XBUE:MSI Motorola Solutions Inc DR Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 30, 2012
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 30, 2012:
 
Class
 
Number of Shares
Common Stock; $.01 Par Value
 
286,306,457



 
Page    
Item 1 Financial Statements
 
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 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Net sales from products
$
1,563

 
$
1,453

 
$
3,007

 
$
2,827

Net sales from services
585

 
531

 
1,097

 
991

Net sales
2,148

 
1,984

 
4,104

 
3,818

Costs of product sales
712

 
645

 
1,370

 
1,269

Costs of services sales
376

 
332

 
701

 
618

Costs of sales
1,088

 
977

 
2,071

 
1,887

Gross margin
1,060

 
1,007

 
2,033

 
1,931

Selling, general and administrative expenses
496

 
482

 
968

 
943

Research and development expenditures
269

 
260

 
523

 
499

Other charges
17

 
106

 
32

 
161

Operating earnings
278

 
159

 
510

 
328

Other income (expense):
 
 
 
 

 

Interest expense, net
(16
)
 
(21
)
 
(30
)
 
(41
)
Gain on sales of investments and businesses, net
3

 
1

 
20

 
19

Other
(25
)
 
(78
)
 
(16
)
 
(73
)
Total other expense
(38
)
 
(98
)
 
(26
)
 
(95
)
Earnings from continuing operations before income taxes
240

 
61

 
484

 
233

Income tax expense (benefit)
63

 
13

 
148

 
(176
)
Earnings from continuing operations
177

 
48

 
336

 
409

Earnings from discontinued operations, net of tax
5

 
299

 
3

 
429

Net earnings
182

 
347

 
339

 
838

Less: Loss attributable to noncontrolling interests

 
(2
)
 

 
(8
)
Net earnings attributable to Motorola Solutions, Inc.
182

 
349

 
339

 
846

Amounts attributable to Motorola Solutions, Inc. common stockholders:
 
 
 
 
 
 
 
Earnings from continuing operations, net of tax
$
177

 
$
50

 
$
336

 
$
417

Earnings from discontinued operations, net of tax
5

 
299

 
3

 
429

Net earnings
$
182

 
$
349

 
$
339

 
$
846

Earnings per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
0.61

 
$
0.15

 
$
1.11

 
$
1.23

Discontinued operations
0.02

 
0.87

 
0.01

 
1.26

 
$
0.63

 
$
1.02

 
$
1.12

 
$
2.49

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.60

 
$
0.14

 
$
1.09

 
$
1.20

Discontinued operations
0.01

 
0.86

 
0.01

 
1.24

 
$
0.61

 
$
1.00

 
$
1.10

 
$
2.44

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
290.6

 
341.2

 
302.1

 
339.3

Diluted
296.1

 
348.5

 
308.1

 
346.3

Dividends paid per share
$
0.22

 

 
$
0.44

 

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 30,
2012
 
July 2,
2011
Net earnings
$
182

 
$
347

Other comprehensive income (loss):
 
 
 
Amortization of retirement benefit adjustments, net of tax of $25 and $18
46

 
33

Remeasurement of retirement benefits, net of tax of $0 and $9

 
(77
)
Foreign currency translation adjustment, net of tax of $(6) and $(2)
(18
)
 
33

Net gain (loss) on derivative hedging instruments, net of tax of $0 and $(2)
(2
)
 
2

Net unrealized gain on securities, net of tax of $6 and $6
8

 
9

Total other comprehensive income
34

 

Comprehensive income
216

 
347

Less: Loss attributable to noncontrolling interest

 
(2
)
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
$
216

 
$
349

 
 Six Months Ended
(In millions)
June 30,
2012
 
July 2,
2011
Net earnings
$
339

 
$
838

Other comprehensive income (loss):
 
 
 
Amortization of retirement benefit adjustments, net of tax of $51 and $36
95

 
65

Remeasurement of retirement benefits, net of tax of $0 and $9

 
(77
)
Foreign currency translation adjustment, net of tax of $(10) and $(5)
(22
)
 
