
|
|
$
|
5,049
|
|
|
$
|
965
|
|
|
$
|
616
|
|
|
$
|
534
|
|
Enterprise
|
2,709
|
|
|
2,845
|
|
|
2,568
|
|
|
291
|
|
|
242
|
|
|
217
|
|
|
8,698
|
|
|
8,203
|
|
|
7,617
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
|
|
|
|
1,256
|
|
|
858
|
|
|
751
|
|
Total other expense
|
|
|
|
|
|
|
(41
|
)
|
|
(120
|
)
|
|
(87
|
)
|
Earnings from continuing operations before income taxes
|
|
|
|
|
|
|
$
|
1,215
|
|
|
$
|
738
|
|
|
$
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Capital
Expenditures
|
|
Depreciation
Expense
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Government
|
$
|
3,095
|
|
|
$
|
2,892
|
|
|
$
|
3,424
|
|
|
$
|
132
|
|
|
$
|
159
|
|
|
$
|
172
|
|
|
$
|
143
|
|
|
$
|
128
|
|
|
$
|
110
|
|
Enterprise
|
2,552
|
|
|
2,264
|
|
|
2,724
|
|
|
55
|
|
|
27
|
|
|
20
|
|
|
36
|
|
|
37
|
|
|
40
|
|
|
5,647
|
|
|
5,156
|
|
|
6,148
|
|
|
187
|
|
|
186
|
|
|
192
|
|
|
179
|
|
|
165
|
|
|
150
|
|
Other
|
7,032
|
|
|
8,773
|
|
|
11,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,679
|
|
|
13,929
|
|
|
17,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
7,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,679
|
|
|
$
|
13,929
|
|
|
$
|
25,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets in Other include primarily cash and cash equivalents, Sigma Fund, deferred income taxes, short-term investments, property, plant and equipment, investments, and the administrative headquarters of the Company.
Geographic area information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Assets
|
|
Property, Plant, and
Equipment, net
|
Years ended December 31
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
United States
|
$
|
4,807
|
|
|
$
|
4,417
|
|
|
$
|
4,161
|
|
|
$
|
8,743
|
|
|
$
|
8,888
|
|
|
$
|
10,501
|
|
|
$
|
505
|
|
|
$
|
504
|
|
|
$
|
484
|
|
China
|
344
|
|
|
322
|
|
|
307
|
|
|
570
|
|
|
860
|
|
|
1,823
|
|
|
13
|
|
|
14
|
|
|
9
|
|
United Kingdom
|
263
|
|
|
270
|
|
|
257
|
|
|
1,393
|
|
|
584
|
|
|
850
|
|
|
19
|
|
|
21
|
|
|
23
|
|
Israel
|
119
|
|
|
127
|
|
|
112
|
|
|
823
|
|
|
1,128
|
|
|
1,366
|
|
|
22
|
|
|
26
|
|
|
40
|
|
Malaysia
|
92
|
|
|
91
|
|
|
50
|
|
|
448
|
|
|
331
|
|
|
369
|
|
|
54
|
|
|
44
|
|
|
42
|
|
Japan
|
88
|
|
|
97
|
|
|
99
|
|
|
127
|
|
|
553
|
|
|
724
|
|
|
5
|
|
|
60
|
|
|
61
|
|
Denmark
|
44
|
|
|
46
|
|
|
46
|
|
|
90
|
|
|
93
|
|
|
101
|
|
|
52
|
|
|
62
|
|
|
72
|
|
Other, net of eliminations
|
2,941
|
|
|
2,966
|
|
|
2,734
|
|
|
485
|
|
|
1,492
|
|
|
2,063
|
|
|
169
|
|
|
165
|
|
|
191
|
|
|
$
|
8,698
|
|
|
$
|
8,203
|
|
|
$
|
7,617
|
|
|
$
|
12,679
|
|
|
$
|
13,929
|
|
|
$
|
17,797
|
|
|
$
|
839
|
|
|
$
|
896
|
|
|
$
|
922
|
|
Net sales are attributed to countries based on the shipping location of the ultimate destination with the exception of sales to the U.S. federal government. Sales to the U.S. federal government are included within the United States regardless of shipping location. For 2010 and 2011 certain sales have been reclassified between countries to conform to the current year's presentation, which primarily includes; (i) sales from the United Kingdom to "Other, net of eliminations" and (ii) sales from Israel to "Other, net of eliminations."
