Motorola Solutions, Inc 10-Q for FY2021 Q2
Motorola Solutions, Inc. (MSI)
10-Q
2021-08-05
For: 2021-07-03
View Original
Added on
April 03, 2026
About this 10-Q
Motorola Solutions, Inc filed this 10-Q on August 5, 2021, covering the quarter ended July 3, 2021 (FY2021 Q2).
Headline figures
Quarter ended July 3, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.97B
- up 21.8% from $1.62B a year earlier
- Net income
- $293M
- up 117.0% from net income of $135M a year earlier
- Diluted EPS
- $1.69
- up 116.7% from $0.78 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
Form 10-Q
____________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended July 3, 2021
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
___________________________________________
(Exact Name of Registrant as Specified in Its Charter)
____________________________________________
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices, zip code)
(847 ) 576-5000
(Registrant’s telephone number, including area code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||||||||
| $0.01 | Par Value | |||||||||||||||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant's Common Stock, $0.01 par value per share, outstanding as of July 15, 2021 was 169,324,600 .
| TABLE OF CONTENTS | |||||||||||
For the Quarter Ended July 3, 2021 | |||||||||||
PART I. FINANCIAL INFORMATION | Page No. | ||||||||||
| Item 1. | |||||||||||
Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 3, 2021 and June 27, 2020 | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
PART II. OTHER INFORMATION | |||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited)
| (In millions, except per share amounts) | Three Months Ended | Six Months Ended | |||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Net sales from products | $ | $ | $ | $ | |||||||||||||||||||
| Net sales from services | |||||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Costs of products sales | |||||||||||||||||||||||
| Costs of services sales | |||||||||||||||||||||||
| Costs of sales | |||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Research and development expenditures | |||||||||||||||||||||||
| Other charges | |||||||||||||||||||||||
| Operating earnings | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Other, net | |||||||||||||||||||||||
| Total other expense | ( | ( | ( | ( | |||||||||||||||||||
| Net earnings before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Less: Earnings attributable to non-controlling interests | |||||||||||||||||||||||
| Net earnings attributable to Motorola Solutions, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
1
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax (Note 4): | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||
| Defined benefit plans | |||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Less: Earnings attributable to non-controlling interests | |||||||||||||||||||||||
| Comprehensive income attributable to Motorola Solutions, Inc. common shareholders | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
2
Condensed Consolidated Balance Sheets (Unaudited)
| (In millions, except par value) | July 3, 2021 | December 31, 2020 | |||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Contract assets | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Investments | |||||||||||
| Deferred income taxes | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||
| Current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Contract liabilities | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
Authorized shares: | |||||||||||
Issued shares: 7/3/21— | |||||||||||
Outstanding shares: 7/3/21— | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Motorola Solutions, Inc. stockholders’ equity (deficit) | ( | ( | |||||||||
| Non-controlling interests | |||||||||||
| Total stockholders’ equity (deficit) | ( | ( | |||||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
3
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
| (In millions, except per share data) | Shares | Common Stock and Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interests | ||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||
| Issuance of common stock and stock options exercised | |||||||||||||||||||||||||||||
| Share repurchase program | ( | ( | |||||||||||||||||||||||||||
| Share-based compensation expenses | |||||||||||||||||||||||||||||
Dividends declared $ | ( | ||||||||||||||||||||||||||||
| Balance as of April 3, 2021 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||
| Issuance of common stock and stock options exercised | |||||||||||||||||||||||||||||
| Share repurchase program | ( | ( | |||||||||||||||||||||||||||
| Share-based compensation expenses | |||||||||||||||||||||||||||||
Dividends declared $ | ( | ||||||||||||||||||||||||||||
| Dividends paid to non-controlling interest on subsidiary common stock | ( | ||||||||||||||||||||||||||||
| Balance as of July 3, 2021 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| (In millions, except per share data) | Shares | Common Stock and Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interests | ||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ||||||||||||||||||||||||||||
| Issuance of common stock and stock options exercised | |||||||||||||||||||||||||||||
| Share repurchase program | ( | ( | |||||||||||||||||||||||||||
| Share-based compensation expenses | |||||||||||||||||||||||||||||
Dividends declared $ | ( | ||||||||||||||||||||||||||||
| Balance as of March 28, 2020 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||
| Issuance of common stock and stock options exercised | |||||||||||||||||||||||||||||
| Share repurchase program | ( | ( | |||||||||||||||||||||||||||
| Share-based compensation expenses | |||||||||||||||||||||||||||||
Dividends declared $ | ( | ||||||||||||||||||||||||||||
| Dividends paid to non-controlling interest on subsidiary common stock | ( | ||||||||||||||||||||||||||||
| Balance as of June 27, 2020 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
4
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Six Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Operating | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile Net earnings to Net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash other income | ( | ( | |||||||||
| Share-based compensation expenses | |||||||||||
| Loss from the extinguishment of long-term debt | |||||||||||
| Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ||||||||||
| Other current assets and contract assets | |||||||||||
| Accounts payable, accrued liabilities, and contract liabilities | ( | ( | |||||||||
| Other assets and liabilities | ( | ( | |||||||||
| Deferred income taxes | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing | |||||||||||
| Acquisitions and investments, net | ( | ( | |||||||||
| Proceeds from sales of investments and businesses, net | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sales of property, plant and equipment | |||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Financing | |||||||||||
| Net proceeds from issuance of debt | |||||||||||
| Proceeds from revolving credit facility draw | |||||||||||
| Repayments of debt | ( | ( | |||||||||
| Repayment of revolving credit facility draw | ( | ||||||||||
| Revolving credit facility renewal fees | ( | ||||||||||
| Issuances of common stock | |||||||||||
| Purchases of common stock | ( | ( | |||||||||
| Payments of dividends | ( | ( | |||||||||
| Payments of dividends to non-controlling interests | ( | ( | |||||||||
| Net cash provided by (used for) financing activities | ( | ||||||||||
| Effect of exchange rate changes on total cash and cash equivalents | ( | ( | |||||||||
| Net increase in total cash and cash equivalents | |||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental Cash Flow Information | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income and withholding taxes, net of refunds | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
5
| INDEX FOR NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | ||||||||
| Page No. | ||||||||
| Note 1 | ||||||||
| Note 2 | ||||||||
| Note 3 | ||||||||
| Note 4 | ||||||||
| Note 5 | ||||||||
| Note 6 | ||||||||
| Note 7 | ||||||||
| Note 8 | ||||||||
| Note 9 | ||||||||
| Note 10 | ||||||||
| Note 11 | ||||||||
| Note 12 | ||||||||
| Note 13 | ||||||||
| Note 14 | ||||||||
| Note 15 | ||||||||
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except as noted)
1.Basis of Presentation
The condensed consolidated financial statements as of July 3, 2021 and for the three and six months ended July 3, 2021 and June 27, 2020 include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to state fairly the Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholders' Equity (Deficit), and Statements of Cash Flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.
The Company operates on a 52-week fiscal year, with each fiscal year ending on December 31. With respect to each fiscal quarter, the Company operates on a 13-week fiscal quarter, with all fiscal quarters ending on a Saturday.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States 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, 2020 (the "Form 10-K"). The results of operations for the three and six months ended July 3, 2021 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.
Change in Presentation
As further described in the Form 10-K, during the fourth quarter of 2020, the Company updated its revenue disaggregation presentation of major products and services to provide a more comprehensive view of technologies within the Company's reporting segments. Accordingly, the Company now reports net sales in the following three major products and services (which the Company refers to as “technologies” in this Quarterly Report on Form 10-Q (this “Form 10-Q”)): Land Mobile Radio Mission Critical Communications (“LMR” or “LMR Mission Critical Communications”), Video Security and Access Control, and Command Center Software. With the Company's acquisition of Openpath Security Inc. (“Openpath”) subsequent to quarter end on July 15, 2021, the Company renamed one of its three major products and services technologies from Video Security and Analytics to Video Security and Access Control to better align with its strategic growth initiatives. The change is to the name of the technology only and no financial information has been reclassified from previous periods presented or for the quarter ended July 3, 2021.
•LMR Mission Critical Communications: Infrastructure, devices (two-way radio and broadband, including both for public safety and Professional Commercial Radio ("PCR")) and software that enable communications, inclusive of installation and integration, backed by services, to assure availability, security and resiliency.
•Video Security and Access Control: Cameras (fixed, body-worn, in-vehicle), access control, infrastructure, video management, software and artificial intelligence-enabled analytics that enable visibility “on scene” and bring attention to what’s important.
•Command Center Software: Software suite that enables collaboration and seamless information sharing through the public safety workflow from 911 call to case closure.
Recent Acquisitions
Subsequent to quarter end, on July 15, 2021, the Company acquired Openpath, a cloud-based mobile access control provider for $297 million, net of cash acquired. In addition, the Company issued restricted stock at a fair value of $29 million to certain key employees that will be expensed over an average service period of three years . The transaction also includes the potential for the Company to make earn-out payments based on Openpath's achievement of certain financial targets from January 1, 2022 through December 31, 2022. This acquisition expands the Company's ability to combine video security and access control solutions within Video Security and Access Control to help support enterprise customers. Due to the timing of the acquisition, the initial accounting for the acquisition is incomplete.
On August 28, 2020, the Company acquired the Callyo business ("Callyo"), a cloud-based mobile applications provider for law enforcement in North America for $63 million, inclusive of share-based compensation withheld at a fair value of $3 million that will be expensed over an average service period of two years . The acquisition was settled with $61 million in cash, net of cash acquired. This acquisition adds to the Company's existing Command Center Software suite critical mobile technological capabilities that enable information to flow seamlessly from the field to the command center. The business is a part of the Software and Services segment.
On July 31, 2020, the Company acquired Pelco, Inc. ("Pelco"), a global provider of video security solutions for a purchase price of $110 million. The acquisition was settled with $107 million of cash, net of cash acquired. The acquisition demonstrates the Company's continued investment in Video Security and Access Control, adding a broad range of products that can be used in a variety of commercial and industrial environments and use cases. The business is a part of both the Products and Systems Integration segment and the Software and Services segment.
7
On June 16, 2020, the Company acquired IndigoVision Group plc ("IndigoVision") for a purchase price of $37 million. The acquisition was settled with $35 million of cash, net of cash acquired and debt assumed. The acquisition complements the Company's Video Security and Access Control technology, providing enhanced geographical reach across a wider customer base. The business is a part of both the Products and Systems Integration segment and the Software and Services segment.
On April 30, 2020, the Company acquired a cybersecurity services business for $32 million of cash, net of cash acquired. The acquisition expands the Company's ability to assist customers with cybersecurity needs through vulnerability assessments, cybersecurity consulting, and managed services including security monitoring of network operations. The business is a part of the Software and Services segment.
On March 3, 2020, the Company acquired a cybersecurity services business for $40 million, inclusive of share-based compensation withheld at a fair value of $6 million that will be expensed over a service period of two years . The acquisition was settled with $33 million of cash, net of cash acquired. The acquisition expands the Company's ability to assist customers with cybersecurity needs through vulnerability assessments, cybersecurity consulting, managed services and remediation and response capabilities. The business is a part of the Software and Services segment.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity," which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The new guidance removes the separation models for convertible debt with a cash conversion feature or a beneficial conversion feature. In addition, the new standard provides guidance on calculating the dilutive impact of convertible debt on earnings per share. The ASU clarifies that the average market price should be used to calculate the diluted earnings per share denominator when the exercise price or the number of shares that may be issued is variable. The ASU is effective for the Company on January 1, 2022, including interim periods, with early adoption permitted. The ASU permits the use of either a full or modified retrospective method of adoption. The Company is still evaluating the impact of the adoption of this ASU on its financial statements and disclosures.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions and streamlining other areas of accounting for income taxes. Portions of the amendment within the ASU require retrospective, modified retrospective or prospective adoption methods. The Company adopted ASU No. 2019-12 as of January 1, 2021 on a prospective basis and the adoption of this standard did not have a material impact on its financial statements and disclosures.