83

Net gain on derivative hedging instruments, net of tax of $0 and $0
2

 
2

Net unrealized gain on securities, net of tax of $6 and $6
8

 
9

Total other comprehensive income
83

 
82

Comprehensive income
422

 
920

Less: Loss attributable to noncontrolling interest

 
(8
)
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
$
422

 
$
928

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 amounts)
June 30,
2012
 
December 31,
2011
ASSETS
Cash and cash equivalents
$
1,772

 
$
1,881

Sigma Fund and short-term investments
1,933

 
3,210

Accounts receivable, net
1,590

 
1,866

Inventories, net
488

 
512

Deferred income taxes
679

 
613

Other current assets
761

 
686

Total current assets
7,223

 
8,768

Property, plant and equipment, net
857

 
896

Investments
200

 
166

Deferred income taxes
2,190

 
2,375

Goodwill
1,430

 
1,428

Other assets
293

 
296

Total assets
$
12,193

 
$
13,929

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

 
$
405

Accounts payable
637

 
677

Accrued liabilities
2,349

 
2,733

Total current liabilities
2,990

 
3,815

Long-term debt
1,861

 
1,130

Other liabilities
3,469

 
3,710

Stockholders’ Equity
 
 
 
Preferred stock, $100 par value

 

Common stock, $.01 par value:
3

 
3

Authorized shares: 600.0
 
 
 
Issued shares: 6/30/12—288.0; 12/31/11—320.0
 
 
 
Outstanding shares: 6/30/12—286.3; 12/31/11—318.8
 
 
 
Additional paid-in capital
5,410

 
7,071

Retained earnings
1,228

 
1,016

Accumulated other comprehensive loss
(2,793
)
 
(2,876
)
Total Motorola Solutions, Inc. stockholders’ equity
3,848

 
5,214

Noncontrolling interests
25

 
60

Total stockholders’ equity
3,873

 
5,274

Total liabilities and stockholders’ equity
$
12,193

 
$
13,929

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), Net of Tax
 
Retained
Earnings
 
Noncontrolling
Interests
Balance at December 31, 2011
320.0

 
$
7,074

 
$
(2,876
)
 
$
1,016

 
$
60

Net earnings
 
 
 
 
 
 
339

 

Net unrealized gain on securities, net of tax of $6
 
 
 
 
8

 
 
 
 
Foreign currency translation adjustments, net of tax of $(10)
 
 
 
 
(22
)
 
 
 
 
Amortization of retirement benefit adjustments, net of tax of $51
 
 
 
 
95

 
 
 
 
Issuance of common stock and stock options exercised
5.1

 
11

 
 
 
 
 
 
Share repurchase program
(37.1
)
 
(1,804
)
 
 
 
 
 
 
Excess tax benefit from share-based compensation
 
 
17

 
 
 
 
 
 
Share-based compensation expense
 
 
95

 
 
 
 
 
 
Net gain on derivative hedging instruments, net of tax of $0
 
 
 
 
2

 
 
 
 
Acquisition of noncontrolling interest from Japanese subsidiary
 
 
20

 
 
 
 
 
(35
)
Dividends declared ($0.22 per share)
 
 
 
 
 
 
(127
)
 
 
Balance at June 30, 2012
288.0

 
$
5,413

 
$
(2,793
)
 
$
1,228

 
$
25

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 30,
2012
 
July 2,
2011
Operating
 
 
 
Net earnings attributable to Motorola Solutions, Inc.
$
339

 
$
846

Loss attributable to noncontrolling interests

 
(8
)
Net earnings
339

 
838

Earnings from discontinued operations, net of tax
3

 
429

Earnings from continuing operations
336

 
409

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
 
 
 
Depreciation and amortization
106

 
181

Non-cash other expense (income)
(1
)
 
45

Share-based compensation expense
95

 
78

Gain on sales of investments and businesses, net
(20
)
 
(19
)
Loss from the extinguishment of long-term debt
6

 
81

Deferred income taxes
93

 
(10
)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
Accounts receivable
262

 
88

Inventories
(8
)
 
(12
)
Other current assets
(77
)
 
9

Accounts payable and accrued liabilities
(383
)
 
(338
)
Other assets and liabilities
(87
)
 
(185
)
Net cash provided by operating activities from continuing operations
322

 
327

Investing
 
 
 
Acquisitions and investments, net
68

 
(2
)
Proceeds from (used for) sales of investments and businesses, net
(67
)
 
1,078

Capital expenditures
(101
)
 