13. Reorganization of Businesses
The Company maintains a formal Involuntary Severance Plan (the “Severance Plan”), which permits the Company to offer eligible employees severance benefits based on years of service and employment grade level in the event that employment is involuntarily terminated as a result of a reduction-in-force or restructuring. The Company recognizes termination benefits based on formulas per the Severance Plan at the point in time that future settlement is probable and can be reasonably estimated based on estimates prepared at the time a restructuring plan is approved by management. Exit costs consist of future minimum lease payments on vacated facilities and other contractual terminations. At each reporting date, the Company evaluates its accruals for employee separation and exit costs to ensure the accruals are still appropriate. In certain circumstances, accruals are no longer needed because of efficiencies in carrying out the plans or because employees previously identified for separation resigned from the Company and did not receive severance, or were redeployed due to circumstances not foreseen when the original plans were approved. In these cases, the Company reverses accruals through the consolidated statements of operations where the original charges were recorded when it is determined they are no longer needed.
2012
Charges
During
2012
, the Company continued to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. Both of the Company’s segments were impacted by these plans. The employees affected were located in all geographic regions.
During
2012
, the Company recorded net reorganization of business charges of
$50 million
, including
$9 million
of charges in Costs of sales and
$41 million
of charges under Other charges in the Company’s consolidated statements of operations. Included in the aggregate
$50 million
are charges of
$54 million
for employee separation costs, and
$7 million
for building impairment, partially offset by
$11 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
Year ended December 31,
|
2012
|
Government
|
$
|
33
|
|
Enterprise
|
17
|
|
|
$
|
50
|
|
The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from
January 1, 2012
to
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at January 1, 2012
|
|
Additional
Charges
|
|
Adjustments
|
|
Amount
Used
|
|
Accruals at December 31, 2012
|
Exit costs
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(11
|
)
|
|
$
|
4
|
|
Employee separation costs
|
30
|
|
|
54
|
|
|
(9
|
)
|
|
(44
|
)
|
|
31
|
|
|
$
|
44
|
|
|
$
|
54
|
|
|
$
|
(8
|
)
|
|
$
|
(55
|
)
|
|
$
|
35
|
|
Exit Costs
At
January 1, 2012
, the Company had an accrual of
$14 million
for exit costs attributable to lease terminations. There were no additional charges in 2012. The net adjustments of
$1 million
reflect
$2 million
of reversals of accruals no longer needed, offset by
$3 million
of other adjustments. The
$11 million
used in
2012
reflects cash payments. The remaining accrual of
$4 million
, which is included in Accrued liabilities in the Company’s consolidated balance sheets at
December 31, 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
700
employees who began receiving payments in
2012
. The
2012
additional charges of
$54 million
represent severance costs for approximately an additional
1,000
employees, of which
300
were direct employees and
700
were indirect employees. The adjustments of
$9 million
reflect reversals of accruals no longer needed.
During
2012
, approximately
1,000
employees, of which
700
were indirect employees and
300
were direct employees, were separated from the Company. The
$44 million
used in
2012
reflects cash payments to separated employees. The remaining accrual of
$31 million
, which is included in Accrued liabilities in the Company’s consolidated balance sheet at
December 31, 2012
, is expected to be paid, generally, within one year to: (i) severed employees who have already begun to receive payments, and (ii) approximately
700
employees to be separated in
2013
.
2011
Charges
During
2011
, the Company continued to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. Both of the Company’s segments were impacted by these plans. The employees affected were located in all geographic regions.