8
2. Revenue from Contracts with Customers
Disaggregation of Revenue
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | ||||||||||||||||||||||||||||||||||
| (In millions) | Products and Systems Integration | Software and Services | Total | Products and Systems Integration | Software and Services | Total | |||||||||||||||||||||||||||||
| Regions: | |||||||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| International | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Major Products and Services: | |||||||||||||||||||||||||||||||||||
| LMR | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Video Security and Access Control | |||||||||||||||||||||||||||||||||||
| Command Center Software | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Customer Types: | |||||||||||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Indirect | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Six Months Ended | |||||||||||||||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | ||||||||||||||||||||||||||||||||||
| Products and Systems Integration | Software and Services | Total | Products and Systems Integration | Software and Services | Total | ||||||||||||||||||||||||||||||
| Regions: | |||||||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| International | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Major Products and Services: | |||||||||||||||||||||||||||||||||||
| LMR | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Video Security and Access Control | |||||||||||||||||||||||||||||||||||
| Command Center Software | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Customer Types: | |||||||||||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Indirect | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
9
Remaining Performance Obligations
Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations that are unsatisfied, or partially unsatisfied, as of the end of a period. The transaction values associated with remaining performance obligations which were not yet satisfied as of July 3, 2021 was $7.1 billion. A total of $3.3 billion was from Products and Systems Integration performance obligations that are not yet satisfied, of which $1.7 billion is expected to be recognized in the next twelve months . The remaining amounts will generally be satisfied over time as systems are implemented. A total of $3.8 billion was from Software and Services performance obligations that were not yet satisfied as of July 3, 2021. The determination of Software and Services performance obligations that are not satisfied takes into account a contract term that may be limited by the customer’s ability to terminate for convenience. Where termination for convenience exists in the Company's service contracts, its disclosure of the remaining performance obligations that are unsatisfied assumes the contract term is limited until renewal. The Company expects to recognize $1.5 billion from unsatisfied Software and Services performance obligations over the next twelve months , with the remaining performance obligations to be recognized over time as services are performed and software is implemented.
Contract Balances
| (In millions) | July 3, 2021 | December 31, 2020 | |||||||||||||||||||||
| Accounts receivable, net | $ | $ | |||||||||||||||||||||
| Contract assets | |||||||||||||||||||||||
| Contract liabilities | |||||||||||||||||||||||
| Non-current contract liabilities | |||||||||||||||||||||||
Revenue recognized during the three months ended July 3, 2021 which was previously included in Contract liabilities as of April 3, 2021 was $483 million, compared to $370 million of revenue recognized during the three months ended June 27, 2020 which was previously included in Contract liabilities as of March 28, 2020. Revenue recognized during the six months ended July 3, 2021 which was previously included in Contract liabilities as of December 31, 2020 was $705 million, compared to $631 million recognized during the six months ended June 27, 2020 which was previously included in Contract liabilities as of December 31, 2019. Revenue of $10 million and $15 million was reversed during the three and six months ended July 3, 2021, respectively, related to performance obligations satisfied or partially satisfied, in previous periods, primarily driven by changes in the estimates of progress on system contracts, compared to $12 million and $34 million of reversals for the three and six months ended June 27, 2020, respectively.
There were no
Contract Cost Balances
| (In millions) | July 3, 2021 | December 31, 2020 | |||||||||||||||||||||
| Current contract cost assets | $ | $ | |||||||||||||||||||||
| Non-current contract cost assets | |||||||||||||||||||||||
10
3. Leases
Components of Lease Expense
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (in millions) | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||||||||||||
| Lease expense: | |||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease cost | |||||||||||||||||||||||
| Amortization of right-of-use assets | |||||||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total finance lease cost | |||||||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
| Variable cost | |||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||
| Net lease expense | $ | $ | $ | $ | |||||||||||||||||||
Lease Assets and Liabilities
| (in millions) | Statement Line Classification | July 3, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Operating lease assets | Operating lease assets | $ | $ | |||||||||||||||||||||||
| Finance lease assets | ||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||
| Operating lease liabilities | $ | $ | ||||||||||||||||||||||||
| Finance lease liabilities | ||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| Non-current liabilities: | ||||||||||||||||||||||||||
| Operating lease liabilities | Operating lease liabilities | $ | $ | |||||||||||||||||||||||
| Finance lease liabilities | ||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
Other Information Related to Leases
| Six Months Ended | |||||||||||||||||
| (in millions) | July 3, 2021 | June 27, 2020 | |||||||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Net cash used for operating activities related to operating leases | $ | $ | |||||||||||||||
| Net cash used for operating activities related to finance leases | |||||||||||||||||
| Net cash used for financing activities related to finance leases | |||||||||||||||||
| Assets obtained in exchange for lease liabilities: | |||||||||||||||||
| Operating leases | $ | $ | |||||||||||||||
11
| July 3, 2021 | December 31, 2020 | ||||||||||
| Weighted average remaining lease terms (years): | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
Future Lease Payments
| July 3, 2021 | |||||||||||||||||
| (in millions) | Operating Leases | Finance Leases | Total | ||||||||||||||
| Remainder of 2021 | $ | $ | $ | ||||||||||||||
| 2022 | |||||||||||||||||
| 2023 | |||||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| Thereafter | |||||||||||||||||
| Total lease payments | |||||||||||||||||
| Less: interest | |||||||||||||||||
| Present value of lease liabilities | $ | $ | $ | ||||||||||||||
4. Other Financial Data
Statements of Operations Information
Other Charges
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Other charges: | |||||||||||||||||||||||
| Intangibles amortization (Note 15) | $ | $ | $ | $ | |||||||||||||||||||
| Reorganization of business (Note 14) | |||||||||||||||||||||||
| Operating lease asset impairments | |||||||||||||||||||||||
| Acquisition-related transaction fees | |||||||||||||||||||||||
| Losses on legal settlements | |||||||||||||||||||||||
| Fixed asset impairment | |||||||||||||||||||||||
| Gain on sale of property, plant and equipment | ( | ||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
During the six months ended July 3, 2021, the Company recognized $7 million of operating lease asset impairments relating to the consolidation of acquired U.S. manufacturing and distribution facilities. This loss has been recognized in Other charges in the Company's Condensed Consolidated Statements of Operations.
During the six months ended June 27, 2020, the Company recorded a $50 million gain on the sale of a manufacturing facility in Europe. This gain has been recognized in Other charges in the Company's Condensed Consolidated Statements of Operations.
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Other Income (Expense)
Interest expense, net, and Other, net, both included in Other income (expense), consist of the following:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Interest income (expense), net: | |||||||||||||||||||||||
| Interest expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Interest income | |||||||||||||||||||||||
| $ | ( | $ | ( | $ | ( | ( | |||||||||||||||||
| Other, net: | |||||||||||||||||||||||
| Net periodic pension and postretirement benefit (Note 8) | $ | $ | $ | $ | |||||||||||||||||||
| Loss from the extinguishment of long-term debt (Note 5) | ( | ( | |||||||||||||||||||||
| Foreign currency gain (loss) | ( | ( | ( | ||||||||||||||||||||
| Gain (loss) on derivative instruments | ( | ( | ( | ||||||||||||||||||||
| Gains on equity method investments | |||||||||||||||||||||||
| Fair value adjustments to equity investments | |||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Earnings Per Common Share
| Amounts attributable to Motorola Solutions, Inc. common stockholders | |||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Basic earnings per common share: | |||||||||||||||||||||||
| Earnings | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Per share amount | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per common share: | |||||||||||||||||||||||
| Earnings | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||
| Add effect of dilutive securities: | |||||||||||||||||||||||
| Share-based awards | |||||||||||||||||||||||
| Diluted weighted average common shares outstanding | |||||||||||||||||||||||
| Per share amount | $ | $ | $ | $ | |||||||||||||||||||
In the computation of diluted earnings per common share for the three months ended July 3, 2021, the assumed exercise of 0.4 million options, including 0.2 million subject to market based contingent option agreements, were excluded because their inclusion would have been antidilutive. For the six months ended July 3, 2021, the assumed exercise of 0.4 options, including 0.1 million subject to market based contingent option agreements, were excluded because their inclusion would have been antidilutive.
In the computation of diluted earnings per common share for the three months ended June 27, 2020, 0.6 million options, including 0.2 million subject to market based contingent option agreements, were excluded because their inclusion would have been antidilutive. For the six months ended June 27, 2020, the assumed exercise of 0.4 million options, including 0.1 million subject to market based contingent option agreements, were excluded because their inclusion would have been antidilutive.
As of July 3, 2021, the Company had $1.0 billion of 1.75 % Senior Convertible Notes outstanding which mature on September 15, 2024 ("Senior Convertible Notes"). The notes are convertible based on a conversion rate of 4.9140 per $1,000 principal amount (which is equal to an initial conversion price of $203.50 per share). In the event of conversion, the Company intends to settle the principal amount of the Senior Convertible Notes in cash. Because of the Company’s intention to settle the par value of the Senior Convertible Notes in cash, Motorola Solutions does not reflect any shares underlying the Senior
13
Convertible Notes in its diluted weighted average shares outstanding until the average stock price per share for the period exceeds the conversion price. Only the number of shares that would be issuable (under the treasury stock method of accounting for share dilution) will be included, which is based upon the amount by which the average stock price for the period exceeds the conversion price of $203.50 . The conversion price is adjusted for dividends declared through the date of settlement. For the period ended July 3, 2021, there was no dilutive effect of the Senior Convertible Notes on diluted earnings per share attributable to Motorola Solutions, Inc. as the average stock price for the period outstanding was below the conversion price.
Balance Sheet Information
Accounts Receivable, Net
Accounts receivable, net, consists of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less allowance for credit losses | ( | ( | |||||||||
| $ | $ | ||||||||||
Inventories, Net
Inventories, net, consist of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||
| Finished goods | $ | $ | |||||||||
| Work-in-process and production materials | |||||||||||
| Less inventory reserves | ( | ( | |||||||||
| $ | $ | ||||||||||
Other Current Assets
Other current assets consist of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||
| Current contract cost assets (Note 2) | $ | $ | |||||||||
| Tax-related deposits | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Property, Plant and Equipment, Net
Property, plant and equipment, net, consist of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||
| Land | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| $ | $ | ||||||||||
Depreciation expense for the three months ended July 3, 2021 and June 27, 2020 was $52 million and $47 million, respectively. Depreciation expense for the six months ended July 3, 2021 and June 27, 2020 was $104 million and $93 million, respectively.
14
Investments
| July 3, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Common stock | $ | $ | |||||||||||||||||||||
| Strategic investments, at cost | |||||||||||||||||||||||
| Company-owned life insurance policies | |||||||||||||||||||||||
| Equity method investments | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
Subsequent to quarter end, on July 16, 2021, the Company invested $50 million in equity securities of NewHold Investment Corp., which completed a business combination with Evolv Technologies, Inc. The equity securities will be carried at fair value with changes in fair value recorded in Other, net within Other income (expense).
Other Assets
| July 3, 2021 | December 31, 2020 | ||||||||||
| Defined benefit plan assets | $ | $ | |||||||||
| Non-current contract cost assets (Note 2) | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Accrued Liabilities
Accrued liabilities consist of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||
| Compensation | $ | $ | |||||||||
| Tax liabilities | |||||||||||
| Dividend payable | |||||||||||
| Trade liabilities | |||||||||||
| Operating lease liabilities (Note 3) | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Other Liabilities
Other liabilities consist of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||
| Defined benefit plans | $ | $ | |||||||||
| Non-current contract liabilities (Note 2) | |||||||||||
| Deferred income taxes | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Stockholders’ Equity (Deficit)
Share Repurchase Program: During the three and six months ended July 3, 2021, the Company paid an aggregate of $102 million and $272 million, including transaction costs, to repurchase approximately 0.5 million and 1.5 million shares at an average price of $206.85 and $186.08 per share, respectively. During the three months ended July 3, 2021, the Board of Directors approved a $2.0 billion increase to the share repurchase program. As of July 3, 2021, the Company had $2.4 billion of authority available for future repurchases.