(60
)
Proceeds from sales of property, plant and equipment
9

 
4

Proceeds from sales of Sigma Fund investments, net
1,277

 
266

Proceeds from sales of short-term investments, net

 
6

Net cash provided by investing activities from continuing operations
1,186

 
1,292

Financing
 
 
 
Repayment of debt
(411
)
 
(616
)
Net proceeds from issuance of debt
747

 

Contributions to Motorola Mobility
(73
)
 
(3,200
)
Issuance of common stock
63

 
128

Purchase of common stock
(1,804
)
 

Excess tax benefits from share-based compensation
17

 

Payments of dividends
(134
)
 

Distribution from (to) discontinued operations
(11
)
 
81

Net cash used for financing activities from continuing operations
(1,606
)
 
(3,607
)
Discontinued Operations
 
 
 
Net cash provided by operating activities from discontinued operations
2

 
44

Net cash used for investing activities from discontinued operations

 
(8
)
Net cash provided by (used for) financing activities from discontinued operations
11

 
(81
)
Effect of exchange rate changes on cash and cash equivalents from discontinued operations
(13
)
 
45

Net cash provided by (used for) discontinued operations

 

Effect of exchange rate changes on cash and cash equivalents from continuing operations
(11
)
 
(17
)
Net decrease in cash and cash equivalents
(109
)
 
(2,005
)
Cash and cash equivalents, beginning of period
1,881

 
4,208

Cash and cash equivalents, end of period
$
1,772

 
$
2,203

Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Interest, net
$
54

 
$
105

Income and withholding taxes, net of refunds

91

 
39

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 30, 2012 and for the three and six months ended June 30, 2012 and July 2, 2011, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, and statements of cash flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2011. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-12, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements, as required by ASU 2011-05. The Company adopted all other requirements of ASU 2011-05 effective January 1, 2012.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11 “Disclosures about Offsetting
Assets and Liabilities.” The standard requires additional disclosure to enhance the comparability of U.S. GAAP and International Financial Reporting Standards ("IFRS") financial statements. The new standard is effective for annual and interim periods beginning January 1, 2013. Retrospective application is required. The guidance concerns disclosure only and will not have an impact on the Company's consolidated financial position or results of operations.

2.
Discontinued Operations
On January 1, 2012, the Company completed a series of transactions which resulted in exiting the amateur, marine and airband radio businesses.  The operating results of the amateur, marine and airband radio businesses, formerly included as part of the Government segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
On October 28, 2011, the Company completed the previously announced sale of its Wireless Broadband businesses to Vector Capital. The operating results of the Wireless Broadband businesses, formerly included as part of the Enterprise segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
On April 29, 2011 the Company completed the sale of certain assets and liabilities of its Networks business to Nokia Siemens Networks ("NSN"). The results of operations of the portions of the Networks business are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.








6


The following table displays summarized activity in the Company's condensed consolidated statement of operations for discontinued operations during the three and six months ended June 30, 2012 and July 2, 2011.
 
Three Months Ended
 
 Six Months Ended
  
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Net sales
$

 
$
330

 
$

 
$
1,228

Operating earnings (loss)
10

 
(1
)
 
11

 
203

Gains (losses) on sales of investments and businesses, net

 
488

 
(7
)
 
488

Earnings before income taxes
10

 
480

 
8

 
679

Income tax expense
5

 
181

 
5

 
250

Earnings from discontinued operations, net of tax
$
5

 
$
299

 
$
3

 
$
429


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 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Other charges (income):
 
 
 
 
 
 
 
Amortization of intangible assets
$
6

 
$
50

 
$
12

 
$
100

Legal matters and intellectual property reserve adjustments, net

 
48

 

 
48

Pension plan adjustments

 
(9
)
 

 
(9
)
Reorganization of business charges
11

 
17

 
20

 
22

 
$
17

 
$
106

 
$
32

 
$
161

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 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Interest income (expense), net:
 
 
 
 
 
 
 
Interest expense
$
(25
)
 
$
(40
)
 
$
(50
)
 
$
(74
)
Interest income
9

 
19

 
20

 
33

 
$
(16
)
 
$
(21
)
 
$
(30
)
 
$
(41
)
Other:
 
 
 
 
 
 
 
Loss from the extinguishment of long-term debt
$
(6
)
 
$
(81
)
 
$
(6
)
 
$
(81
)
Investment impairments

 

