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EX-31.1 - EXHIBIT - Motorola Solutions, Inc.msiex311q22014.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________ 
Form 10-Q
 ____________________________________________
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 28, 2014
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number: 1-7221
____________________________________________ 
MOTOROLA SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________ 
DELAWARE
(State of Incorporation)
 
36-1115800
(I.R.S. Employer Identification No.)
1303 E. Algonquin Road,
Schaumburg, Illinois
(Address of principal executive offices)
 
60196
(Zip Code)
Registrant’s telephone number, including area code:
(847) 576-5000
____________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
 
Accelerated filer ¨
 
Non-accelerated filer 
 
Smaller reporting company ¨
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on June 28, 2014:
 
Class
 
Number of Shares
Common Stock; $.01 Par Value
 
250,878,592



 
Page    
Item 1 Financial Statements
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 28, 2014 and June 29, 2013
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 28, 2014 and June 29, 2013
Condensed Consolidated Balance Sheets (Unaudited) as of June 28, 2014 and December 31, 2013
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Six Months Ended June 28, 2014
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 28, 2014 and June 29, 2013
Item 4 Mine Safety Disclosures



Part I—Financial Information
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

 
Three Months Ended
 
Six Months Ended
(In millions, except per share amounts)
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Net sales from products
$
887

 
$
986

 
$
1,640

 
$
1,899

Net sales from services
506

 
511

 
982

 
994

Net sales
1,393

 
1,497

 
2,622

 
2,893

Costs of product sales
400

 
435

 
751

 
840

Costs of services sales
337

 
312

 
638

 
610

Costs of sales
737

 
747

 
1,389

 
1,450

Gross margin
656

 
750

 
1,233

 
1,443

Selling, general and administrative expenses
308

 
339

 
615

 
665

Research and development expenditures
176

 
195

 
350

 
382

Other charges
34

 
13

 
23

 
20

Operating earnings
138

 
203

 
245

 
376

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(29
)
 
(32
)
 
(54
)
 
(57
)
Gains (losses) on sales of investments and businesses, net
(4
)
 

 
4

 
7

Other
(7
)
 
(3
)
 
(9
)
 
(3
)
Total other expense
(40
)
 
(35
)
 
(59
)
 
(53
)
Earnings before income taxes
98

 
168

 
186

 
323

Income tax expense (benefit)
20

 
(59
)
 
23

 
(61
)
Earnings from continuing operations
78

 
227

 
163

 
384

Earnings from discontinued operations, net of tax
746

 
35

 
788

 
70

Net earnings
824

 
262

 
951

 
454

Less: Earnings attributable to noncontrolling interests

 
4

 

 
4

Net earnings attributable to Motorola Solutions, Inc.
$
824

 
$
258

 
$
951

 
$
450

Amounts attributable to Motorola Solutions, Inc. common stockholders:
 
 
 
 
 
 
 
Earnings from continuing operations, net of tax
$
78

 
$
223

 
$
163

 
$
380

Earnings from discontinued operations, net of tax
746

 
35

 
788

 
70

Net earnings
$
824

 
$
258

 
$
951

 
$
450

Earnings per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
0.31

 
$
0.83

 
$
0.64

 
$
1.40

Discontinued operations
2.94

 
0.13

 
3.11

 
0.26

 
$
3.25

 
$
0.96

 
$
3.75

 
$
1.66

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.30

 
$
0.81

 
$
0.63

 
$
1.37

Discontinued operations
2.92

 
0.13

 
3.07

 
0.25

 
$
3.22

 
$
0.94

 
$
3.70

 
$
1.62

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
253.7

 
269.5

 
253.8

 
271.9

Diluted
256.2

 
274.7

 
257.2

 
277.7

Dividends declared per share
$
0.31

 
0.26

 
$
0.62

 
0.52

See accompanying notes to condensed consolidated financial statements (unaudited).

1


Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
(In millions)
June 28,
2014
 
June 29,
2013
Net earnings
$
824

 
$
262

Other comprehensive income (loss):
 
 
 
Amortization of retirement benefit adjustments, net of tax of $5 and $10
11

 
16

Foreign currency translation adjustment, net of tax of $(5) and $(5)
13

 
(5
)
Reclassification of net loss on derivative instruments, net of tax of $– and $–
1

 

Net unrealized loss on securities, net of tax of $– and $–

 
(1
)
Total other comprehensive income
25

 
10

Comprehensive income
849

 
272

Less: Earnings attributable to noncontrolling interest

 
4

Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
$
849

 
$
268

 
Six Months Ended
(In millions)
June 28,
2014
 
June 29,
2013
Net earnings
$
951

 
$
454

Other comprehensive income (loss):
 
 
 
Amortization of retirement benefit adjustments, net of tax of $11 and $19
24

 
35

Foreign currency translation adjustment, net of tax of $(4) and $(6)
15

 
(42
)
Reclassification of net loss (gain) on derivative instruments, net of tax of $– and $–
1

 
(1
)
Net unrealized gains (losses) on securities, net of tax of $(2) and $–
2

 
(1
)
Total other comprehensive income (loss)
42

 
(9
)
Comprehensive income
993

 
445

Less: Earnings attributable to noncontrolling interest

 
4

Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
$
993

 
$
441

See accompanying notes to condensed consolidated financial statements (unaudited).