Payment of Dividends: During the three months ended July 3, 2021 and June 27, 2020, the Company paid $121 million and $109 million, respectively, in cash dividends to holders of its common stock. During the six months ended July 3, 2021 and June 27, 2020, the Company paid $242 million and $218 million, respectively, in cash dividends to holders of its common stock. Subsequent to the quarter, the Company paid an additional $120 million in cash dividends to holders of its common stock.
15
Accumulated Other Comprehensive Loss
The following table displays the changes in Accumulated other comprehensive loss, including amounts reclassified into income, and the affected line items in the Condensed Consolidated Statements of Operations during the three and six months ended July 3, 2021 and June 27, 2020:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Foreign Currency Translation Adjustments: | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassification adjustment | ( | ||||||||||||||||||||||
| Tax benefit | |||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ||||||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Defined Benefit Plans: | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Reclassification adjustment - Actuarial net losses into Other income (Note 8) | |||||||||||||||||||||||
| Reclassification adjustment - Prior service benefits into Other expense (Note 8) | ( | ( | ( | ( | |||||||||||||||||||
| Tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Total Accumulated other comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
5. Debt and Credit Facilities
| July 3, 2021 | December 31, 2020 | ||||||||||
| $ | $ | ||||||||||
| Other long-term debt | |||||||||||
| Adjustments for unamortized gains on interest rate swap terminations | ( | ( | |||||||||
| Less: current portion | ( | ( | |||||||||
| Long-term debt | $ | $ | |||||||||
16
After accelerating the amortization of debt discounts and debt issuance costs, the Company recognized a loss of $18 million related to the redemption in Other, net within Other income (expense) in the Condensed Consolidated Statements of Operations.
As of July 3, 2021, the Company had a $2.25 billion syndicated, unsecured revolving credit facility scheduled to mature in March 2026 (the "2021 Motorola Solutions Credit Agreement"). The 2021 Motorola Solutions Credit Agreement includes a letter of credit sub-limit and fronting commitments of $450 million. Borrowings under the facility bear interest at the prime rate plus the applicable margin, or at a spread above the London Interbank Offered Rate ("LIBOR"), at the Company's option. The 2021 Motorola Solutions Credit Agreement includes provisions allowing the Company to replace LIBOR with a replacement benchmark rate in the future under certain conditions defined in the agreement. An annual facility fee is payable on the undrawn amount of the credit line. The interest rate and facility fee are subject to adjustment if the Company's credit rating changes. The Company must comply with certain customary covenants including a maximum leverage ratio, as defined in the 2021 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of July 3, 2021.
The Company has an unsecured commercial paper program, backed by the 2021 Motorola Solutions Credit Agreement, under which the Company may issue unsecured commercial paper notes up to a maximum aggregate principal amount of $2.2 billion outstanding at any one time. Proceeds from the issuances of the notes are expected to be used for general corporate purposes. The notes are issued at a zero-coupon rate and are issued at a discount which reflects the interest component. At maturity, the notes are paid back in full including the interest component. The notes are not redeemable prior to maturity. As of July 3, 2021 the Company had no outstanding debt under the commercial paper program.
6. Risk Management
Foreign Currency Risk
The Company had outstanding foreign exchange contracts with notional amounts totaling $1.2
The following table shows the five
| Notional Amount | |||||||||||
| Net Buy (Sell) by Currency | July 3, 2021 | December 31, 2020 | |||||||||
| Euro | $ | $ | |||||||||
| Canadian dollar | |||||||||||
| British pound | |||||||||||
| Chinese renminbi | ( | ( | |||||||||
| Australian dollar | ( | ( | |||||||||
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 July 3, 2021, all of the counterparties had investment grade credit ratings. As of July 3, 2021, the Company had $5 million of exposure to aggregate credit risk with all counterparties.
| Fair Values of Derivative Instruments | |||||||||||
| July 3, 2021 | Other Current Assets | Accrued Liabilities | |||||||||
| Derivatives designated as hedging instruments: | |||||||||||
| Foreign exchange contracts | $ | $ | |||||||||
| Derivatives not designated as hedging instruments: | |||||||||||
| Foreign exchange contracts | |||||||||||
| Total derivatives | $ | $ | |||||||||
17
| Fair Values of Derivative Instruments | |||||||||||
| December 31, 2020 | Other Current Assets | Accrued Liabilities | |||||||||
| Derivatives designated as hedging instruments: | |||||||||||
| Foreign exchange contracts | $ | $ | |||||||||
| Derivatives not designated as hedging instruments: | |||||||||||
| Foreign exchange contracts | |||||||||||
| Total derivatives | $ | $ | |||||||||
| Financial Statement Location | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
| Foreign Exchange Contracts | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||||
| Effective portion | Accumulated other comprehensive income | $ | ( | $ | ( | $ | $ | |||||||||||||||||||
| Forward points recognized | Other income (expense) | |||||||||||||||||||||||||
| Undesignated derivatives recognized | Other income (expense) | ( | ( | ( | ||||||||||||||||||||||
Net Investment Hedges
The Company uses foreign exchange forward contracts with contract terms of 12 to 15 months to hedge against the effect of the British pound and the Euro exchange rate fluctuations against the U.S. dollar on a portion of its net investments in certain European operations. The Company recognizes changes in the fair value of the net investment hedges as a component of foreign currency translation adjustments within other comprehensive income to offset a portion of the change in translated value of the net investments being hedged, until the investments are sold or liquidated. As of July 3, 2021, the Company had €100 million of net investment hedges in certain Euro functional subsidiaries and £125 million of net investment hedges in certain British pound functional subsidiaries.
The Company excludes the difference between the spot rate and the forward rate of the forward contract from its assessment of hedge effectiveness. The effect of the excluded components will be amortized on a straight line basis and recognized through interest expense. During the six months ended July 3, 2021, the Company amortized $1 million of income from the excluded components through interest expense. During the three and six months ended June 27, 2020, the Company amortized $1 million and $2 million, respectively, of income from the excluded components through interest expense.
18
7. Income Taxes
At the end of each interim reporting period, the Company makes an estimate of its annual effective income tax rate. Tax expense in interim periods is calculated at the estimated annual effective tax rate plus or minus the tax effects of items of income and expense that are discrete to the period. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Net earnings before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
The effective tax rate for the three months ended July 3, 2021 of 14 % was different from the U.S. federal statutory tax rate of 21% due to state tax expense, offset by a tax benefit related to a partial release of $33 million of a valuation allowance recorded on the U.S. foreign tax credit carryforward. The effective tax rate for the six months ended July 3, 2021 of 14 % was different from the U.S. federal statutory tax rate of 21% due to state tax expense, offset by a tax benefit related to a partial release of $33 million of a valuation allowance recorded on the U.S foreign tax credit carryforward and the recognition of excess tax benefits of share-based compensation.
The effective tax rates for the three and six months ended June 27, 2020 of 23 % and 17 %, respectively, were different from the U.S. federal statutory tax rate of 21% due to state tax expense, offset by excess tax benefits on share-based compensation.
The effective tax rate for the three and six months ended July 3, 2021 of 14 23 % and 17 %, respectively, primarily due to a tax benefit of $33
8. Retirement and Other Employee Benefits
Pension and Postretirement Health Care Benefits Plans
The net periodic 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 | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||||||||||||||
| Unrecognized net loss | |||||||||||||||||||||||||||||||||||
| Unrecognized prior service benefit | ( | ( | |||||||||||||||||||||||||||||||||
| Net periodic pension benefits | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
| U.S. Pension Benefit Plans | Non-U.S. Pension Benefit Plans | Postretirement Health Care Benefits Plan | |||||||||||||||||||||||||||||||||
| Six Months Ended | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | |||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Amortization of: | |||||||||||||||||||||||||||||||||||
| Unrecognized net loss | |||||||||||||||||||||||||||||||||||
| Unrecognized prior service benefit | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net periodic pension benefits | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
19
9. Share-Based Compensation Plans
Compensation expense for the Company’s share-based plans was as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Share-based compensation expense included in: | |||||||||||||||||||||||
| Costs of sales | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Research and development expenditures | |||||||||||||||||||||||
| Share-based compensation expense included in Operating earnings | |||||||||||||||||||||||
| Tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Share-based compensation expense, net of tax | $ | $ | $ | $ | |||||||||||||||||||
| Decrease in basic earnings per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Decrease in diluted earnings per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
During the six months ended July 3, 2021, the Company granted 0.4 million restricted stock units (RSUs), 0.1 million performance stock units (PSUs) and 0.1 million market stock units (MSUs) with an aggregate grant-date fair value of $64 million, $15 million, and $10 million, respectively, and 0.2 million stock options and 0.2 million performance options (POs) with an aggregate grant-date fair value of $8 million and $10 million, respectively. The share-based compensation expense will generally be recognized over the vesting period of three years .
10. Fair Value Measurements
The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of July 3, 2021 and December 31, 2020 were as follows:
| July 3, 2021 | Level 1 | Level 2 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | $ | ||||||||||||||||||||
| Common stock | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | $ | ||||||||||||||||||||
| December 31, 2020 | Level 1 | Level 2 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | $ | ||||||||||||||||||||
| Common stock | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | $ | ||||||||||||||||||||
The Company had no Level 3 holdings as of July 3, 2021 or December 31, 2020.
At July 3, 2021 and December 31, 2020, the Company had $811 million and $448 million, respectively, of investments in money market government and U.S. treasury funds classified (Level 1) 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 July 3, 2021 and December 31, 2020 was $6.3 billion and $5.8 billion (Level 2), respectively.
All other financial instruments are carried at cost, which is not materially different from the instruments’ fair values.
20
11. Sales of Receivables
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 July 3, 2021 and June 27, 2020:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Contract-specific discounting facility | $ | $ | $ | $ | |||||||||||||||||||
| Accounts receivable sales proceeds | |||||||||||||||||||||||
| Long-term receivables sales proceeds | |||||||||||||||||||||||
| Total proceeds from receivable sales | $ | $ | $ | $ | |||||||||||||||||||
At July 3, 2021, the Company had retained servicing obligations for $931 million of long-term receivables, compared to $983 million at December 31, 2020. Servicing obligations are limited to collection activities related to the sales of accounts receivables and long-term receivables. The Company had outstanding commitments to provide long-term financing to third parties totaling $99 million at July 3, 2021, compared to $78 million at December 31, 2020.
During the three and six months ended July 3, 2021, the Company utilized a contract-specific receivable discounting facility which began during the six months ended June 27, 2020, resulting in accounts receivable sales of $36 million and $107 million, respectively. The proceeds of the Company's receivable sales are included in Operating activities within the Company's Condensed Consolidated Statements of Cash Flows.
12. Commitments and Contingencies
Legal Matters
On March 14, 2017, the Company filed a complaint in the U.S. District Court for the Northern District of Illinois (the “Court”) against Hytera Communications Corporation Limited of Shenzhen, China; Hytera America, Inc.; and Hytera Communications America (West), Inc. (collectively, “Hytera”), alleging trade secret theft and copyright infringement and seeking, among other things, injunctive relief, compensatory damages, and punitive damages. On February 14, 2020, the Company announced that a jury decided in the Company's favor in its trade secret theft and copyright infringement case. In connection with this verdict, the jury awarded the Company $345.8 million in compensatory damages and $418.8 million in punitive damages, for a total of $764.6 million. The Court denied Hytera’s motion for a new trial on October 20, 2020. On December 17, 2020, the Court denied the Company’s motion for a permanent injunction, finding instead that Hytera must pay the Company a forward-looking reasonable royalty on products that use the Company’s stolen trade secrets. As of the second quarter of 2021, the parties were unable to agree on a reasonable royalty rate. Therefore, the Court will set the rate. The issue is fully briefed by the parties and awaits the Court's determination.