 
(2
)
 
(3
)
Foreign currency gain (loss)
(21
)
 
6

 
(11
)
 
11

Other
2

 
(3
)
 
3

 

 
$
(25
)
 
$
(78
)
 
$
(16
)
 
$
(73
)

7


Earnings Per Common Share
The computation of basic and diluted earnings per common share attributable to Motorola Solutions, Inc. common stockholders is as follows: 
 
Amounts attributable to Motorola Solutions, Inc.
common stockholders
 
Earnings from continuing operations
 
Net Earnings
Three Months Ended
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Basic earnings per common share:
 
 
 
 
 
 
 
Earnings
$
177

 
$
50

 
$
182

 
$
349

Weighted average common shares outstanding
290.6

 
341.2

 
290.6

 
341.2

Per share amount
$
0.61

 
$
0.15

 
$
0.63

 
$
1.02

Diluted earnings per common share:
 
 
 
 
 
 
 
Earnings
$
177

 
$
50

 
$
182

 
$
349

Weighted average common shares outstanding
290.6

 
341.2

 
290.6

 
341.2

Add effect of dilutive securities:
 
 
 
 
 
 
 
Share-based awards and other
5.5

 
7.3

 
5.5

 
7.3

Diluted weighted average common shares outstanding
296.1

 
348.5

 
296.1

 
348.5

Per share amount
$
0.60

 
$
0.14

 
$
0.61

 
$
1.00

 
Amounts attributable to Motorola Solutions, Inc.
common stockholders
 
Earnings from
Continuing  Operations
 
Net Earnings
 Six Months Ended
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Basic earnings per common share:
 
 
 
 
 
 
 
Earnings
$
336

 
$
417

 
$
339

 
$
846

Weighted average common shares outstanding
302.1

 
339.3

 
302.1

 
339.3

Per share amount
$
1.11

 
$
1.23

 
$
1.12

 
$
2.49

Diluted earnings per common share:
 
 
 
 
 
 
 
Earnings
$
336

 
$
417

 
$
339

 
$
846

Weighted average common shares outstanding
302.1

 
339.3

 
302.1

 
339.3

Add effect of dilutive securities:
 
 
 
 
 
 
 
Share-based awards and other
6.0

 
7.0

 
6.0

 
7.0

Diluted weighted average common shares outstanding
308.1

 
346.3

 
308.1

 
346.3

Per share amount
$
1.09

 
$
1.20

 
$
1.10

 
$
2.44

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 30, 2012, the assumed exercise of 6.2 million and 6.0 million stock options, respectively, were excluded because their inclusion would have been antidilutive. In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the three and six months ended July 2, 2011, the assumed exercise of 8.0 million and 8.8 million stock options, respectively, and the assumed vesting of 0.3 million and 0.2 million restricted stock units, respectively, were excluded because their inclusion would have been antidilutive.





8


Balance Sheet Information
Cash and Cash Equivalents
The Company’s cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) were $1.8 billion and $1.9 billion at June 30, 2012 and December 31, 2011, respectively. Of these amounts, $62 million at June 30, 2012 and $63 million at December 31, 2011, was restricted.

Sigma Fund
The Sigma Fund consists of the following: 
 
June 30,
2012
 
December 31,
2011
Cash
$
15

 
$
264

Securities:
 
 
 
U.S. government, agency, and government-sponsored enterprise obligations
1,916

 
2,944

 
$
1,931

 
$
3,208

Investments
Investments consist of the following:
 
Recorded Value
 
Less
 
 
June 30, 2012
  Short-term  
Investments
 
Investments  
 
  Unrealized  
Gains
 
  Unrealized  
Loss
 
  Cost  
Basis
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
U.S. government, agency and government-sponsored enterprise obligations
$

 
$
16

 
$

 
$

 
$
16

Corporate bonds
2

 
10

 

 

 
12

Mortgage-backed securities

 
2

 

 

 
2

Common stock and equivalents

 
48

 
16

 
(2
)
 
34

 
2

 
76

 
16

 
(2
)
 
64

Other securities, at cost

 
102

 

 

 
102

Equity method investments

 
22

 

 

 
22

 
$
2

 
$
200

 
$
16

 
$
(2
)
 