2


Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
 
(In millions, except par value)
June 28,
2014
 
December 31,
2013
ASSETS
Cash and cash equivalents
$
2,876

 
$
3,225

Accounts receivable, net
1,185

 
1,369

Inventories, net
330

 
347

Deferred income taxes
1,205

 
451

Other current assets
527

 
635

Current assets held for disposition
943

 
993

Total current assets
7,066

 
7,020

Property, plant and equipment, net
682

 
695

Investments
236

 
232

Deferred income taxes
1,909

 
1,990

Goodwill
383

 
361

Other assets
128

 
89

Non-current assets held for disposition
1,464

 
1,464

Total assets
$
11,868

 
$
11,851

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
4

 
$
4

Accounts payable
453

 
583

Accrued liabilities
1,615

 
1,763

Current liabilities held for disposition
852

 
870

Total current liabilities
2,924

 
3,220

Long-term debt
2,446

 
2,457

Other liabilities
2,151

 
2,314

Non-current liabilities held for disposition
178

 
171

Stockholders’ Equity
 
 
 
Preferred stock, $100 par value

 

Common stock, $.01 par value:
3

 
3

Authorized shares: 600.0
 
 
 
Issued shares: 6/28/14—252.0; 12/31/13—255.5
 
 
 
Outstanding shares: 6/28/14—250.9; 12/31/13—254.5
 
 
 
Additional paid-in capital
3,162

 
3,518

Retained earnings
3,219

 
2,425

Accumulated other comprehensive loss
(2,245
)
 
(2,287
)
Total Motorola Solutions, Inc. stockholders’ equity
4,139

 
3,659

Noncontrolling interests
30

 
30

Total stockholders’ equity
4,169

 
3,689

Total liabilities and stockholders’ equity
$
11,868

 
$
11,851

See accompanying notes to condensed consolidated financial statements (unaudited).


3


Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
 
(In millions)
Shares
 
Common Stock and Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interests
Balance as of December 31, 2013
255.5

 
$
3,521

 
$
(2,287
)
 
$
2,425

 
$
30

Net earnings

 

 


 
951

 


Net unrealized gains on securities, net of tax of $(2)

 

 
2

 

 

Foreign currency translation adjustments, net of tax of $(4)

 

 
15

 

 

Amortization of retirement benefit adjustments, net of tax of $11

 

 
24

 

 

Issuance of common stock and stock options exercised
3.6

 
44

 

 

 

Share repurchase program
(7.1
)
 
(473
)
 

 

 

Excess tax benefit from share-based compensation

 
6

 

 

 

Share-based compensation expense

 
67

 

 

 

Net loss on derivative hedging instruments, net of tax of $–

 

 
1

 

 

Dividends declared

 

 


 
(157
)
 

Balance as of June 28, 2014
252.0

 
$
3,165

 
$
(2,245
)
 
$
3,219

 
$
30

See accompanying notes to condensed consolidated financial statements (unaudited).


4


Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
(In millions)
June 28,
2014
 
June 29,
2013
Operating
 
 
 
Net earnings attributable to Motorola Solutions, Inc.
$
951

 
$
450

Earnings attributable to noncontrolling interests

 
4

Net earnings
951

 
454

Earnings from discontinued operations, net of tax
788

 
70

Earnings from continuing operations, net of tax
163

 
384

Adjustments to reconcile Earnings from continuing operations to Net cash provided by (used for) operating activities from continuing operations
 
 
 
Depreciation and amortization
86

 
76

Gain on sale of building and land
(21
)
 

Non-cash other income
(5
)
 
(7
)
Share-based compensation expense
54

 
62

Gains on sales of investments and businesses, net
(4
)
 
(7
)
Deferred income taxes
6

 
(193
)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable
190

 
78

Inventories
17

 
14

Other current assets
76

 
(23
)
Accounts payable and accrued liabilities
(299
)
 
(479
)
Other assets and liabilities
(133
)
 
(5
)
Net cash provided by (used for) operating activities from continuing operations
130

 
(100
)
Investing
 
 
 
Acquisitions and investments, net
(11
)
 
(8
)
Proceeds from sales of investments and businesses, net
21

 
21

Capital expenditures
(82
)
 
(79
)
Proceeds from sales of property, plant and equipment
24

 
15

Proceeds from sales of Sigma Fund investments, net

 
376

Net cash provided by (used for) investing activities from continuing operations
(48
)
 
325

Financing
 
 
 
Repayment of debt
(2
)
 