On January 11, 2021, the Court granted Hytera’s motion for certain equitable relief and reduced the $764.6 million judgment award to $543.7 million. That same day, the Court also granted the Company’s motion for pre-judgment interest, although the precise amount of interest owed to the Company by Hytera is still to be determined by the Court. On March 25, 2021, the Court entered rulings favorable to the Company with respect to several of the Company's post-trial motions, including the Company's motion for attorneys' fees and its motion to require Hytera to turn over certain assets in satisfaction of the Company’s judgment award.
21
13. Segment Information
Net Sales by Segment
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Products and Systems Integration | $ | $ | $ | $ | |||||||||||||||||||
| Software and Services | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Operating Earnings by Segment
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Products and Systems Integration | $ | $ | $ | $ | |||||||||||||||||||
| Software and Services | |||||||||||||||||||||||
| Operating earnings | |||||||||||||||||||||||
| Total other expense | ( | ( | ( | ( | |||||||||||||||||||
| Earnings before income taxes | $ | $ | $ | $ | |||||||||||||||||||
14. Reorganization of Business
2021 Charges
During the three months ended July 3, 2021, the Company recorded net reorganization of business charges of $9 million, including $6 million of charges in Other charges and $3 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $9 million were charges of $12 million related to employee separation, partially offset by $3 million of reversals for accruals no longer needed.
During the six months ended July 3, 2021, the Company recorded net reorganization of business charges of $25 million, including $20 million of charges in Other charges and $5 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $25 million were charges of $30 million related to employee separation, partially offset by $5 million of reversals for accruals no longer needed.
| July 3, 2021 | Three Months Ended | Six Months Ended | |||||||||
| Products and Systems Integration | $ | $ | |||||||||
| Software and Services | |||||||||||
| $ | $ | ||||||||||
Reorganization of Businesses Accruals
| January 1, 2021 | Additional Charges | Adjustments | Amount Used | July 3, 2021 | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||
Employee Separation Costs
At January 1, 2021, the Company had an accrual of $79 million for employee separation costs. The 2021 additional charges of $30 million represent severance costs for approximately 400 employees. The adjustment of $5 million reflects reversals for accruals no longer needed. The $56 million used reflects cash payments to severed employees. The remaining accrual of $48 million, which is included in Accrued liabilities in the Company’s Condensed Consolidated Balance Sheets at July 3, 2021, is expected to be paid, primarily within one year, to approximately 1,000 employees, who have either been severed or have been notified of their severance and have begun or will begin receiving payments.
2020 Charges
During the three months ended June 27, 2020, the Company recorded net reorganization of business charges of $41 million, including $26 million of charges in Other charges and $15 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $41 million were charges of $46 million related to employee separation, partially offset by $5 million of reversals for accruals no longer needed.
22
During the six months ended June 27, 2020, the Company recorded net reorganization of business charges of $59 million, including $38 million of charges in Other charges and $21 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $59 million were charges of $68 million related to employee separation costs and $9 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
| June 27, 2020 | Three Months Ended | Six Months Ended | |||||||||
| Products and Systems Integration | $ | $ | |||||||||
| Software and Services | |||||||||||
| $ | $ | ||||||||||
15. Intangible Assets and Goodwill
Subsequent to quarter end, on July 15, 2021, the Company acquired Openpath, a cloud-based mobile access control provider for $297 million, net of cash acquired. In addition, the Company issued restricted stock at a fair value of $29 million to certain key employees that will be expensed over an average service period of three years . The transaction also includes the potential for the Company to make earn-out payments based on Openpath's achievement of certain financial targets from January 1, 2022 through December 31, 2022. This acquisition expands the Company's ability to combine video security and access control solutions within Video Security and Access Control to help support enterprise customers. Due to the timing of the acquisition, the initial accounting for the acquisition is incomplete. As such, the Company is not able to disclose certain information relating to the acquisition, including the preliminary fair value of assets acquired and liabilities assumed.
On August 28, 2020, the Company acquired Callyo, a cloud-based mobile applications provider for law enforcement in North America for $63 million, inclusive of share-based compensation withheld at a fair value of $3 million that will be expensed over an average service period of two years . The acquisition was settled with $61 million in cash, net of cash acquired. This acquisition adds to Motorola Solutions’ existing Command Center Software suite critical mobile technology capabilities that enable information to flow seamlessly from the field to the command center. The Company recognized $38 million of goodwill, $31 million of identifiable intangible assets, and $8 million of net liabilities. The goodwill is not deductible for tax purposes. The identifiable intangible assets were classified as $27 million of customer relationships and $4 million of developed technology that will be amortized over a period of and seven years , respectively. The business is part of the Software and Services segment. The purchase accounting was completed as of the first quarter of 2021.
On July 31, 2020, the Company acquired Pelco, a global provider of video security solutions for a purchase price of $110 million. The acquisition was settled with $107 million of cash, net of cash acquired. The acquisition demonstrates Motorola Solutions’ continued investment in Video Security and Access Control, adding a broad range of products that can be used in a variety of commercial and industrial environments and use cases. The Company recognized $35 million of goodwill, $30 million of identifiable intangible assets, and $42 million of net assets. The goodwill is not deductible for tax purposes. The identifiable intangible assets were classified as $23 million of customer relationships, $4 million of developed technology, and $3 million of trade names that will be amortized over a period of , , and five years , respectively. The business is a part of both the Products and Systems Integration segment and the Software and Services segment. The purchase accounting is not yet complete and as such the final allocation between income tax accounts and goodwill may be subject to change.
On June 16, 2020, the Company acquired IndigoVision for a purchase price of $37 million. The acquisition was settled with $35 million of cash, net of cash acquired and debt assumed. The acquisition complements the Company's Video Security and Access Control technology, providing enhanced geographical reach across a wider customer base. The Company recognized $18 million of goodwill, $22 million of identifiable intangible assets and $5 million of net liabilities. The goodwill is not deductible for tax purposes. The identifiable intangible asset was classified as $22 million of customer relationships that will be amortized over a period of eleven years . The business is a part of both the Products and Systems Integration and Software and Services segments. The purchase accounting was completed as of the second quarter of 2021.
On April 30, 2020, the Company acquired a cybersecurity services business for a purchase price of $32 million of cash, net of cash acquired. The Company recognized $23 million of goodwill, $10 million of identifiable intangible assets and $1 million of net liabilities. The goodwill is deductible for tax purposes. The identifiable intangible assets were classified as $8 million of customer relationships and $2 million of developed technology that will be amortized over a period of twelve years and three years , respectively. The acquisition expands the Company’s ability to assist customers with cybersecurity needs through vulnerability assessments, cybersecurity consulting, and managed services including security monitoring of network operations. The business is a part of the Software and Services segment. The purchase accounting was completed as of the first quarter of 2021.
23
On March 3, 2020, the Company acquired a cybersecurity services business for $40 million, inclusive of share-based compensation withheld at a fair value of $6 million that will be expensed over a service period of two years . The acquisition was settled with $33 million of cash, net of cash acquired. The Company recognized $28 million of goodwill, $7 million of intangible assets and $2 million of net liabilities. The goodwill is not deductible for tax purposes. The identifiable intangible asset was classified as a customer relationship that will be amortized over a period of thirteen years . The acquisition expands the Company’s ability to assist customers with cybersecurity needs through vulnerability assessments, cybersecurity consulting, managed services and remediation and response capabilities. The business is a part of the Software and Services segment. The purchase accounting was completed as of the first quarter of 2021.
Intangible Assets
Amortized intangible assets were comprised of the following:
| July 3, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
| Completed technology | $ | $ | $ | $ | |||||||||||||||||||
| Customer-related | |||||||||||||||||||||||
| Other intangibles | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Amortization expense on intangible assets was $58 million and $116 million for the three and six months ended July 3, 2021, respectively. Amortization expense on intangible assets was $51 million and $104 million for the three and six months ended June 27, 2020, respectively. As of July 3, 2021, annual amortization expense is estimated to be $209 million in 2021, $206 million in 2022, $108 million in 2023, $83 million in 2024, $73 million in 2025, and $69 million in 2026.
| July 3, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
| Products and Systems Integration | $ | $ | $ | $ | |||||||||||||||||||
| Software and Services | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Goodwill
| Products and Systems Integration | Software and Services | Total | |||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | ||||||||||||||
| Purchase accounting adjustments | ( | ( | ( | ||||||||||||||
| Foreign currency | |||||||||||||||||
| Balance as of July 3, 2021 | $ | $ | $ | ||||||||||||||
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of Motorola Solutions, Inc. (“Motorola Solutions,” the “Company,” “we,” “our,” or “us”) for the three and six months ended July 3, 2021 and June 27, 2020, as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "Form 10-K").
Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q for the quarter ended July 3, 2021 (this “Form 10-Q”) which are not historical in nature are forward-looking statements within the meaning of applicable federal securities law. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “aims,” “estimates” and similar expressions. We can give no assurance that any future results or events discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Readers are cautioned that such forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this Form 10-Q. Some of these risks and uncertainties include, but are not limited to, those discussed in Part I, Item 1A “Risk Factors” of the Form 10-K and those described elsewhere in our other SEC filings. Forward-looking statements include, but are not limited to, statements included in: (1) “Management's Discussion and Analysis of Financial Condition and Results of Operations,” about: (a) the continuing and future impact of COVID-19 on our business; (b) the impact of the American Rescue Plan Act of 2021 on our business; (c) the impact of global economic and political conditions on our business; (d) the impact of acquisitions on our business; (e) market growth/contraction, demand, spending and resulting opportunities; (f) our continued ability to reduce our operating expenses; (g) the growth of sales opportunities in our Products and Systems Integration and Software and Services segments; (h) the success of our business strategy and portfolio; (i) future payments, charges, use of accruals and expected cost-saving benefits associated with our reorganization of business programs and employee separation costs; (j) our ability and cost to repatriate funds; (k) the liquidity of our investments; (l) our ability to settle the principal amount of the Senior Convertible Notes (as defined below) in cash; (m) our ability to borrow and the amount available under our credit facilities; and (n) the adequacy of internal resources to fund expected working capital and capital expenditure requirements, contractual obligations, debt service requirements and other liquidity requirements associated with our operations; (2) the impact of recent accounting pronouncements issued by the Financial Accounting Standards Board on our financial statements; (3) “Quantitative and Qualitative Disclosures about Market Risk,” about the impact of interest rate risks and foreign currency exchange risks; and (4) “Legal Proceedings,” about the outcome and effect of pending legal matters. Motorola Solutions undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as legally required.
Executive Overview
Business Overview
During the fourth quarter of 2020, the Company updated its revenue disaggregation presentation of major products and services to provide a more comprehensive view of technologies within our reporting segments. Accordingly, the Company now reports net sales in the following three major products and services (which we refer to as “technologies” in this Form 10-Q): Land Mobile Radio Mission Critical Communications (“LMR” or “LMR Mission Critical Communications”), Video Security and Access Control and Command Center Software. With the Company's acquisition of Openpath Security Inc. (“Openpath”) subsequent to quarter end on July 15, 2021, the Company renamed one of its three major products and services technologies from Video Security and Analytics to Video Security and Access Control to better align with its strategic growth initiatives. The change is to the name of the technology only and no financial information has been reclassified from previous periods presented or for the quarter ended July 3, 2021.