$
188

 
Recorded Value
 
Less
 
 
December 31, 2011
  Short-term  
Investments
 
Investments  
 
  Unrealized  
Gains
 
  Unrealized  
Loss
 
  Cost  
Basis
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
U.S. government, agency and government-sponsored enterprise obligations
$

 
$
16

 
$

 
$

 
$
16

Corporate bonds
2

 
10

 

 

 
12

Mortgage-backed securities

 
2

 

 

 
2

Common stock and equivalents

 
11

 
2

 
(1
)
 
10

 
2

 
39

 
2

 
(1
)
 
40

Other securities, at cost

 
106

 

 

 
106

Equity method investments

 
21

 

 

 
21

 
$
2

 
$
166

 
$
2

 
$
(1
)
 
$
167






9


Accounts Receivable, Net
Accounts receivable, net, consists of the following: 
 
June 30,
2012
 
December 31,
2011
Accounts receivable
$
1,639

 
$
1,911

Less allowance for doubtful accounts
(49
)
 
(45
)
 
$
1,590

 
$
1,866

Inventories, Net
Inventories, net, consist of the following: 
 
June 30,
2012
 
December 31,
2011
Finished goods
$
315

 
$
319

Work-in-process and production materials
346

 
363

 
661

 
682

Less inventory reserves
(173
)
 
(170
)
 
$
488

 
$
512

Other Current Assets
Other current assets consist of the following: 
 
June 30,
2012
 
December 31,
2011
Costs and earnings in excess of billings
$
346

 
$
302

Contract-related deferred costs
142

 
142

Tax-related refunds receivable
82

 
85

Other
191

 
157

 
$
761

 
$
686

Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following: 
 
June 30,
2012
 
December 31,
2011
Land
$
55

 
$
69

Building
754

 
774

Machinery and equipment
2,140

 
2,052

 
2,949

 
2,895

Less accumulated depreciation
(2,092
)
 
(1,999
)
 
$
857

 
$
896

Depreciation expense for the three months ended June 30, 2012 and July 2, 2011 was $48 million and $40 million, respectively. Depreciation expense for the six months ended June 30, 2012 and July 2, 2011 was $94 million and $81 million, respectively.






10


Other Assets
Other assets consist of the following: 
 
June 30,
2012
 
December 31,
2011
Intangible assets
$
36

 
$
48

Long-term receivables
50

 
37

Other
207

 
211

 
$
293

 
$
296

Accrued Liabilities
Accrued liabilities consist of the following: 
 
June 30,
2012
 
December 31,
2011
Deferred revenue
$
788

 
$
774

Billings in excess of costs and earnings
395

 
250

Compensation
290

 
471

Tax liabilities
93

 
126

Customer reserves
105

 
125

Dividend payable
63

 
70

Networks purchase price adjustment

 
96

Other
615

 
821

 
$
2,349

 
$
2,733

Other Liabilities
Other liabilities consist of the following: 
 
June 30,
2012
 
December 31,
2011
Defined benefit plans, including split dollar life insurance policies
$
2,487

 
$
2,675

Postretirement health care benefit plan
301

 
295

Deferred revenue
260

 
275

Unrecognized tax benefits
91

 
112

Other
330

 
353

 
$
3,469

 
$
3,710

Stockholders’ Equity
Share Repurchase Program: On July 28, 2011, the Company announced that its Board of Directors approved a share repurchase program that allows the Company to purchase up to $2.0 billion of its outstanding common stock through December 31, 2012. On January 30, 2012, the Company announced that its Board of Directors authorized up to $1.0 billion in additional funds for use under the existing share repurchase program through the end of 2012. On February 26, 2012, the Company entered into a stock purchase agreement with Carl C. Icahn and certain of his affiliates to purchase 23,739,362 shares of its common stock. The Company paid an aggregate of $439 million during the second quarter of 2012, including transactions costs, to repurchase 9.1 million shares at an average price of $48.30 per share. During the first half of 2012, the Company paid an aggregate of $1.8 billion, including transaction costs, to repurchase 37.1 million shares at an average price of $48.69 per share. All repurchased shares have been retired.
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.  As of June 30, 2012, the Company has used approximately $2.9 billion, including transaction costs, to repurchase shares, leaving approximately $2.1 billion available for repurchases.