During
2011
, the Company recorded net reorganization of business charges of
$58 million
, including
$6 million
of charges in Costs of sales and
$52 million
of charges under Other charges in the Company’s consolidated statements of operations. Included in the aggregate
$58 million
are charges of
$41 million
for employee separation costs and
$19 million
for exit costs, partially offset by
$2 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
Year ended December 31,
|
2011
|
Government
|
$
|
40
|
|
Enterprise
|
18
|
|
|
$
|
58
|
|
The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from
January 1, 2011
to
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
Accruals at
January 1
|
|
Additional
Charges
|
|
Adjustments
|
|
Amount
Used
|
|
Accruals at
December 31
|
Exit costs
|
$
|
17
|
|
|
$
|
19
|
|
|
$
|
1
|
|
|
$
|
(23
|
)
|
|
$
|
14
|
|
Employee separation costs
|
50
|
|
|
41
|
|
|
(3
|
)
|
|
(58
|
)
|
|
30
|
|
|
$
|
67
|
|
|
$
|
60
|
|
|
$
|
(2
|
)
|
|
$
|
(81
|
)
|
|
$
|
44
|
|
Exit Costs
At
January 1, 2011
, the Company had an accrual of $
17 million
for exit costs attributable to lease terminations. The additional
2011
charges of
$19 million
are primarily related to the exit of leased facilities and contractual termination costs. The
$23 million
used in
2011
reflects cash payments. The remaining accrual of
$14 million
, which was included in Accrued liabilities in the Company’s consolidated balance sheet at
December 31, 2011
, represents future cash payments, primarily for lease termination obligations.
Employee Separation Costs
At
January 1, 2011
, the Company had an accrual of
$50 million
for employee separation costs, representing the severance costs for approximately
1,000
employees. The additional
2011
charges of
$41 million
represent severance costs for approximately an additional
900
employees, of which
300
are direct employees and
600
are indirect employees. The adjustments of
$3 million
reflect accruals no longer required.
During
2011
, approximately
1,300
employees, of which
800
were direct employees and
500
were indirect employees, were separated from the Company. The
$58 million
used in
2011
reflects cash payments to these separated employees. The remaining accrual of
$30 million
was included in Accrued liabilities in the Company’s consolidated balance sheet at
December 31, 2011
.
2010
Charges
During
2010
, the Company continued to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. Both of the Company’s segments were impacted by these plans. The employees affected were located in all geographic regions.
The Company recorded net reorganization of business charges of
$73 million
, including
$19 million
of charges in Costs of sales and
$54 million
of charges under Other charges in the Company’s consolidated statements of operations. Included in the aggregate
$73 million
are charges of
$73 million
for employee separation costs and
$16 million
for exit costs, partially offset by
$16 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
Year ended December 31,
|
2010
|
Government
|
$
|
57
|
|
Enterprise
|
16
|
|
|
$
|
73
|
|
The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from
January 1, 2010
to
December 31, 2010
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
Accruals at
January 1
|
|
Additional
Charges
|
|
Adjustments
|
|
Amount
Used
|
|
Accruals at
December 31
|
Exit costs
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
(3
|
)
|
|
$
|
(12
|
)
|
|
$
|
17
|
|
Employee separation costs
|
31
|
|
|
73
|
|
|
(13
|
)
|
|
(41
|
)
|
|
50
|
|
|
$
|
47
|
|
|
$
|
89
|
|
|
$
|
(16
|
)
|
|
$
|
(53
|
)
|
|
$
|
67
|
|
Exit Costs
At
January 1, 2010
, the Company had an accrual of
$16 million
for exit costs attributable to lease terminations. The
2010
additional charges of
$16 million
were primarily related to the exit of leased facilities and contractual termination costs. The adjustments of
$3 million
reflect reversals of accruals no longer needed. The
$12 million
used in
2010
reflected cash payments. The remaining accrual of
$17 million
, which was included in Accrued liabilities in the Company’s consolidated balance sheets at
December 31, 2010
, represented future cash payments, primarily for lease termination obligations.
Employee Separation Costs
At
January 1, 2010
, the Company had an accrual of
$31 million
for employee separation costs, representing the severance costs for approximately
1,400
employees. The additional
2010
charges of
$73 million
were severance costs for approximately an additional
1,600
employees, of which
800
were direct employees and
800
were indirect employees. The adjustments of
$13 million
reflect accruals no longer required.
During
2010
, approximately
1,000
employees, of which
700
were direct employees and
300
were indirect employees, were separated from the Company. The
$41 million
used in
2010
reflected cash payments to these separated employees. The remaining accrual of
$50 million
was included in Accrued liabilities in the Company’s consolidated balance sheet at
December 31, 2010
.