•LMR Mission Critical Communications: Infrastructure, devices (two-way radio and broadband, including both for public safety and Professional Commercial Radio ("PCR")) and software that enable communications, inclusive of installation and integration, backed by services, to assure availability, security and resiliency.
•Video Security and Access Control: Cameras (fixed, body-worn, in-vehicle), access control, infrastructure, video management, software and artificial intelligence-enabled analytics that enable visibility “on scene” and bring attention to what’s important.
•Command Center Software: Software suite that enables collaboration and seamless information sharing through the public safety workflow from 911 call to case closure.
25
Second Quarter Financial Results
•Net sales were $2.0 billion in the second quarter of 2021 compared to $1.6 billion in the second quarter of 2020.
•Operating earnings were $370 million in the second quarter of 2021 compared to $218 million in the second quarter of 2020.
•Net earnings attributable to Motorola Solutions, Inc. were $293 million, or $1.69 per diluted common share, in the second quarter of 2021, compared to $135 million, or $0.78 per diluted common share, in the second quarter of 2020.
•Operating cash flow increased $241 million to $758 million in the first half of 2021 compared to $517 million in the first half of 2020.
•We repurchased $272 million of common stock and paid $242 million in dividends in the first half of 2021.
COVID-19
In response to the COVID-19 pandemic, there have been a broad number of governmental and commercial actions taken to limit the spread of the virus, including social distancing measures, stay-at-home orders, travel restrictions, business shutdowns and slowdowns. The COVID-19 pandemic continues to be dynamic, and near-term challenges across the economy remain. Although vaccines are now being distributed and administered across many parts of the world, new variants of the virus have emerged and may continue to emerge that have shown to be more contagious. We continue to adhere to applicable governmental and commercial restrictions and to work to mitigate the impact of COVID-19 on our employees, customers, communities, liquidity and financial position.
We continue to abide by a number of measures in an effort to protect the health and well-being of our employees and customers, including encouraging office workers to work remotely, reducing employee travel, withdrawing from certain industry events, increasing the frequency of cleaning services, encouraging face coverings, and using thermal scanning. During the second quarter of 2021, we began to allow certain essential business travel to resume; however, we continue to carefully assess conditions on a geographical basis to determine when employees can safely return to our offices. We also facilitated the process for our employees in certain locations to receive the COVID-19 vaccine during the second quarter of 2021, as vaccines are distributed and administered throughout the U.S. and the global community. As conditions continue to fluctuate around the world, with both vaccine administration and the rates of new variants of COVID-19 (particularly the "delta variant") rising in certain regions, governments and organizations have responded by adjusting their restrictions and guidelines accordingly. We continue to monitor the daily evolution of the pandemic, including the spread of the delta variant, in order to ensure the health and safety of our employees remains our top priority. As of the date of this filing, we are following the U.S. Centers for Disease Control and Prevention guidance and state and location restrictions with respect to our U.S. employees, as well as guidance from corresponding international authorities with respect to our non-U.S. employees. With respect to our customers, we have continued to ensure customer continuity by fulfilling several emergency orders, completing remote software maintenance where possible, and continuing to service our mission-critical networks on-site as needed to ensure seamless operations. Our sales teams have also continued to improve virtual engagement with our customers. Additionally, our engineering teams have adapted our solutions offerings to equip our customers with the latest technology in an effort to protect their workplaces from the spread of COVID-19. Specifically, in Video Security and Access Control, we have adapted our software and hardware offerings to provide analytics addressing occupancy counting, face mask detection, and thermal detection capabilities.
We believe our existing balances of cash and cash equivalents, along with other short-term liquidity arrangements, will continue to be sufficient to satisfy our liquidity requirements associated with our existing operations. We were in compliance with all applicable covenants in the 2021 unsecured revolving credit facility as of July 3, 2021. Additionally, we have no bond maturities until 2024. We continue to assess our operating expenses and identify cost reducing initiatives, including lower travel costs, contractor spend and reducing our real estate footprint. In addition, our supply chain partners have been supportive and continue to work to fulfill the necessary service levels to the Company and its customers.
Although the COVID-19 pandemic continued to influence our activities in the second quarter of 2021, as described above, the negative impacts on our business from COVID-19 have begun to ease. Specifically, in our Software and Services segment, with the largely recurring nature of the business and our strong backlog position, we continue to expect that the impacts on net sales and operating margin will be limited for the remainder of 2021. Within the Products and Systems Integration segment, we are encouraged by strong LMR backlog, and the resiliency of the Video Security and Access Control technology that experienced growth in the second quarter of 2021 and which we expect to continue to grow for the remainder of 2021. In addition, in March 2021, the President of the United States signed into law the American Rescue Plan Act of 2021 (the "ARPA"), which is intended to provide economic stimulus, specifically additional funding to state and local governments, education and healthcare, as well as other funding relief provisions, in order to address the impact of the COVID-19 pandemic. We continue to evaluate the potential impact of the ARPA on our business and results of operations, although we anticipate that the ARPA will have a positive impact on our business and results of operations during the remainder of 2021 and beyond as we expect our governmental customers to receive funding from the ARPA.
Lastly, we evaluated whether there were any impairment indicators as of July 3, 2021, which included a review of our receivables and contract assets, inventory, right-of-use lease assets, long-lived assets, investments, goodwill and intangible assets. As of the end of the second quarter of 2021, we concluded our assets were fairly stated and recoverable.
26
Recent Acquisitions
| Technology | Segment | Acquisition | Description | Purchase Price | Date of Acquisition | ||||||||||||
| Command Center Software | Software and Services | Callyo | Provider of cloud-based mobile applications for law enforcement in North America, including critical mobile technological capabilities that enable information to flow seamlessly from the field to the command center. | $63 million, inclusive of share-based compensation of $3 million | August 28, 2020 | ||||||||||||
| Video Security and Access Control | Products and Systems Integration Software and Services | Pelco, Inc. | Global provider of video security solutions, adding a broad range of products for a variety of commercial and industrial environments and use cases. | $110 million | July 31, 2020 | ||||||||||||
| Video Security and Access Control | Products and Systems Integration Software and Services | IndigoVision Group plc | Provider of video security solutions to enhance geographical reach across a wider customer base. | $37 million | June 16, 2020 | ||||||||||||
| LMR | Software and Services | Unnamed cybersecurity services business | Provider of vulnerability assessments, cybersecurity consulting, and managed services, including security monitoring of network operations. | $32 million | April 30, 2020 | ||||||||||||
| LMR | Software and Services | Unnamed cybersecurity services business | Provider of vulnerability assessments, cybersecurity consulting, managed services, and remediation and response capabilities. | $40 million, inclusive of share-based compensation of $6 million | March 3, 2020 | ||||||||||||
27
Results of Operations
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | July 3, 2021 | % of Sales* | June 27, 2020 | % of Sales* | July 3, 2021 | % of Sales* | June 27, 2020 | % of Sales* | |||||||||||||||||||||||||||||||||||||||
| Net sales from products | $ | 1,094 | $ | 877 | $ | 2,027 | $ | 1,764 | |||||||||||||||||||||||||||||||||||||||
| Net sales from services | 877 | 741 | 1,717 | 1,509 | |||||||||||||||||||||||||||||||||||||||||||
| Net sales | 1,971 | 1,618 | 3,744 | 3,273 | |||||||||||||||||||||||||||||||||||||||||||
| Costs of products sales | 511 | 46.7 | % | 413 | 47.1 | % | 952 | 47.0 | % | 812 | 46.0 | % | |||||||||||||||||||||||||||||||||||
| Costs of services sales | 508 | 57.9 | % | 439 | 59.2 | % | 980 | 57.1 | % | 908 | 60.2 | % | |||||||||||||||||||||||||||||||||||
| Costs of sales | 1,019 | 852 | 1,932 | 1,720 | |||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 952 | 48.3 | % | 766 | 47.3 | % | 1,812 | 48.4 | % | 1,553 | 47.4 | % | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 331 | 16.8 | % | 297 | 18.4 | % | 633 | 16.9 | % | 638 | 19.5 | % | |||||||||||||||||||||||||||||||||||
| Research and development expenditures | 181 | 9.2 | % | 161 | 10.0 | % | 361 | 9.6 | % | 330 | 10.1 | % | |||||||||||||||||||||||||||||||||||
| Other charges | 70 | 3.5 | % | 90 | 5.6 | % | 150 | 4.0 | % | 109 | 3.3 | % | |||||||||||||||||||||||||||||||||||
| Operating earnings | 370 | 18.8 | % | 218 | 13.5 | % | 668 | 17.8 | % | 476 | 14.5 | % | |||||||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (44) | (2.2) | % | (58) | (3.6) | % | (98) | (2.6) | % | (109) | (3.3) | % | |||||||||||||||||||||||||||||||||||
| Other, net | 14 | 0.7 | % | 16 | 1.0 | % | 60 | 1.6 | % | 34 | 1.0 | % | |||||||||||||||||||||||||||||||||||
| Total other expense | (30) | (1.5) | % | (42) | (2.6) | % | (38) | (1.0) | % | (75) | (2.3) | % | |||||||||||||||||||||||||||||||||||
| Net earnings before income taxes | 340 | 17.3 | % | 176 | 10.9 | % | 630 | 16.8 | % | 401 | 12.3 | % | |||||||||||||||||||||||||||||||||||
| Income tax expense | 46 | 2.3 | % | 40 | 2.5 | % | 90 | 2.4 | % | 67 | 2.0 | % | |||||||||||||||||||||||||||||||||||
| Net earnings | 294 | 14.9 | % | 136 | 8.4 | % | 540 | 14.4 | % | 334 | 10.2 | % | |||||||||||||||||||||||||||||||||||
| Less: Earnings attributable to non-controlling interests | 1 | 0.1 | % | 1 | 0.1 | % | 3 | 0.1 | % | 2 | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Net earnings attributable to Motorola Solutions, Inc. | $ | 293 | 14.9 | % | $ | 135 | 8.3 | % | $ | 537 | 14.3 | % | $ | 332 | 10.1 | % | |||||||||||||||||||||||||||||||
| Earnings per diluted common share | $ | 1.69 | $ | 0.78 | $ | 3.10 | $ | 1.90 | |||||||||||||||||||||||||||||||||||||||
* Percentages may not add due to rounding
28
Results of Operations—Three months ended July 3, 2021 compared to three months ended June 27, 2020
The results of operations for the second quarter of 2021 are not necessarily indicative of the operating results to be expected for the full year. Historically, we have experienced higher revenues in the fourth quarter as compared to the rest of the quarters of our fiscal year as a result of the purchasing patterns of our customers.
We use the following U.S. GAAP key financial performance measures to manage our business on a consolidated basis and by reporting segment, and to monitor and assess our results of operations:
•Net sales: a measure of our revenue for the current period.
•Operating earnings: a measure of our earnings from operations, before non-operating expenses and income taxes.
•Operating margins: a measure of our operating earnings as a percentage of total net sales.
Considered together, we believe these measures are strong indicators of our overall performance and our ability to create shareholder value. A discussion of our results of operations and financial condition follows.