11


Payment of Dividends: During the three and six months ended June 30, 2012, the Company paid $64 million and $134 million, respectively, in cash dividends to holders of its common stock.
On July 25, 2012, the Company announced that its Board of Directors approved an increase of the quarterly cash dividend from $0.22 per share to $0.26 per share of common stock. The next quarterly cash dividend will be payable on October 15, 2012 to shareholders of record as of the close of business on September 14, 2012.
Noncontrolling Interest:  On January 1, 2012, the Company entered into a series of transactions which resulted in exiting the amateur, marine and airband radio businesses.  One of those transactions was acquiring the remaining 20% of the land mobile radio business previously owned by our Japanese joint venture.  The acquisition of the remaining 20% of this land mobile radio business, in which the Company already had a controlling interest, resulted in a decrease of $35 million to the Company's noncontrolling interest, and an increase of $20 million to the Company's additional paid in capital, which primarily represents the increase in deferred tax assets from the acquisition of the 20% of the land mobile radio business assets. 

4.
Debt and Credit Facilities
In May 2012, the Company issued an aggregate face principle amount of $750 million of 3.750% Senior Notes due May 15, 2022 (the “2022 Senior Notes”).  Also in May 2012, the Company called for the redemption of the $400 million aggregate principal amount outstanding of its 5.375% Senior Notes due November 2012 (the “2012 Senior Notes”).  All of the 2012 Senior Notes were redeemed in June 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 condensed consolidated statements of operations.  This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
As of June 30, 2012, the Company had a $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to mature on June 30, 2014. The 2011 Motorola Solutions Credit Agreement includes a provision pursuant to which the Company can increase the aggregate credit facility size up to a maximum of $2.0 billion by adding lenders or having existing lenders increase their commitments. The Company must comply with certain customary covenants, including maximum leverage and minimum interest coverage ratios as defined in the 2011 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of June 30, 2012. The Company did not borrow under the 2011 Motorola Solutions Credit Agreement during the three and six months ended June 30, 2012.

5.
Risk Management
Derivative Financial Instruments
Foreign Currency Risk
At June 30, 2012, the Company had outstanding foreign exchange contracts with notional amounts totaling $360 million, compared to $524 million outstanding at December 31, 2011. The decrease in outstanding contracts is primarily related to the reduction of foreign assets due to repatriation activities. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of June 30, 2012 and the corresponding positions as of December 31, 2011: 
 
Notional Amount
Net Buy (Sell) by Currency
June 30,
2012
 
December 31,
2011
Chinese Renminbi
$
(144
)
 
$
(283
)
Euro
50

 
8

Israeli Shekel
(41
)
 
8

Japanese Yen
32

 
46

Australian Dollar
(16
)
 
(6
)
Interest Rate Risk
At June 30, 2012, the Company had $1.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.

12


As part of its liability management program, one of the Company’s European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company’s condensed consolidated statements of operations. As of June 30, 2012, the fair value of the Interest Agreements was in a liability position of $4 million, compared to a liability position of $3 million at December 31, 2011.

Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of June 30, 2012, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of June 30, 2012, the Company was exposed to an aggregate net credit risk of approximately $1 million with all counterparties.
The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company, including amounts held for disposition, at June 30, 2012 and December 31, 2011:
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
June 30, 2012
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
1

 
Other assets
 
2

 
Other liabilities
Interest agreement contracts

 
Other assets
 
4

 
Other liabilities
Total derivatives not designated as hedging instruments
1

 
 
 
6

 
 
Total derivatives
$
1

 
 
 
$
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 tables summarize the effect of derivative instruments in our condensed consolidated statements of operations, including amounts related to discontinued operations, for the three and six months ended June 30, 2012 and July 2, 2011: 

13


 
Three Months Ended
 
Statement of
Operations Location
Gain (loss) on Derivative Instruments
June 30,
2012
 
July 2,
2011
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
$
(4
)
 
$
(3
)
 
Other income (expense)
Foreign exchange contracts
1

 
(8
)
 
Other income (expense)
Total derivatives not designated as hedging instruments
$
(3
)
 
$
(11
)
 
 
 
 Six Months Ended
 
Statement of
Operations Location
Gain (loss) on Derivative Instruments
June 30,
2012
 
July 2,
2011
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
$
(8
)
 
$
(5
)
 
Other income (expense)
Foreign exchange contracts
(3
)
 
(15
)
 