14. Intangible Assets and Goodwill
The Company accounts for acquisitions using purchase accounting with the results of operations for each acquiree included in the Company’s consolidated financial statements for the period subsequent to the date of acquisition. The pro forma effects of the acquisitions completed in 2012, 2011, and 2010 were not significant individually or in the aggregate. The Company did not have any significant acquisitions during the years ended
December 31, 2012
,
2011
and
2010
.
Intangible Assets
Amortized intangible assets were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
December 31,
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Intangible assets:
|
|
|
|
|
|
|
|
Completed technology
|
$
|
657
|
|
|
$
|
632
|
|
|
$
|
635
|
|
|
$
|
627
|
|
Patents
|
276
|
|
|
276
|
|
|
276
|
|
|
276
|
|
Customer-related
|
201
|
|
|
125
|
|
|
137
|
|
|
103
|
|
Licensed technology
|
23
|
|
|
19
|
|
|
23
|
|
|
18
|
|
Other intangibles
|
94
|
|
|
90
|
|
|
91
|
|
|
90
|
|
|
$
|
1,251
|
|
|
$
|
1,142
|
|
|
$
|
1,162
|
|
|
$
|
1,114
|
|
Amortization expense on intangible assets, which is included within Other charges in the consolidated statements of operations, was
$29 million
,
$200 million
and
$203 million
for the years ended
December 31, 2012
,
2011
and
2010
, respectively. The reduction in intangible amortization in 2012 is due to certain intangible assets that have fully amortized. As of
December 31, 2012
, future amortization expense is estimated to be
$25 million
in
2013
,
$23 million
in
2014
,
$18 million
in
2015
,
$18 million
in
2016
and
$15 million
in
2017
.
Amortized intangible assets, excluding goodwill, by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
December 31,
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Government
|
$
|
53
|
|
|
$
|
48
|
|
|
$
|
53
|
|
|
$
|
48
|
|
Enterprise
|
1,198
|
|
|
1,094
|
|
|
1,109
|
|
|
1,066
|
|
|
$
|
1,251
|
|
|
$
|
1,142
|
|
|
$
|
1,162
|
|
|
$
|
1,114
|
|
Goodwill
The following table displays a rollforward of the carrying amount of goodwill by segment from
January 1, 2010
to
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
Enterprise
|
|
Total
Company
|
Balances as of January 1, 2010:
|
|
|
|
|
|
Aggregate goodwill acquired
|
$
|
350
|
|
|
$
|
2,643
|
|
|
$
|
2,993
|
|
Accumulated impairment losses
|
—
|
|
|
(1,564
|
)
|
|
(1,564
|
)
|
Goodwill, net of impairment losses
|
350
|
|
|
1,079
|
|
|
1,429
|
|
|
|
|
|
|
|
Balance as of December 31, 2010:
|
|
|
|
|
|
Aggregate goodwill acquired
|
350
|
|
|
2,643
|
|
|
2,993
|
|
Accumulated impairment losses
|
—
|
|
|
(1,564
|
)
|
|
(1,564
|
)
|
Goodwill, net of impairment losses
|
350
|
|
|
1,079
|
|
|
1,429
|
|
Goodwill acquired
|
—
|
|
|
20
|
|
|
20
|
|
Goodwill divested
|
—
|
|
|
(21
|
)
|
|
(21
|
)
|
|
|
|
|
|
|
Balance as of December 31, 2011:
|
|
|
|
|
|
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
|
—
|
|
|
83
|
|
|
83
|
|
Goodwill divested
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Balance as of December 31, 2012:
|
|
|
|
|
|
Aggregate goodwill acquired/divested
|
349
|
|
|
2,725
|
|
|
3,074
|
|
Accumulated impairment losses
|
—
|
|
|
(1,564
|
)
|
|
(1,564
|
)
|
Goodwill, net of impairment losses
|
$
|
349
|
|
|
$
|
1,161
|
|
|
$
|
1,510
|
|
The Company conducts its annual assessment of goodwill for impairment in the fourth quarter of each year. The goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment. The Company has determined that the Government segment and Enterprise segment each meet the definition of a reporting unit.