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | ||||||||||||||||||||||||||||||||||
| (In millions) | Products and Systems Integration | Software and Services | Total | Products and Systems Integration | Software and Services | Total | |||||||||||||||||||||||||||||
| Net sales by region | |||||||||||||||||||||||||||||||||||
| North America | $ | 869 | $ | 443 | $ | 1,312 | $ | 719 | $ | 374 | $ | 1,093 | |||||||||||||||||||||||
| International | 329 | 330 | 659 | 249 | 276 | 525 | |||||||||||||||||||||||||||||
| $ | 1,198 | $ | 773 | $ | 1,971 | $ | 968 | $ | 650 | $ | 1,618 | ||||||||||||||||||||||||
| Net sales by major products and services | |||||||||||||||||||||||||||||||||||
| LMR | $ | 986 | $ | 545 | $ | 1,531 | $ | 836 | $ | 481 | $ | 1,317 | |||||||||||||||||||||||
| Video Security and Access Control | 212 | 94 | 306 | 132 | 52 | 184 | |||||||||||||||||||||||||||||
| Command Center Software | — | 134 | 134 | — | 117 | 117 | |||||||||||||||||||||||||||||
| Total | $ | 1,198 | $ | 773 | $ | 1,971 | $ | 968 | $ | 650 | $ | 1,618 | |||||||||||||||||||||||
| Operating earnings | $ | 139 | $ | 231 | $ | 370 | $ | 49 | $ | 169 | $ | 218 | |||||||||||||||||||||||
| Operating margins | 11.6 | % | 29.9 | % | 18.8 | % | 5.1 | % | 26.0 | % | 13.5 | % | |||||||||||||||||||||||
Net Sales
The Products and Systems Integration segment’s net sales represented 61% of our net sales in the second quarter of 2021 and 60% in the second quarter of 2020. The Software and Services segment’s net sales represented 39% of our net sales in the second quarter of 2021 and 40% in the second quarter of 2020.
Net sales increased $353 million, or 22%, in the second quarter of 2021 compared to the second quarter of 2020. The $230 million, or 24%, increase in net sales within the Products and Systems Integration segment was driven by an increase of 21% in the North America region and an increase of 32% in the International region. The $123 million, or 19%, increase in net sales within the Software and Services segment was driven by an increase of 18% in the North America region and an increase of 20% in the International region. Net sales includes:
•an increase in the Products and Systems Integration segment, inclusive of $38 million of revenue from acquisitions, driven by an increase in PCR, Video Security and Access Control and public safety LMR;
•an increase in the Software and Services segment, inclusive of $9 million of revenue from acquisitions, driven by an increase in LMR services, Video Security and Access Control and Command Center Software; and
•$66 million from favorable currency rates.
Regional results include:
•a 20% increase in the North America region, inclusive of revenue from acquisitions, driven by an increase in LMR, Video Security and Access Control and Command Center Software; and
•a 25% increase in the International region, inclusive of revenue from acquisitions, primarily driven by an increase in LMR, Video Security and Access Control and Command Center Software.
Products and Systems Integration
The 24% increase in the Products and Systems Integration segment was driven by the following:
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•$150 million, or 18% growth in LMR, driven by both the North America and International regions;
•$80 million, or 60% growth in Video Security and Access Control, inclusive of revenue from acquisitions, driven by both the North America and International regions; and
•$32 million from favorable currency rates.
Software and Services
The 19% increase in the Software and Services segment was driven by the following:
•$64 million, or 13% growth in LMR services, driven by both the International and North America regions;
•$42 million, or 81% growth in Video Security and Access Control, inclusive of revenue from acquisitions, driven by both the North America and International regions;
•$17 million, or 15% growth in Command Center Software, inclusive of revenue from acquisitions, driven by both the North America and International regions; and
•$34 million from favorable currency rates.
Gross Margin
| Three Months Ended | |||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | % Change | ||||||||||||||
| Gross margin | $ | 952 | $ | 766 | 24 | % | |||||||||||
Gross margin was 48.3% of net sales in the second quarter of 2021 compared to 47.3% in the second quarter of 2020. The primary drivers of this increase were:
•higher gross margin in the Products and Systems Integration segment, inclusive of acquisitions, primarily driven by higher sales volume and reduced reorganization of business charges, partially offset by an increase in employee incentive costs; and
•higher gross margin within the Software and Services segment, inclusive of acquisitions, primarily driven by higher gross margin contribution from sales growth and improved mix of service offerings, partially offset by an increase in employee incentive costs.
Selling, General and Administrative Expenses
| Three Months Ended | |||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | % Change | ||||||||||||||
| Selling, general and administrative expenses | $ | 331 | $ | 297 | 11 | % | |||||||||||
SG&A expenses increased 11% in the second quarter of 2021 compared to the second quarter of 2020. SG&A expenses were 16.8% of net sales in the second quarter of 2021 compared to 18.4% of net sales in the second quarter of 2020. The increase in SG&A expenses was primarily due to higher employee incentive costs, higher expenses associated with acquired businesses and higher travel expenses.
Research and Development Expenditures
| Three Months Ended | |||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | % Change | ||||||||||||||
| Research and development expenditures | $ | 181 | $ | 161 | 12 | % | |||||||||||
R&D expenditures increased 12% in the second quarter of 2021 compared to the second quarter of 2020 primarily due to higher employee incentive costs and higher expenses associated with acquired businesses. R&D expenditures decreased to 9.2% of net sales in the second quarter of 2021 compared to 10.0% of net sales in the second quarter of 2020.
Other Charges
| Three Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Other charges | $ | 70 | $ | 90 | |||||||
Other charges decreased by $20 million in the second quarter of 2021 compared to the second quarter of 2020. The change was driven primarily by the following:
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•$6 million of net reorganization business charges in the second quarter of 2021 compared to $26 million of net reorganization business charges in the second quarter of 2020 (see further detail in the “Reorganization of Business” section in this Part I, Item 2 of this Form 10-Q);
•no fixed asset impairments in the second quarter of 2021 compared to $5 million of fixed asset impairments in the second quarter of 2020;
•$3 million of losses on legal settlements in the second quarter of 2021 compared to $7 million of losses on legal settlements in the second quarter of 2020; and
•partially offset by $58 million of intangible asset amortization expense in the second quarter of 2021 compared to $51 million of intangible asset amortization expense in the second quarter of 2020.
Operating Earnings
| Three Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Operating earnings from Products and Systems Integration | $ | 139 | $ | 49 | |||||||
| Operating earnings from Software and Services | 231 | 169 | |||||||||
| Operating earnings | $ | 370 | $ | 218 | |||||||
Operating earnings increased $152 million, or 70%, in the second quarter of 2021 compared to the second quarter of 2020. The increase in Operating earnings was due to:
•$90 million increase in the Products and Systems Integration segment, driven by higher sales and gross margin, lower reorganization of business charges and improved operating leverage, partially offset by higher employee incentive costs and higher expenses associated with acquired businesses; and
•$62 million increase in the Software and Services segment, driven by higher sales and gross margin contribution, lower reorganization of business charges and improved operating leverage, partially offset by higher employee incentive costs and higher expenses associated with acquired businesses.
Interest Expense, net
| Three Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Interest expense, net | $ | (44) | $ | (58) | |||||||
The $14 million decrease in interest expense, net in the second quarter of 2021 compared to the second quarter of 2020 was a result of the reversal of a non-cash interest accrual related to an international tax audit and lower interest rates on debt outstanding for the three months ended July 3, 2021 compared to the three months ended June 27, 2020.
Other, net
| Three Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Other, net | $ | 14 | $ | 16 | |||||||
The $2 million decrease in Other, net in the second quarter of 2021 compared to the second quarter of 2020 was primarily driven by:
•$18 million loss on extinguishment of long-term debt in the second quarter of 2021;
•$1 million loss on derivatives in the second quarter of 2021 compared to a $12 million gain on derivatives in the second quarter of 2020; partially offset by
•$31 million of net periodic pension and postretirement benefit in the second quarter of 2021 compared to $19 million of net periodic pension and postretirement benefit in the second quarter of 2020; and
•$6 million of foreign currency losses in the second quarter of 2021 compared to $21 million of foreign currency losses in the second quarter of 2020.
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Effective Tax Rate
| Three Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Income tax expense | $ | 46 | $ | 40 | |||||||
Income tax expense increased by $6 million in the second quarter of 2021 compared to the second quarter of 2020, primarily due to an increase in pretax earnings offset by a tax benefit of $33 million due to a partial release of a valuation allowance recorded on the U.S. foreign tax credit carryforward, resulting in an effective tax rate of 14%. Our effective tax rate for the three months ended July 3, 2021 was lower than the effective tax rate for the three months ended June 27, 2020 of 23%, primarily due to a tax benefit of $33 million related to a partial release of a valuation allowance recorded on the U.S. foreign tax credit carryforward.
Results of Operations—Six months ended July 3, 2021 compared to Six months ended June 27, 2020
| Six Months Ended | |||||||||||||||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | ||||||||||||||||||||||||||||||||||
| (In millions) | Products and Systems Integration | Software and Services | Total | Products and Systems Integration | Software and Services | Total | |||||||||||||||||||||||||||||
| Net sales by region | |||||||||||||||||||||||||||||||||||
| North America | $ | 1,611 | $ | 886 | $ | 2,497 | $ | 1,467 | $ | 742 | $ | 2,209 | |||||||||||||||||||||||
| International | 602 | 645 | 1,247 | 494 | 570 | 1,064 | |||||||||||||||||||||||||||||
| $ | 2,213 | $ | 1,531 | $ | 3,744 | $ | 1,961 | $ | 1,312 | $ | 3,273 | ||||||||||||||||||||||||
| Net sales by major products and services | |||||||||||||||||||||||||||||||||||
| LMR | $ | 1,836 | $ | 1,095 | $ | 2,931 | $ | 1,696 | $ | 970 | $ | 2,666 | |||||||||||||||||||||||
| Video Security and Access Control | 377 | 182 | 559 | 265 | 119 | 384 | |||||||||||||||||||||||||||||
| Command Center Software | — | 254 | 254 | — | 223 | 223 | |||||||||||||||||||||||||||||
| Total | $ | 2,213 | $ | 1,531 | $ | 3,744 | $ | 1,961 | $ | 1,312 | $ | 3,273 | |||||||||||||||||||||||
| Operating earnings | 216 | 452 | 668 | 141 | 335 | 476 | |||||||||||||||||||||||||||||
| Operating margins | 9.8 | % | 29.5 | % | 17.8 | % | 7.2 | % | 25.5 | % | 14.5 | % | |||||||||||||||||||||||
Net Sales
The Products and Systems Integration segment's net sales represented 59% of our net sales in the first half of 2021 and 60% in the first half of 2020. Net sales from the Software and Services segment represented 41% of our net sales in the first half of 2021 and 40% in the first half of 2020.
Net sales increased $471 million, or 14%, in the first half of 2021 compared to the first half of 2020. The $252 million, or 13%, increase in net sales within the Products and Systems Integration segment was driven by an increase of 10% in the North America region and an increase of 22% in the International region. The $219 million, or 17%, increase in net sales within the Software and Services segment was driven by an increase of 19% in the North America region and an increase of 13% in the International region. Net sales includes:
•an increase in the Products and Systems Integration segment, inclusive of $73 million of revenue from acquisitions, driven by an increase in Video Security and Access Control, PCR and public safety LMR;
•an increase in Software and Services, inclusive of $23 million of revenue from acquisitions, driven by an increase in LMR services, Video Security and Access Control and Command Center Software; and
•$98 million from favorable currency rates.
Regional results include:
•a 13% increase in the North America region, inclusive of revenue from acquisitions, driven by an increase in LMR, Video Security and Access Control and Command Center Software; and
•a 17% increase in the International region, inclusive of revenue from acquisitions, primarily driven by an increase in LMR, Video Security and Access Control and Command Center Software.
Products and Systems Integration
The 13% increase in the Products and Systems Integration segment was driven by the following:
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•$140 million, or 8% growth in LMR as well as revenue from acquisitions, driven by both the North America and International regions;
•$112 million, or 42% growth in Video Security and Access Control, inclusive of revenue from acquisitions, driven by both the North America and International regions; and
•$47 million from favorable currency rates.
Software and Services
The 17% increase in the Software and Services segment was driven by the following:
•$125 million, or 13% growth in LMR services, inclusive of revenue from acquisitions, driven by both the North America and International regions;
•$63 million, or 53% growth in Video Security and Access Control, inclusive of revenue from acquisitions, driven by both the North America and International regions;
•$31 million, or 14% growth in Command Center Software, inclusive of revenue from acquisitions, driven by both the North America and International regions; and
•$51 million from favorable currency rates.