Other income (expense)
Total derivatives not designated as hedging instruments
$
(11
)
 
$
(20
)
 
 
The following tables summarize the gains and losses recognized in the condensed consolidated financial statements, including amounts related to discontinued operations, for the three and six months ended June 30, 2012 and July 2, 2011: 
 
Three Months Ended
 
Financial Statement
Location
Foreign Exchange Contracts
June 30,
2012
 
July 2,
2011
 
Derivatives in cash flow hedging relationships:
 
 
 
 
 
Loss recognized in Accumulated other comprehensive loss
$
(2
)
 
$

 
Accumulated other
comprehensive loss
Gain reclassified from Accumulated other comprehensive loss into Net earnings

 
2

 
Cost of sales
 
 Six Months Ended
 
Financial Statement
Location
Foreign Exchange Contracts
June 30,
2012
 
July 2,
2011
 
Derivatives in cash flow hedging relationships:
 
 
 
 
 
Gain recognized in Accumulated other comprehensive loss
$
1

 
$
3

 
Accumulated other
comprehensive loss
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings
(1
)
 
2

 
Cost of sales

6.
Income Taxes
At June 30, 2012 and December 31, 2011, the Company had valuation allowances of $364 million and $366 million, respectively, including $335 million and $336 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. During the three months ended April 2, 2011, the Company reassessed its valuation allowance requirements taking into consideration the Distribution of Motorola Mobility. The Company evaluated all available evidence in its analysis, including the historical and projected pre-tax profits generated by the Motorola Solutions U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. As a result, in the three months ended April 2, 2011, the Company recorded a $244 million tax benefit related to the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets.
The U.S. valuation allowance as of June 30, 2012 relates primarily to state tax carryforwards. The valuation allowance relating to deferred tax assets of non-U.S. subsidiaries was reduced for tax attributes of a non-controlling interest disposed of during the first quarter, partially offset by an increase for current year activity and exchange rate variances. The Company believes the remaining deferred tax assets are more-likely-than-not to be realized based on estimates of future taxable income and the implementation of tax planning strategies.
The Company had unrecognized tax benefits of $159 million and $191 million at June 30, 2012 and December 31, 2011,

14


respectively, of which $117 million and $150 million, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances. During the six months ended June 30, 2012, the Company reduced its unrecognized tax benefits primarily for settlements with tax authorities in the amount of $31 million, of which $13 million was recognized as a tax benefit and the remainder reduced tax carryforwards and prepaid tax assets.
Based on the potential outcome of the Company’s global tax examinations or the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the effective tax rate, exclusive of valuation allowance changes, is estimated to be in the range of a $50 million tax charge to a $50 million tax benefit, with cash payments in the range of $0 to $25 million.
During the three months ended June 30, 2012, the Internal Revenue Service (“IRS”) concluded its audit of Motorola Solutions, Inc.'s 2008 and 2009 tax years. The Company has audits pending in several tax jurisdictions. Although the final resolution of the Company's global tax disputes is uncertain, based on current information, in the opinion of the Company's management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company's global tax disputes could have a material adverse effect on the Company's results of operations in the periods in which the matters are ultimately resolved.

7.
Retirement Benefits
Pension Benefit Plans
The net periodic pension costs for the U.S. and Non-U.S. plans were as follows: 
 
June 30, 2012
 
July 2, 2011
Three Months Ended
U.S.
 
Non
U.S.
 
U.S.
 
Non
U.S.
Service cost
$

 
$
3

 
$

 
$
8

Interest cost
87

 
18

 
83

 
31

Expected return on plan assets
(105
)
 
(19
)
 
(96
)
 
(35
)
Amortization of:
 
 
 
 
 
 
 
Unrecognized net loss
62

 
6

 
47

 
5

Unrecognized prior service credit

 
(1
)
 

 
(5
)
Settlement/curtailment loss (gain)

 

 
3

 
(9
)
Net periodic pension expense (benefit)
$
44

 
$
7

 
$
37

 
$
(5
)
 
June 30, 2012
 
July 2, 2011
 Six Months Ended
U.S.
 
Non
U.S.
 
U.S.
 