The Company performed a qualitative assessment to determine whether it was more-likely-than-not that the fair value of each reporting unit was less than its carrying amount for fiscal year
2012
and fiscal year 2011. In performing this qualitative assessment the Company assessed relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in share price, and entity-specific events. In addition, the Company considered the fair value derived for each reporting unit in conjunction with the 2010 goodwill impairment test. The Company compared this prior fair value against the current carrying value of each reporting unit noting fair value significantly exceeded carrying value for both reporting units. The Company performed a sensitivity analysis on the fair value determined for each reporting unit in conjunction with the 2010 goodwill impairment test for changes in significant assumptions including the weighted average cost of capital used in the income approach and changes in expected cash flows. For fiscal 2012, these changes in assumptions and estimated cash flows resulted in an increase in fair value for the Government reporting unit and a slight decrease in fair value for the Enterprise reporting unit. In spite of this small decrease in estimated fair value of the Enterprise reporting unit, the reporting unit's fair value significantly exceeds its carrying value. For fiscal year 2011, these changes in assumptions and estimated cash flows resulted in an increase in fair value for each reporting unit from the 2010 fair values. As such, the Company concluded it is more-likely-than-not that the fair value of each reporting unit exceeds its carrying value. Therefore, the two-step goodwill impairment test was not required for fiscal
2012
or fiscal 2011.
2010
The goodwill impairment test for fiscal
2010
was performed using the two step goodwill impairment analysis. In step one, the fair value of each reporting unit is compared to its book value. Management must apply judgment in determining the estimated fair value of these reporting units. Fair value is determined using a combination of present value techniques and quoted market prices of comparable businesses. If the fair value of the reporting unit exceeds its book value, goodwill is not deemed to be impaired for that reporting unit, and no further testing would be necessary. If the fair value of the reporting unit is less than its book value, the Company performs step two. Step two uses the calculated fair value of the reporting unit to
perform a hypothetical purchase price allocation to the fair value of the assets and liabilities of the reporting unit. The difference between the fair value of the reporting unit calculated in Step One and the fair value of the underlying assets and liabilities of the reporting unit is the implied fair value of the reporting unit's goodwill. A charge is recorded in the financial statements if the carrying value of the reporting unit's goodwill is greater than its implied fair value.
The Company weighted the valuation of its reporting units at
75%
based on the income approach and
25%
based on the market-based approach consistent with prior periods. The Company believes that this weighting is appropriate because it is often difficult to find other appropriate market participants that are similar to its reporting units, and it is the Company's view that future discounted cash flows are more reflective of the value of the reporting units.
Based on the results of the 2010 annual assessment of the recoverability of goodwill, the fair values of both reporting units exceeded their book values, indicating that there was no impairment of goodwill.
15. Valuation and Qualifying Accounts
The following table presents the valuation and qualifying account activity for the years ended
December 31, 2012
,
2011
and
2010
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1
|
|
Charged to
Earnings
|
|
Used
|
|
Adjustments*
|
|
Balance at
December 31
|
2012
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts**
|
$
|
45
|
|
|
$
|
8
|
|
|
$
|
(4
|
)
|
|
$
|
2
|
|
|
$
|
51
|
|
Allowance for Losses on Long-term Receivables**
|
10
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
Inventory Reserves
|
170
|
|
|
67
|
|
|
(73
|
)
|
|
(1
|
)
|
|
163
|
|
Customer Reserves
|
125
|
|
|
456
|
|
|
(416
|
)
|
|
(21
|
)
|
|
144
|
|
2011
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
49
|
|
|
7
|
|
|
(4
|
)
|
|
(7
|
)
|
|
45
|
|
Allowance for Losses on Long-term Receivables
|
1
|
|
|
10
|
|
|
(1
|
)
|
|
—
|
|
|
10
|
|
Inventory Reserves
|
157
|
|
|
37
|
|
|
(30
|
)
|
|
6
|
|
|
170
|
|
Customer Reserves
|
117
|
|
|
580
|
|
|
(565
|
)
|
|
(7
|
)
|
|
125
|
|
2010
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
16
|
|
|
41
|
|
|
(2
|
)
|
|
(6
|
)
|
|
49
|
|
Allowance for Losses on Long-term Receivables
|
7
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
1
|
|
Inventory Reserves
|
140
|
|
|
67
|
|
|
(34
|
)
|
|
(16
|
)
|
|
157
|
|
Customer Reserves
|
97
|
|
|
427
|
|
|
(374
|
)
|
|
(33
|
)
|
|
117
|
|
*Adjustments include translation adjustments
** During 2012, the adjustment of $10 million within Allowance for Losses on Long-term Receivables relates to a reclass from non-current to current.