(2
)
Net proceeds from issuance of debt
4

 
593

Issuance of common stock
85

 
99

Purchase of common stock
(473
)
 
(907
)
Excess tax benefit from share-based compensation
6

 
18

Payment of dividends
(158
)
 
(143
)
Distributions from discontinued operations
100

 
137

Net cash used for financing activities from continuing operations
(438
)
 
(205
)
Discontinued Operations
 
 
 
Net cash provided by operating activities from discontinued operations
89

 
152

Net cash provided by (used for) investing activities from discontinued operations
11

 
(17
)
Net cash used for financing activities from discontinued operations
(100
)
 
(137
)
Effect of exchange rate changes on cash and cash equivalents from discontinued operations

 
2

Net cash provided by discontinued operations

 

Effect of exchange rate changes on cash and cash equivalents from continuing operations
7

 
(31
)
Net decrease in cash and cash equivalents
(349
)
 
(11
)
Cash and cash equivalents, beginning of period
3,225

 
1,468

Cash and cash equivalents, end of period
$
2,876

 
$
1,457

Supplemental Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Interest, net
$
67

 
$
58

Income and withholding taxes, net of refunds
31

 
68

See accompanying notes to condensed consolidated financial statements (unaudited).

5


Motorola Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except as noted)
(Unaudited)
1.
Basis of Presentation
The condensed consolidated financial statements as of June 28, 2014 and for the three and six months ended June 28, 2014 and June 29, 2013, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statement of stockholders' equity, and statements of cash flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2013. The results of operations for the three and six months ended June 28, 2014 are not necessarily indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-05, “Service Concession Arrangements.” The ASU clarifies that an operating entity should not account for a services concession arrangement with a public-sector grantor as a lease if:  (i) the grantor controls or has the ability to modify or approve the services the operating entity must provide, to whom it must provide them, and at what price and (ii) the grantor controls any residual interest in the infrastructure at the end of the arrangement. In addition, the infrastructure used in a service concession arrangement would not be recognized as property, plant and equipment of the operating entity. The ASU is to be applied on a modified retrospective basis to service concession arrangements outstanding upon adoption and will be effective for the Company beginning January 1, 2015. The Company is currently assessing the impact of this standard on its consolidated financial statements and footnote disclosures.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount it expects to receive for those goods and services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changes in those estimates. The ASU will be effective for the Company beginning January 1, 2017, and allows for both retrospective and modified-retrospective methods of adoption. The Company is in the process of determining the method of adoption it will elect and is currently assessing the impact of this ASU on its consolidated financial statements and footnote disclosures.


6


2.
Discontinued Operations
On April 14, 2014, the Company entered into a Master Acquisition Agreement (the “Acquisition Agreement”) with Zebra Technologies Corporation to sell the Company’s Enterprise business for $3.45 billion in cash. Certain assets of the Enterprise business will be excluded from the transaction and retained by the Company, including the Company’s iDEN business, and other assets and certain liabilities as specified in the Acquisition Agreement. The transaction is expected to close by the end of 2014. The historical financial results of the Enterprise business, excluding those assets and liabilities retained in the transaction, are reflected in the Company's condensed consolidated financial statements and footnotes as discontinued operations for all periods presented.
The following table displays summarized activity in the Company's condensed consolidated statements of operations for discontinued operations during the three and six months ended June 28, 2014 and June 29, 2013:
 
Three Months Ended
 
Six Months Ended
  
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Net sales
$
560

 
$
610

 
$
1,133

 
$
1,187

Operating earnings
55

 
63

 
118

 
106

Loss on sales of investments and businesses, net
(1
)
 

 
(1
)
 

Investment impairments
(3
)
 
(2
)
 
(3
)
 
(2
)
Earnings before income taxes
50

 
57

 
112

 
106

Income tax expense (benefit)
(696
)
 
22

 
(676
)
 
36

Earnings from discontinued operations, net of tax
$
746

 
$
35

 
$
788

 
$
70

During the three months ended June 28, 2014, the Company recorded a $721 million tax benefit to establish a deferred tax asset associated with an outside basis difference which we now expect to realize in the foreseeable future. The tax benefit represents the excess of the tax basis of our investment in the Enterprise subsidiaries over the financial statement carrying value (the deductible outside basis difference).
The following table displays a summary of the assets and liabilities held for sale as of June 28, 2014 and December 31, 2013:
  
June 28,
2014
 
December 31,
2013
Assets:
 
 
 
Accounts receivable, net
$
468

 
$
551

Inventories, net
215

 
175

Deferred income taxes
225

 
219

Other current assets
132

 
134

Property, plant and equipment, net
94

 
115

Investments
20

 
19

Goodwill
1,151

 
1,149

Other assets
102

 
95

 
$
2,407

 
$
2,457

Liabilities:
 
 
 
Accounts payable
$
196

 
$
231

Accrued liabilities
656

 
639

Other liabilities
178

 
171

 
$
1,030

 
$
1,041



7


3.
Other Financial Data
Statement of Operations Information
Other Charges
Other charges included in Operating earnings consist of the following: 
 