Gross Margin
| Six Months Ended | |||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | % Change | ||||||||||||||
| Gross margin | $ | 1,812 | $ | 1,553 | 17 | % | |||||||||||
Gross margin was 48.4% of net sales in the first half of 2021 compared to 47.4% in the first half of 2020. The primary drivers of this increase were:
•higher gross margin within the Software and Services segment, inclusive of acquisitions, primarily driven by higher gross margin contribution from sales growth and improved mix of service offerings, partially offset by higher employee incentive costs; and
•higher gross margin in the Products and Systems Integration segment, inclusive of acquisitions, primarily driven by higher sales volume and reduced reorganization of business charges, partially offset by an increase in employee incentive costs.
Selling, General and Administrative Expenses
| Six Months Ended | |||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | % Change | ||||||||||||||
| Selling, general and administrative expenses | $ | 633 | $ | 638 | (1) | % | |||||||||||
SG&A expenses decreased 1% in the first half of 2021 compared to the first half of 2020. SG&A expenses were 16.9% of net sales in the first half of 2021 compared to 19.5% of net sales in the first half of 2020. The decrease in SG&A expenses was primarily due to lower third party expenses, lower Hytera-related legal expenses, lower share-based compensation expenses and lower travel expenses. The overall reduction in SG&A expenses was partially offset by higher employee incentive costs and higher expenses associated with acquired businesses.
Research and Development Expenditures
| Six Months Ended | |||||||||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | % Change | ||||||||||||||
| Research and development expenditures | $ | 361 | $ | 330 | 9 | % | |||||||||||
R&D expenditures increased 9% in the first half of 2021 compared to the first half of 2020 primarily due to higher employee incentive costs and higher expenses associated with acquired businesses. R&D expenditures decreased to 9.6% of net sales in the first half of 2021 compared to 10.1% of net sales in the first half of 2020.
Other Charges
| Six Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Other charges | $ | 150 | $ | 109 | |||||||
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Other charges increased by $41 million in the first half of 2021 compared to the first half of 2020. The change was driven primarily by the following:
•a $50 million gain on the sale of property, plant and equipment in the first half of 2020 that did not recur in the first half of 2021;
•$116 million of intangible asset amortization expense in the first half of 2021 compared to $104 million of intangible asset amortization expense in the first half of 2020;
•$7 million of operating lease asset impairments in the first half of 2021; partially offset by
•$20 million of net reorganization business charges in the first half of 2021 compared to $38 million in the first half of 2020 (see further detail in the “Reorganization of Business” section in this Part I, Item 2 of this Form 10-Q); and
•$3 million of losses on legal settlements in the first half of 2021 compared to $9 million of losses on legal settlements in the first half of 2020.
Operating Earnings
| Six Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Operating earnings from Products and Systems Integration | $ | 216 | $ | 141 | |||||||
| Operating earnings from Software and Services | 452 | 335 | |||||||||
| Operating earnings | $ | 668 | $ | 476 | |||||||
Operating earnings increased $192 million, or 40%, in the first half of 2021 compared to the first half of 2020. The increase in Operating earnings was due to:
•$117 million increase in the Software and Services segment, driven by higher sales and gross margin contribution due to improved mix of service offerings, lower reorganization of business charges, lower share-based compensation expenses and improved operating leverage, partially offset by higher employee incentive costs and higher expenses associated with acquired businesses; and
•$75 million increase in the Products and Systems Integration segment, primarily driven by higher gross margin due to increased sales volume, lower reorganization of business charges, lower third party expenses, lower Hytera-related legal expenses and lower travel expenses, partially offset by a $50 million gain on the sale of property, plant and equipment in the first half of 2020 that did not recur in the first half of 2021 and higher employee incentive costs and higher expenses associated with acquired businesses.
Interest Expense, net
| Six Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Interest expense, net | $ | (98) | $ | (109) | |||||||
The $11 million decrease in net interest expense in the first half of 2021 compared to the first half of 2020 was a result of the reversal of a non-cash interest accrual related to an international tax audit, lower interest rates on debt outstanding and lower average debt outstanding for the six months ended July 3, 2021 compared to the six months ended June 27, 2020.
Other, net
| Six Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Other, net | $ | 60 | $ | 34 | |||||||
The $26 million increase in Other, net in the first half of 2021 compared to the first half of 2020 was primarily driven by:
•$60 million of net periodic pension and postretirement benefit in the first half of 2021 compared to $39 million of net periodic pension and postretirement benefit in the first half of 2020;
•$8 million of foreign currency gains in the first half of 2021 compared to $3 million of foreign currency losses in the first half of 2020;
•$13 million of gains related to fair value adjustments to equity investments in the first half of 2021 compared to $5 million of gains related to fair value adjustments to equity investments in the first half of 2020; and
•partially offset by an $18 million loss on the extinguishment of long-term debt in the first half of 2021.
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Effective Tax Rate
| Six Months Ended | |||||||||||
| (In millions) | July 3, 2021 | June 27, 2020 | |||||||||
| Income tax expense | $ | 90 | $ | 67 | |||||||
Income tax expense increased by $23 million in the first half of 2021 compared to first half of 2020, primarily due to an increase in pretax earnings offset by a $33 million tax benefit due to a partial release of a valuation allowance recorded on the U.S. foreign tax credit carryforward, resulting in an effective tax rate of 14%. Our effective tax rate for the six months ended July 3, 2021 was lower than the effective tax rate for the six months ended June 27, 2020 of 17%, primarily due to a tax benefit of $33 million related to a partial release of a valuation allowance recorded on the U.S. foreign tax credit carryforward.
Reorganization of Business
During the second quarter of 2021, we recorded net reorganization of business charges of $9 million, including $6 million of charges recorded within Other charges and $3 million in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $9 million were charges of $12 million related to employee separation costs, partially offset by $3 million of reversals for accruals no longer needed.
During the first half of 2021, we recorded net reorganization of business charges of $25 million, including $20 million of charges recorded within Other charges and $5 million in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $25 million were charges of $30 million related to employee separation costs, partially offset by $5 million of reversals for accruals no longer needed.
During the second quarter of 2020, we recorded net reorganization of business charges of $41 million, including $26 million of charges in Other charges and $15 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $41 million were charges of $46 million related to employee separation costs, partially offset by $5 million of reversals for accruals no longer needed.
During the first half of 2020, we recorded net reorganization of business charges of $59 million, including $38 million of charges in Other charges and $21 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $59 million were charges of $68 million related to employee separation costs, partially offset by $9 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Products and Systems Integration | $ | 7 | $ | 33 | $ | 19 | $ | 47 | |||||||||||||||
| Software and Services | 2 | 8 | 6 | 12 | |||||||||||||||||||
| $ | 9 | $ | 41 | $ | 25 | $ | 59 | ||||||||||||||||
Cash payments for employee severance in connection with the reorganization of business plans were $56 million in the first half of 2021 and $41 million in the first half of 2020. The reorganization of business accrual at July 3, 2021 was $48 million related to employee separation costs that are expected to be paid within one year.
Liquidity and Capital Resources
| Six Months Ended | |||||||||||
| July 3, 2021 | June 27, 2020 | ||||||||||
| Cash flows provided by (used for): | |||||||||||
| Operating activities | $ | 758 | $ | 517 | |||||||
| Investing activities | (114) | (141) | |||||||||
| Financing activities | 30 | (17) | |||||||||
| Effect of exchange rates on cash and cash equivalents | (7) | (19) | |||||||||
| Increase (decrease) in cash and cash equivalents | $ | 667 | $ | 340 | |||||||
Cash and Cash Equivalents
At July 3, 2021, $1.3 billion of the $1.9 billion cash and cash equivalents balance was held in the U.S. and $567 million was held in other countries, with $228 million held in the United Kingdom.
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Operating Activities
The increase in cash flows provided by operating activities from the first half of 2020 to the first half of 2021 was driven primarily by an increase in earnings as a result of increased sales volume and improved working capital, partially offset by higher income tax payments.
Investing Activities
The decrease in cash flows used for investing activities from the first half of 2020 to the first half of 2021 was primarily due to:
•$93 million decrease in cash used for acquisitions and investments; partially offset by a
•$50 million decrease in the proceeds from the sale of property, plant and equipment driven by the sale of a European manufacturing facility in the first half of 2020; and
•$12 million increase in capital expenditures due to higher payments for the Airwave and ESN networks.
Financing Activities
The increase in cash flows provided by financing activities in the first half of 2021 as compared to the cash used for financing activities in the first half of 2020 was primarily driven by (also see further discussion in the "Debt," "Share Repurchase Program" and "Dividends" sections below in this Part I, Item 2 of this Form 10-Q):
•$64 million decrease in share repurchases in the first half of 2021 compared to the first half of 2020;
•$844 million of net proceeds from the issuance of debt in the first half of 2021 compared to $800 million of proceeds received from the draw on our revolving credit facility during the first half of 2020;
•partially offset by $348 million of repayments of debt in the first half of 2021 compared to $300 million of repayments on the revolving credit facility and $8 million of repayments of debt in the first half of 2020; and
•$24 million increase in the payment of dividends in the first half of 2021 compared to the first half of 2020.
Sales of Receivables
The following table summarizes the proceeds received from sales of accounts receivable and long-term customer financing receivables for the three and six months ended July 3, 2021 and June 27, 2020:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| July 3, 2021 | June 27, 2020 | July 3, 2021 | June 27, 2020 | ||||||||||||||||||||
| Contract-specific discounting facility | $ | 36 | $ | 54 | $ | 107 | $ | 98 | |||||||||||||||
| Accounts receivable sales proceeds | 8 | 34 | $ | 8 | $ | 58 | |||||||||||||||||
| Long-term receivables sales proceeds | 30 | 29 | 84 | 70 | |||||||||||||||||||
| Total proceeds from receivable sales | $ | 74 | $ | 117 | $ | 199 | $ | 226 | |||||||||||||||
During the three and six months ended July 3, 2021, we utilized a contract-specific receivable discounting facility which began during the six months ended June 27, 2020, resulting in accounts receivable sales of $36 million and $107 million, respectively. The proceeds of our receivable sales are included in Operating activities within our Condensed Consolidated Statements of Cash Flows.
Debt
We had outstanding debt of $5.7 billion and $5.2 billion, including the current portions of $9 million and $12 million, at July 3, 2021 and December 31, 2020, respectively.
On May 24, 2021, we issued $850 million of 2.75% senior notes due 2031. We recognized net proceeds of $844 million after debt issuance costs. A portion of these proceeds were then used to redeem $324 million in principal amount of our outstanding long-term debt for a purchase price of $341 million, excluding $3 million of accrued interest. After accelerating the amortization of debt discounts and debt issuance costs, we recognized a loss of $18 million related to the redemption in Other, net within Other income (expense) in our Condensed Consolidated Statements of Operations.
On March 24, 2021, we entered into a $2.25 billion syndicated, unsecured revolving credit facility scheduled to mature in March 2026 (the "2021 Motorola Solutions Credit Agreement"). The 2021 Motorola Solutions Credit Agreement includes a letter of credit sub-limit and fronting commitments of $450 million. Borrowings under the facility bear interest at the prime rate plus the applicable margin, or at a spread above the London Interbank Offered Rate ("LIBOR"), at our option. The 2021 Motorola Solutions Credit Agreement includes provisions allowing us to replace LIBOR with a replacement benchmark rate in the future under certain conditions defined in the agreement. An annual facility fee is payable on the undrawn amount of the credit line. The interest rate and facility fee are subject to adjustment if our credit rating changes. We must comply with certain customary covenants including a maximum leverage ratio, as defined in the 2021 Motorola Solutions Credit Agreement. We were in compliance with our financial covenants as of July 3, 2021.