16. Quarterly and Other Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,956
|
|
|
$
|
2,148
|
|
|
$
|
2,153
|
|
|
$
|
2,441
|
|
|
$
|
1,834
|
|
|
$
|
1,984
|
|
|
$
|
2,085
|
|
|
$
|
2,300
|
|
Costs of sales
|
983
|
|
|
1,088
|
|
|
1,066
|
|
|
1,212
|
|
|
910
|
|
|
977
|
|
|
1,030
|
|
|
1,140
|
|
Gross margin
|
973
|
|
|
1,060
|
|
|
1,087
|
|
|
1,229
|
|
|
924
|
|
|
1,007
|
|
|
1,055
|
|
|
1,160
|
|
Selling, general and administrative expenses
|
472
|
|
|
496
|
|
|
485
|
|
|
510
|
|
|
461
|
|
|
482
|
|
|
471
|
|
|
498
|
|
Research and development expenditures
|
254
|
|
|
269
|
|
|
262
|
|
|
290
|
|
|
239
|
|
|
260
|
|
|
270
|
|
|
266
|
|
Other charges
|
15
|
|
|
17
|
|
|
16
|
|
|
6
|
|
|
55
|
|
|
106
|
|
|
60
|
|
|
120
|
|
Operating earnings
|
232
|
|
|
278
|
|
|
324
|
|
|
423
|
|
|
169
|
|
|
159
|
|
|
254
|
|
|
276
|
|
Earnings from continuing operations*
|
159
|
|
|
177
|
|
|
206
|
|
|
336
|
|
|
367
|
|
|
50
|
|
|
153
|
|
|
177
|
|
Net earnings*
|
157
|
|
|
182
|
|
|
206
|
|
|
336
|
|
|
497
|
|
|
349
|
|
|
128
|
|
|
184
|
|
Per Share Data (in dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.51
|
|
|
$
|
0.61
|
|
|
$
|
0.73
|
|
|
$
|
1.20
|
|
|
$
|
1.09
|
|
|
$
|
0.15
|
|
|
$
|
0.46
|
|
|
$
|
0.55
|
|
Diluted earnings per common share
|
0.50
|
|
|
0.60
|
|
|
0.72
|
|
|
1.18
|
|
|
1.07
|
|
|
0.14
|
|
|
0.45
|
|
|
0.54
|
|
Net Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
0.50
|
|
|
0.63
|
|
|
0.73
|
|
|
1.20
|
|
|
1.47
|
|
|
1.02
|
|
|
0.38
|
|
|
0.57
|
|
Diluted earnings per common share
|
0.49
|
|
|
0.61
|
|
|
0.72
|
|
|
1.18
|
|
|
1.44
|
|
|
1.00
|
|
|
0.38
|
|
|
0.56
|
|
Dividends declared
|
0.22
|
|
|
0.22
|
|
|
0.26
|
|
|
0.26
|
|
|
—
|
|
|
—
|
|
|
0.22
|
|
|
0.22
|
|
Dividends paid
|
0.22
|
|
|
0.22
|
|
|
0.22
|
|
|
0.26
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.22
|
|
Stock prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
51.76
|
|
|
51.46
|
|
|
51.79
|
|
|
55.68
|
|
|
44.69
|
|
|
47.87
|
|
|
46.37
|
|
|
47.41
|
|
Low
|
44.94
|
|
|
46.73
|
|
|
45.18
|
|
|
49.77
|
|
|
37.04
|
|
|
43.42
|
|
|
38.71
|
|
|
40.62
|
|
* Amounts attributable to Motorola Solutions, Inc. common shareholders.