Three Months Ended
 
Six Months Ended
  
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Other charges (income):
 
 
 
 
 
 
 
Intangibles amortization
$
1

 
$

 
$
2

 
$

Reorganization of businesses
25

 
13

 
34

 
20

Legal settlement
8

 

 
8

 

Gain on sale of building and land

 

 
(21
)
 

 
$
34

 
$
13

 
$
23

 
$
20

During the first quarter of 2014, the Company completed the sale of a building and parcel of land on its Schaumburg, IL campus with a net book value of $3 million for net cash proceeds of $24 million resulting in a gain on sale of $21 million.
Other Income (Expense)
Interest expense, net, and Other, both included in Other income (expense), consist of the following: 
 
Three Months Ended
 
Six Months Ended
  
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Interest income (expense), net:
 
 
 
 
 
 
 
Interest expense
$
(34
)
 
$
(38
)
 
$
(64
)
 
$
(68
)
Interest income
5

 
6

 
10

 
11

 
$
(29
)
 
$
(32
)
 
$
(54
)
 
$
(57
)
Other:
 
 
 
 
 
 
 
Investment impairments

 
(2
)
 

 
(2
)
Foreign currency loss
(8
)
 
(4
)
 
$
(10
)
 
$
(7
)
Gains on equity method investments
2

 
1

 
2

 

Other
(1
)
 
2

 
(1
)
 
6

 
$
(7
)
 
$
(3
)
 
$
(9
)
 
$
(3
)

8


Earnings Per Common Share
The computation of basic and diluted earnings per common share is as follows:
 
Amounts attributable to Motorola Solutions, Inc. common stockholders
 
Earnings from Continuing Operations
 
Net Earnings
Three Months Ended
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Basic earnings per common share:
 
 
 
 
 
 
 
Earnings
$
78

 
$
223

 
$
824

 
$
258

Weighted average common shares outstanding
253.7

 
269.5

 
253.7

 
269.5

Per share amount
$
0.31

 
$
0.83

 
$
3.25

 
$
0.96

Diluted earnings per common share:
 
 
 
 
 
 
 
Earnings
$
78

 
$
223

 
$
824

 
$
258

Weighted average common shares outstanding
253.7

 
269.5

 
253.7

 
269.5

Add effect of dilutive securities:
 
 
 
 
 
 
 
Share-based awards
2.5

 
5.2

 
2.5

 
5.2

Diluted weighted average common shares outstanding
256.2

 
274.7

 
256.2

 
274.7

Per share amount
$
0.30

 
$
0.81

 
$
3.22

 
$
0.94

 
Amounts attributable to Motorola Solutions, Inc. common stockholders
 
Earnings from Continuing Operations
 
Net Earnings
Six Months Ended
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Basic earnings per common share:
 
 
 
 
 
 
 
Earnings
$
163

 
$
380

 
$
951

 
$
450

Weighted average common shares outstanding
253.8

 
271.9

 
253.8

 
271.9

Per share amount
$
0.64

 
$
1.40

 
$
3.75

 
$
1.66

Diluted earnings per common share:
 
 
 
 
 
 
 
Earnings
$
163

 
$
380

 
$
951

 
$
450

Weighted average common shares outstanding
253.8

 
271.9

 
253.8

 
271.9

Add effect of dilutive securities:
 
 
 
 
 
 
 
Share-based awards
3.4

 
5.8

 
3.4

 
5.8

Diluted weighted average common shares outstanding
257.2

 
277.7

 
257.2

 
277.7

Per share amount
$
0.63

 
$
1.37

 
$
3.70

 
$
1.62

In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the three and six months ended June 28, 2014, the assumed exercise of 4.6 million and 4.8 million stock options, respectively, were excluded because their inclusion would have been antidilutive. In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the three and six months ended June 29, 2013, the assumed exercise of 4.3 million and 4.4 million stock options, respectively, were excluded because their inclusion would have been antidilutive.
Balance Sheet Information
Cash and Cash Equivalents
The Company’s cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) were $2.9 billion at June 28, 2014 and $3.2 billion at December 31, 2013. Of these amounts, $64 million at June 28, 2014 and $63 million at December 31, 2013 were restricted.