Non
U.S.
Service cost
$

 
$
6

 
$

 
$
14

Interest cost
175

 
36

 
171

 
49

Expected return on plan assets
(211
)
 
(38
)
 
(194
)
 
(55
)
Amortization of:
 
 
 
 
 
 
 
Unrecognized net loss
130

 
11

 
95

 
8

Unrecognized prior service cost

 
(2
)
 

 
(7
)
Settlement/curtailment loss (gain)

 

 
4

 
(9
)
Net periodic pension cost
$
94

 
$
13

 
$
76

 
$

During the six months ended June 30, 2012, contributions of $132 million were made to the Company’s U.S. plans, and $18 million to the Company’s Non-U.S. plans.



15


Postretirement Health Care Benefit Plans
Net postretirement health care expenses consist of the following: 
 
Three Months Ended
 
 Six Months Ended
  
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Service cost
$
1

 
$
1

 
$
2

 
$
2

Interest cost
5

 
6

 
10

 
12

Expected return on plan assets
(3
)
 
(4
)
 
(6
)
 
(8
)
Amortization of:
 
 
 
 
 
 
 
Unrecognized net loss
3

 
3

 
6

 
6

Net postretirement health care expense
$
6

 
$
6

 
$
12

 
$
12

The Company made no contributions to its postretirement healthcare fund during the six months ended June 30, 2012. 
Defined Contribution Plans
The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the employees' contributions. Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to eligible employees. For the six months ended June 30, 2012, the Company made no additional discretionary matching contribution.

8.
Share-Based Compensation Plans
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plans, restricted stock and restricted stock units (“RSUs”) was as follows: 
 
Three Months Ended
 
 Six Months Ended
  
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Share-based compensation expense included in:
 
 
 
 
 
 
 
Costs of sales
$
7

 
$
5

 
$
13

 
$
8

Selling, general and administrative expenses
31

 
25

 
57

 
54

Research and development expenditures
14

 
9

 
25

 
16

Share-based compensation expense included in Operating earnings
52

 
39

 
95

 
78

Tax benefit
21

 
13

 
34

 
25

Share-based compensation expense, net of tax
$
31

 
$
26

 
$
61

 
$
53

Decrease in basic earnings per share
$
(0.11
)
 
$
(0.08
)
 
$
(0.20
)
 
$
(0.16
)
Decrease in diluted earnings per share
$
(0.10
)
 
$
(0.08
)
 
$
(0.20
)
 
$
(0.15
)
Share-based compensation expense in discontinued operations
$

 
$
5

 
$

 
$
13

For the three months ended June 30, 2012, the Company granted 1.5 million and 1.2 million RSUs and stock options, respectively. The total compensation expense, net of estimated forfeitures, for these RSUs and stock options was $62 million and $11 million, respectively. For the six months ended June 30, 2012, the Company granted 1.5 million RSUs and 1.2 million stock options. The total compensation expense, net of estimated forfeitures, for these RSUs and stock options was $63 million and $11 million, respectively. The expense will be recognized over a weighted average vesting period of 3 years.
Employee Stock Purchase Plans
The employee stock purchase plans allow eligible participants to purchase shares of the Company's common stock through payroll deductions of eligible compensation on an after-tax basis. Effective April 1, 2012, the Company increased the maximum purchase from 10% to 20% of eligible compensation. Plan participants cannot purchase more than $25,000 of stock in any calendar year.

16



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 June 30, 2012 and December 31, 2011 were as follows: 
June 30, 2012
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Sigma Fund securities:
 
 
 
 
 
U.S. government, agency and government-sponsored enterprise obligations
$

 
$
1,916

 
$
1,916

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
40

 
8

 
48

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


17


The Company had no level 3 holdings as of June 30, 2012 and December 31, 2011.
The following table summarizes the changes in fair value of our Level 3 assets: 
 
Three Months Ended
 Six Months Ended
  
July 2,
2011
 
July 2,
2011
Beginning balance
$
21

 
$
15

Transfers to Level 3

 
21

Payments received and securities sold

 
(18
)
Gain on Sigma Fund investments included in Other income (expense)

 
3

Ending balance
$
21

 
$
21

At June 30, 2012, the Company had $504 million of investments in money market mutual funds classified as Cash and cash equivalents in its condensed consolidated balance sheet, compared to $437 million at December 31, 2011. The money market funds have quoted market prices that are equivalent to par.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at June 30, 2012 was $2.0 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: 
 
June 30,
2012
 
December 31,
2011
Long-term receivables
$