9


Investments
Investments consist of the following:
 
June 28, 2014
 
December 31, 2013
Available-for-sale securities:
 
 
 
Government, agency, and government-sponsored enterprise obligations
$
15

 
$
15

Corporate bonds
8

 
7

Mutual funds
11

 
11

Common stock and equivalents

 
2

 
34

 
35

Other investments, at cost
185

 
182

Equity method investments
17

 
15

 
$
236

 
$
232

The Company had no unrealized gains or losses on its investments as of both June 28, 2014 and December 31, 2013.
Accounts Receivable, Net
Accounts receivable, net, consists of the following: 
 
June 28,
2014
 
December 31,
2013
Accounts receivable
$
1,240

 
$
1,422

Less allowance for doubtful accounts
(55
)
 
(53
)
 
$
1,185

 
$
1,369

Inventories, Net
Inventories, net, consist of the following: 
 
June 28,
2014
 
December 31,
2013
Finished goods
$
142

 
$
157

Work-in-process and production materials
313

 
315

 
455

 
472

Less inventory reserves
(125
)
 
(125
)
 
$
330

 
$
347

Other Current Assets
Other current assets consist of the following: 
 
June 28,
2014
 
December 31,
2013
Costs and earnings in excess of billings
$
374

 
$
390

Contract-related deferred costs
14

 
15

Tax-related deposits and refunds receivable
64

 
107

Other
75

 
123

 
$
527

 
$
635


10


Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following: 
 
June 28,
2014
 
December 31,
2013
Land
$
21

 
$
22

Building
554

 
582

Machinery and equipment
1,840

 
1,760

 
2,415

 
2,364

Less accumulated depreciation
(1,733
)
 
(1,669
)
 
$
682

 
$
695

Depreciation expense for the three months ended June 28, 2014 and June 29, 2013 was $45 million and $40 million, respectively. Depreciation expense for the six months ended June 28, 2014 and June 29, 2013 was $84 million and $75 million, respectively.
Other Assets
Other assets consist of the following: 
 
June 28,
2014
 
December 31,
2013
Intangible assets, net
$
24

 
$
6

Long-term receivables
18

 
1

Other
86

 
82

 
$
128

 
$
89

Accrued Liabilities
Accrued liabilities consist of the following: 
 
June 28,
2014
 
December 31,
2013
Deferred revenue
$
333

 
$
359

Compensation
212

 
315

Billings in excess of costs and earnings
354

 
295

Tax liabilities
76

 
85

Customer reserves
44

 
52

Dividend payable
78

 
79

Other
518

 
578

 
$
1,615

 
$
1,763

Other Liabilities
Other liabilities consist of the following: 
 
June 28,
2014
 
December 31,
2013
Defined benefit plans, including split dollar life insurance arrangements
$
1,654

 
$
1,751

Postretirement health care benefit plan
118

 
118

Deferred revenue
150

 
162

Unrecognized tax benefits
57

 
99

Other
172

 
184

 
$
2,151

 
$
2,314


11


Stockholders’ Equity
Share Repurchase Program: The Company paid an aggregate of $416 million during the second quarter of 2014, including transaction costs, to repurchase approximately 6.2 million shares at an average price of $66.96 per share. The Company paid an aggregate of $473 million during the first half of 2014, including transaction costs, to repurchase approximately 7.1 million shares at an average price of $66.88 per share. As of June 28, 2014, the Company had used approximately $5.7 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving $1.3 billion of authority available for future repurchases.
Payment of Dividends: During the three months ended June 28, 2014 and June 29, 2013, the Company paid $79 million and $71 million, respectively, in cash dividends to holders of its common stock. During the six months ended June 28, 2014 and June 29, 2013, the Company paid $158 million and $143 million, respectively, in cash dividends to holders of its common stock.
On July 31, 2014, the Company announced that its Board of Directors approved an increase in the quarterly cash dividend from $0.31 per share to $0.34 per share of common stock.
Accumulated Other Comprehensive Loss
The following table displays the changes in Accumulated other comprehensive loss, net of tax, by component from January 1, 2014 to June 28, 2014:
 
Gains and Losses on Cash Flow Hedges
 
Unrealized Gains and Losses on Available-for-Sale Securities
 
Retirement Benefit Items
 
Foreign Currency Translation Adjustments
 
Total
Balance as of January 1, 2014
$
(1
)
 
$
(2
)
 
$
(2,188
)
 
$
(96
)
 
$
(2,287
)
Other comprehensive income before reclassifications

 
2

 

 
15

 
17

Amounts reclassified from accumulated other comprehensive loss
1

 

 
24

 

 
25

Current period change in Other comprehensive income
1

 
2

 
24

 
15

 
42

Balance as of June 28, 2014
$

 
$

 
$
(2,164
)
 
$
(81
)
 
$
(2,245
)

The following table displays the amounts reclassified from Accumulated other comprehensive loss and the affected line items in the condensed consolidated statement of operations during the three and six months ended June 28, 2014 and June 29, 2013:
 
Three Months Ended
 
Six Months Ended
 
 
  
June 28, 2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
 
 
Loss (gain) on cash flow hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
1

 
$

 
$
1

 
$
(1
)
 
Cost of sales
 
1

 

 
1

 
(1
)
 
Net of tax
Amortization of retirement benefit items:
 
 
 
 
 
 
 
 
 
Prior service costs
$
(9
)
 
(14
)
 
$
(18
)
 
$
(25
)
 
Selling, general, and administrative expenses
Actuarial net losses
25

 
40

 
53

 
79

 
Selling, general, and administrative expenses
 
16

 
26

 
35

 
54

 
Total before tax
 
(5
)
 
(10
)
 
(11
)
 
(19
)
 
Tax benefit
 
$
11

 
$
16

 
$
24

 
$
35

 
Net of tax
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period, net of tax
$
12

 
$
16

 
$
25

 
$
34

 
 

12



4.
Debt and Credit Facilities
As of June 28, 2014, the Company had a $2.0 billion unsecured syndicated revolving credit facility (the “2014 Motorola Solutions Credit Agreement”) scheduled to mature on May 29, 2019. Effective May 29, 2014, this facility replaced the previous $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) which was scheduled to mature on June 30, 2014. The Company must comply with certain customary covenants, including maximum leverage ratio as defined in the 2014 Motorola Solutions Credit Agreement. The Company is no longer subject to a minimum interest coverage covenant under the new facility. The Company was in compliance with its financial covenants as of June 28, 2014. The Company did not borrow under the 2011 Motorola Solutions Credit Agreement or the 2014 Motorola Solutions Credit Agreement during the three and six months ended June 28, 2014.
As of June 28, 2014, the Company had a letter of credit sub-limit of $450 million under the 2014 Motorola Solutions Credit Agreement. No letters of credit were issued under the revolving credit facility as of June 28, 2014.
During the first quarter of 2013, the Company issued an aggregate face principal amount of $600 million of 3.500% Senior Notes due 2023, of which, after debt issuance costs and debt discounts, the Company recognized net proceeds from issuance of this debt of $588 million.

5.
Risk Management
Foreign Currency Risk
At June 28, 2014, the Company had outstanding foreign exchange contracts with notional amounts totaling $867 million, compared to $837 million outstanding at December 31, 2013. The Company does not believe these financial instruments should subject it to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of June 28, 2014, and the corresponding positions as of December 31, 2013: 
 
Notional Amount
Net Buy (Sell) by Currency
June 28,
2014
 
December 31,
2013
British Pound
$
243

 
$
257

Chinese Renminbi
(184
)
 
(181
)
Euro
146

 
(132
)
Norwegian Krone
(120
)
 
(95
)
Brazilian Real
(54
)
 
(44
)
Interest Rate Risk
At June 28, 2014, the Company had $2.5 billion of long-term debt, including the current portion, which is primarily priced at long-term, fixed interest rates.
As part of its liability management program, one of the Company’s European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company’s condensed consolidated statements of operations. The fair value of the Interest Agreements was in a liability position of $3 million at June 28, 2014 and December 31, 2013.
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of June 28, 2014, all of the counterparties have investment grade credit ratings. As of June 28, 2014, the Company had no exposure to aggregate net credit risk with all counterparties.

13


The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company at June 28, 2014 and December 31, 2013:
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
June 28, 2014
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$
1

 
Other assets
 
$
3

 
Other liabilities
Interest agreements

 
Other assets
 
3

 
Other liabilities
Total derivatives
$
1

 
 
 
$
6

 
 
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
December 31, 2013
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
Other assets
 
$
1

 
Other liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
4

 
Other assets
 
1

 
Other liabilities
Interest agreements

 
Other assets
 
3

 
Other liabilities
Total derivatives not designated as hedging instruments
4

 
 
 
4

 
 
Total derivatives
$
4

 
 
 
$
5

 
 
The following table summarizes the effect of derivative instruments in the Company's condensed consolidated statements of operations for the three and six months ended June 28, 2014 and June 29, 2013:
 
Three Months Ended
 
Six Months Ended
 
Statements of
Operations Location
Gain (loss) on Derivative Instruments
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate contracts
$

 
$
1

 
$

 
$
1

 
Other income (expense)
Foreign exchange contracts
(1
)
 
8

 
(2
)
 
(9
)
 
Other income (expense)
Total derivatives not designated as hedging instruments
$
(1
)
 
$
9

 
$
(2
)
 
$
(8
)
 
 
The following table summarizes the gains and losses reclassified from Accumulated other comprehensive loss into Net earnings during the three and six months ended June 28, 2014 and June 29, 2013: 
 
Three Months Ended
 
Six Months Ended
 
Financial Statement
Location
Foreign Exchange Contracts
June 28,
2014
 
June 29,
2013
 
June 28, 2014
 
June 29, 2013
 
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
Gains (losses) reclassified from Accumulated other comprehensive loss into Net earnings
$
(1
)
 
$

 
$
(1
)
 
$
1

 
Costs of sales


14


6.
Income Taxes
During the three months ended June 28, 2014, the Company increased current deferred tax assets by $721 million related to an outside basis difference.  The outside basis difference represents the excess of the tax basis of our investment in the Enterprise subsidiaries over the financial statement carrying value (the deductible outside basis difference). 
At June 28, 2014 and December 31, 2013, the Company had valuation allowances of $212 million and $200 million, respectively, including $179 million and $178 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. The Company believes 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.
Undistributed earnings the Company intends to reinvest indefinitely, and for which no income taxes have been provided, aggregate to $1.4 billion at June 28, 2014 and December 31, 2013. 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.
The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period and, except for certain earnings the Company intends to reinvest indefinitely, accrues for the U.S. federal and foreign tax applicable to the earnings. During the first quarter of 2013, the Company reassessed its unremitted earnings position and concluded that certain of its non-U.S. subsidiaries' earnings were permanently reinvested overseas. The Company intends to utilize the offshore earnings to fund foreign investments, such as potential acquisitions and capital expenditures. In the first quarter of 2013, the Company recorded a net tax benefit of $25 million related to reversals of deferred tax liabilities for undistributed foreign earnings due to the change in permanent reinvestment assertion.
As of June 28, 2014, the Company has approximately $650 million of foreign earnings not considered permanently reinvested and which may be repatriated without an additional tax charge, given the U.S. federal and foreign tax accrued on undistributed earnings and the utilization of available foreign tax credits.
The Company had unrecognized tax benefits of $120 million and $147 million at June 28, 2014 and December 31, 2013, respectively, of which $99 million and $125 million, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances. During the six months ended June 28, 2014, the Company adjusted its unrecognized tax benefits for prior year tax positions for facts that now indicate the extent to which certain tax positions are more-likely-than-not of being sustained. As a result, the Company recorded a gross increase of $24 million and a gross decrease of $51 million to unrecognized tax benefits for prior year tax positions resulting in a net tax benefit of $27 million.
Based on the potential outcome of the Company’s global tax examinations or the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next 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.
The Company has audits pending in several tax jurisdictions. Although the final resolution of the Company's global tax disputes is uncertain, based on current information, in the opinion of the Company's management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company's global tax disputes could have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations in the periods in which the matters are ultimately resolved.


15


7.
Retirement and Other Employee Benefits
Pension and Postretirement Health Care Benefits Plans
The net periodic costs (benefits) for Pension and Postretirement Health Care Benefits plans were as follows:
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
Three Months Ended
June 28, 2014
 
June 29, 2013
 
June 28, 2014
 
June 29, 2013
 
June 28, 2014
 
June 29, 2013
Service cost
$

 
$

 
$
4

 
$
3

 
$
1

 
$

Interest cost
93

 
88

 
20

 
16

 
3

 
3

Expected return on plan assets
(98
)
 
(90
)
 
(23
)
 
(18
)
 
(2
)
 
(3
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized net loss
21

 
33

 
3

 
3

 
3

 
3

Unrecognized prior service cost (benefit)

 

 
2

 
(2
)
 
(11
)
 
(11
)
Net periodic pension cost (benefit)
$
16

 
$
31

 
$
6

 
$
2

 
$
(6
)
 
$
(8
)
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
Six Months Ended
June 28, 2014
 
June 29, 2013
 
June 28, 2014
 
June 29, 2013
 
June 28, 2014
 
June 29, 2013
Service cost
$

 
$

 
$
7

 
$
6

 
$
1

 
$
1

Interest cost
185

 
176

 
40

 
33

 
6

 
6

Expected return on plan assets
(196
)
 
(182
)
 
(45
)
 
(37
)
 
(5
)
 
(5
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized net loss
44

 
66

 
6

 
6

 
6

 
7

Unrecognized prior service cost (benefit)

 

 
3

 
(4
)
 
(21
)
 
(22
)
Net periodic pension cost (benefit)
$
33

 
$
60

 
$
11

 
$
4

 
$
(13
)
 
$
(13
)

During the three months ended June 28, 2014 and June 29, 2013, contributions of $40 million and $26 million were made to the Company’s U.S. Pension Benefit Plans, respectively. During both the three months ended June 28, 2014 and June 29, 2013, contributions of $3 million were made to the Company’s Non U.S. Pension Benefit Plans.
During the six months ended June 28, 2014 and June 29, 2013, contributions of $66 million and $50 million were made to the Company’s U.S. Pension Benefit Plans, respectively. During the six months ended June 28, 2014 and June 29, 2013, contributions of $20 million and $17 million were made to the Company’s Non U.S. Pension Benefit Plans, respectively.
The Company made no contributions to its Postretirement Health Care Benefits Plan during the three and six months ended June 28, 2014 and June 29, 2013.


16


8.
Share-Based Compensation Plans
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plan, restricted stock and restricted stock units (“RSUs”) was as follows: 
 
Three Months Ended
 
Six Months Ended
  
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Share-based compensation expense included in:
 
 
 
 
 
 
 
Costs of sales
$
3

 
$
4

 
$
7

 
$
8

Selling, general and administrative expenses
16

 
16

 
33

 
38

Research and development expenditures
7

 
7

 
14

 
16

Share-based compensation expense included in Operating earnings
26

 
27

 
54

 
62

Tax benefit
8

 
8

 
17

 
19

Share-based compensation expense, net of tax
$
18

 
$
19

 
$
37

 
$
43

Decrease in basic earnings per share
$
(0.07
)
 
$
(0.07
)
 
$
(0.15
)
 
$
(0.16
)
Decrease in diluted earnings per share
$
(0.07
)
 
$
(0.07
)
 
$
(0.14
)
 
$
(0.15
)
Share-based compensation expense in discontinued operations
$
5

 
$
7

 
$
13

 
$
17

For the six months ended June 28, 2014, the Company granted 1.2 million RSUs and 1.2 million stock options. The total aggregate compensation expense, net of estimated forfeitures, for these RSUs and stock options, including those awards granted to employees of the Enterprise business, was $63 million and $15 million, respectively, which will be recognized over a weighted average vesting period of three years.

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 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.

17


The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of June 28, 2014 and December 31, 2013 were as follows: 
June 28, 2014
Level 2
Assets:
 
Foreign exchange derivative contracts
$
1

Available-for-sale securities:
 
Government, agency, and government-sponsored enterprise obligations
15

Corporate bonds
8

Mutual funds
11

Liabilities:
 
Foreign exchange derivative contracts
$
3

Interest agreement derivative contracts
3

December 31, 2013
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Foreign exchange derivative contracts
$

 
$
4

 
$
4

Available-for-sale securities:
 
 
 
 
 
Government, agency, and government-sponsored enterprise obligations

 
15

 
15

Corporate bonds

 
7

 
7

Mutual funds

 
11

 
11

Common stock and equivalents
2

 

 
2

Liabilities:
 
 
 
 
 
Foreign exchange derivative contracts
$

 
$
2

 
$
2

Interest agreement derivative contracts

 
3

 
3

The Company had no Level 3 holdings as of June 28, 2014 or December 31, 2013.
At June 28, 2014 and December 31, 2013, the Company had $1.8 billion and $2.1 billion, respectively, of investments in money market mutual funds (Level 2) classified as Cash and cash equivalents in its condensed consolidated balance sheets. The money market funds had quoted market prices that are equivalent to par.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at June 28, 2014 was $2.6 billion (Level 2), as compared to the instruments' face value of $2.5 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 from the instruments’ fair values.

10.
Long-term Customer Financing and Sales of Receivables
Long-term Customer Financing
Long-term customer financing receivables consist of trade receivables with payment terms greater than twelve months, long-term loans and lease receivables under sales-type leases. Long-term customer financing receivables consist of the following: 
 
June 28,
2014
 
December 31,
2013
Long-term receivables
$
37

 
$
27

Less current portion
(19
)
 
(26
)
Non-current long-term receivables, net
$
18

 
$
1


18


The current portion of long-term receivables is included in Accounts receivable, net and the non-current portion of long-term receivables is included in Other assets in the Company’s condensed consolidated balance sheets.
Certain purchasers of the Company’s products and services may request that the Company provide long-term financing (defined as financing with a term of greater than one year) in connection with the sale of products and services. These requests may include all or a portion of the purchase price of the products and services. The Company’s obligation to provide long-term financing may be conditioned on the issuance of a letter of credit in favor of the Company by a reputable bank to support the purchaser’s credit or a pre-existing commitment from a reputable bank to purchase the long-term receivables from the Company. The Company had outstanding commitments to provide long-term financing to third parties totaling $166 million at June 28, 2014, compared to $50 million at December 31, 2013.
Sales of Receivables
The following table summarizes the proceeds received from sales of accounts receivable and long-term receivables for the three and six months ended June 28, 2014 and June 29, 2013: 
 
Three Months Ended
 
Six Months Ended
  
June 28,
2014
 
June 29,
2013
 
June 28,
2014
 
June 29,
2013
Cumulative annual proceeds received from sales:
 
 
 
 
 
 
 
Accounts receivable sales proceeds
$
26

 
$
2

 
$
33

 
$
3

Long-term receivables sales proceeds
52

 
25

 
52

 
52

Total proceeds from receivable sales
$
78

 
$
27

 
$
85

 
$
55

At June 28, 2014, the Company had retained servicing obligations for $460 million of long-term receivables, compared to $434 million of long-term receivables at December 31, 2013. Servicing obligations are limited to collection activities related to the 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 June 28, 2014 and December 31, 2013 is as follows: 
June 28, 2014
Total
Long-term
Receivable
 
Current Billed
Due
 
Past Due Under 90 Days
 
Past Due Over 90 Days
Municipal leases secured tax exempt
$
1

 
$

 
$

 
$

Commercial loans and leases secured
36

 
1

 
2

 
12

Total gross long-term receivables, including current portion
$
37

 
$
1

 
$
2

 
$
12

December 31, 2013
Total
Long-term
Receivable
 
Current Billed
Due
 
Past Due Under 90 Days
 
Past Due Over 90 Days
Municipal leases secured tax exempt
$
1