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On September 5, 2019, we entered into an agreement with Silver Lake Partners to issue $1.0 billion of 1.75% senior convertible notes which mature in September 2024 ("Senior Convertible Notes"). Interest on these notes is payable semiannually. The notes are convertible anytime on or after two years from their issuance date, except in certain limited circumstances. The notes are convertible based on a conversion rate of 4.9140 per $1,000 principal amount (which is equal to an initial conversion price of $203.50 per share). In the event of conversion, we intend to settle the principal amount of the Senior Convertible Notes in cash. We recorded a debt liability associated with the Senior Convertible Notes by determining the fair value of an equivalent debt instrument without a conversion option. Using a discount rate of 2.45%, which was determined based on a review of relevant market data, we calculated the debt liability to be $986 million, indicating a $14 million discount to be amortized over the expected life of the debt instrument. The remaining proceeds of $14 million were allocated to the conversion option and accordingly, increased Additional paid-in capital.
We have an unsecured commercial paper program, backed by the 2021 Motorola Solutions Credit Agreement, under which we may issue unsecured commercial paper notes up to a maximum aggregate principal amount of $2.2 billion outstanding at any one time. Proceeds from the issuances of the notes are expected to be used for general corporate purposes. As of July 3, 2021 we had no outstanding debt under the commercial paper program.
We believe that we have adequate internal resources available to fund expected working capital and capital expenditure requirements, contractual obligations, debt service requirements and other liquidity requirements associated with our operations for at least the next twelve months and the reasonably foreseeable future thereafter, as supported by the level of cash and cash equivalents in the U.S., the ability to repatriate funds from foreign jurisdictions, cash provided by operations, as well as liquidity provided by our commercial paper program backed by the 2021 Motorola Solutions Credit Agreement. Refer also to the “COVID-19” section in this Part I, Item 2 of this Form 10-Q for a discussion of the impact of COVID-19 on our liquidity.
Share Repurchase Program
During the three and six months ended July 3, 2021, we paid an aggregate of $102 million and $272 million, respectively, including transaction costs, to repurchase approximately 0.5 million and 1.5 million shares at an average price of $206.85 and $186.08 per share. During the three months ended July 3, 2021, the Board of Directors approved a $2.0 billion increase to the share repurchase program. As of July 3, 2021, the Company had used approximately $13.6 billion of the share repurchase authority to repurchase shares, leaving $2.4 billion of authority available for future repurchases.
Dividends
During the second quarter of 2021 we paid $121 million in cash dividends to holders of our common stock. During the first half of 2021 we paid $242 million in cash dividends to holders of our common stock. Subsequent to the quarter, we paid an additional $120 million in cash dividends to holders of our common stock.
Long-Term Customer Financing Commitments
We had outstanding commitments to provide long-term financing to third parties totaling $99 million at July 3, 2021, compared to $78 million at December 31, 2020.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” and “Recently Adopted Accounting Pronouncements” in Note 1, “Basis of Presentation” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our interest rate risk or foreign currency risk during the six months ended July 3, 2021. For a discussion of our exposure to interest rate risk and foreign currency risk, refer to our disclosures set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of the Form 10-K.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Form 10-Q (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to Motorola Solutions, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to Motorola Solutions’ management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended July 3, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
37
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
In addition to the matter referenced below, the Company is subject to legal proceedings and claims that have not been fully resolved and which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's condensed consolidated financial position, liquidity, or results of operations. However, an unfavorable resolution could have a material adverse effect on the Company's condensed consolidated financial position, liquidity, or results of operations in the periods in which the matters are ultimately resolved, or in the periods in which more information is obtained that changes management's opinion of the ultimate disposition.
See Note 12, “Commitments and Contingencies,” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for information regarding our legal proceedings.
Item 1A. Risk Factors
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in the Form 10-K, which could materially affect our business, financial condition or future results. The risks described in “Risk Factors” in the Form 10-K remain current in all material respects.
38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to acquisitions by the Company of shares of its common stock during the quarter ended July 3, 2021.
Issuer Purchases of Equity Securities
| Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share (1) | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Program (2) | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Program(2) | |||||||||||||||||||
| 03/31/2021 to 04/28/2021 | — | $ | — | — | $ | 478,763,100 | |||||||||||||||||
| 04/29/2021 to 05/26/2021 | 171,681 | $ | 199.59 | 171,681 | $ | 2,444,497,493 | |||||||||||||||||
| 05/27/2021 to 06/30/2021 | 319,904 | $ | 210.74 | 319,904 | $ | 2,377,079,371 | |||||||||||||||||
| Total | 491,585 | $ | 206.85 | 491,585 | |||||||||||||||||||
(1)Average price paid per share of common stock repurchased is the execution price, including commissions paid to brokers.
(2)As originally announced on July 28, 2011, and subsequently amended, the Board of Directors has authorized the Company to repurchase an aggregate amount of up to $16.0 billion of its outstanding shares of common stock (the “share repurchase program”). The share repurchase program does not have an expiration date. As of July 3, 2021, the Company had used approximately $13.6 billion, including transaction costs, to repurchase shares, leaving $2.4 billion of authority available for future repurchases.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
39
Item 6. Exhibits
Exhibit 10.1 listed in this Part II, Item 6 of this Form 10-Q is a management contract or compensatory plan or arrangement.
| Exhibit No. | Exhibit | |||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Scheme Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
___________________________________
| * | Filed herewith | ||||
| ** | Furnished herewith | ||||
| MOTOROLA, MOTOROLA SOLUTIONS and the Stylized M Logo are trademarks or registered trademarks of Motorola Trademark Holdings, LLC and are used under license. All other trademarks are the property of their respective owners. ©2021 Motorola Solutions, Inc. All rights reserved. | |||||
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MOTOROLA SOLUTIONS, INC. | |||||||||||
| By: | /S/ DAN PEKOFSKE | ||||||||||
Dan Pekofske Corporate Vice President and Chief Accounting Officer (Principal Accounting Officer) | |||||||||||
August 5, 2021
41
CL2 Page 1 Summary of Benefits Accident Benefits for Motorola Solutions, Inc. You are a Covered Person and eligible for coverage under the plan, if you are in the eligible class defined below. For benefits to be payable the Policy must be in force, the required premium must be paid and you must be engaging in one of the Covered Activities described below. If you are not in Active Service on the date your insurance would otherwise be effective, it will go into effect on the date you return to Active Service. Class Description: All non-employee directors of the Policyholder who are in Active Service Your Dependents (your lawful spouse and unmarried children, subject to the age limits shown in the Policy) are also covered, if they are traveling with you. Period of Coverage: You will be insured on the later of the Policy Effective Date or the date that you become eligible. Your coverage will end on the earliest of the date: 1) the Policy terminates; 2) you are no longer eligible; or 3) the period ends for which the required premium is paid. Dependents coverage will end on the earliest of the date: 1) he or she is no longer a Dependent; 2) your coverage ends; or 3) the period ends for which the required premium is paid. Covered Activities Exposure & Disappearance - Coverage includes exposure to the elements after the forced landing, stranding, sinking, or wrecking of a vehicle in which you were traveling. You are presumed dead if you are in a vehicle that disappears, sinks, or is stranded or wrecked on a trip covered by the Policy; and the body is not found within one year of the Covered Accident. 24-Hour Coverage - We will pay the benefits described in the Policy when you suffer a Covered Accident any time while insured by the Policy. Unless otherwise specified, We will pay benefits only once for a Covered Accident. Business Travel - The Covered Accident must take place while traveling: 1) on business for the Policyholder; and 2) in the course of the Policyholder’s business. This coverage does not include commuting between home and the place of work. This coverage will start at the actual start of the trip. It does not matter whether the trip starts at your home, place of work, or other place. It will end on the first of the following dates to occur: 1) the date you return to your home; 2) the date you return to your place of work; or 3) the date your Personal Deviation is more than 14 day(s). “Personal Deviation” means: 1) an activity that is not reasonably related to the Policyholder’s business; and 2) not incidental to the purpose of the trip. Hijacking and Air Piracy - The Covered Accident must: 1) take place during the: a) hijacking of an Aircraft; b) air piracy; or c) unlawful seizure or attempted seizure of an Aircraft; and 2) take place while you are in the course of the Policyholder’s business. Coverage begins with the onset of the hijacking or air piracy and continues while you are subject to the control of the person or persons responsible for the hijacking/air piracy and during travel directly to your home or scheduled destinations. “Hijacking” or “Air Piracy,” as used here, means the unlawful seizure or wrongful exercise of control of an aircraft or conveyance, or the crew thereof, in which you are traveling solely as a passenger. Owned, Leased, or Controlled Aircraft - The Covered Accident must take place while: 1) you are riding in, or getting on or off of, a covered aircraft; or 2) as a result of you being struck by a covered aircraft. 3) away from the Policyholder's premises in your city of permanent assignment; 4) on business for the Policyholder; and 5) in the course of the Policyholder's business. This coverage will start at the actual start of the trip. It does not matter whether the trip starts at your home, place of work, or other place. It will end on the first of the following dates to occur: 1) the date you return to your home; 2) the date you return to your place of work; or 3) the date your Personal Deviation is more than 14 day(s). “Personal Deviation” means: 1) an activity that is not reasonably related to the Policyholder's business; and 2) not incidental to the purpose of the trip. An aircraft will be deemed “controlled” by the Policyholder if the Policyholder may use it for more than 10 straight days, or more than 15 days in any year. Aircraft Restrictions - If the Covered Accident happens while you are riding in, or getting on or off of, an aircraft, We will pay benefits, but only if: 1) you are riding as a passenger only, and not as a pilot or member of the crew (except as provided by the Policy); and 2) the aircraft has a valid certificate of airworthiness; and 3) the aircraft is flown by a pilot with a valid license; and 4) the aircraft is not being used for: (i) crop dusting, spraying, or seeding; firefighting; skywriting; skydiving or hang Exhibit 10.1
CL1 Page 2 gliding; pipeline or power line inspection; aerial photography or exploration; racing, endurance tests, stunt or acrobatic flying; or (ii) any operation which requires a special permit from the FAA, even if it is granted (this does not apply if the permit is required only because of the territory flown over or landed on). 5) the aircraft is a military transport aircraft flown by the U.S. Military Airlift Command (MAC), or similar air transport service of another country. Description of Benefits Aggregate Limit - We will not pay more than $15,000,000 per Covered Accident for all losses. If, in the absence of this provision, We would pay more than this amount for all losses under the policy, then the benefits payable to each person with a valid claim will be reduced proportionately. Accidental Death and Dismemberment Benefits - If your Injury results, within 365 days from the date of a Covered Accident, in any one of the losses shown below, We will pay the Benefit Amount shown below for that loss. Your Principal Sum is $500,000. Your spouse’s Principal Sum is $50,000. Your child’s Principal Sum is $25,000. If multiple losses occur, only one Benefit Amount, the largest, will be paid for all losses due to the same Covered Accident. Schedule of Covered Losses Covered Loss Benefit Amount Life ........................................................................................................................ 100% of the Principal Sum Two or more Members .......................................................................................... 100% of the Principal Sum Quadriplegia.......................................................................................................... 100% of the Principal Sum One Member ........................................................................................................... 50% of the Principal Sum Hemiplegia .............................................................................................................. 75% of the Principal Sum Paraplegia ............................................................................................................... 75% of the Principal Sum Thumb and Index Finger of the Same Hand .......................................................... 25% of the Principal Sum “Quadriplegia” means total Paralysis of both upper and lower limbs. “Hemiplegia” means total Paralysis of the upper and lower limbs on one side of the body. “Paraplegia” means total Paralysis of both lower limbs or both upper limbs. “Paralysis” means total loss of use. A Doctor must determine the loss of use to be complete and not reversible at the time the claim is submitted. “Member” means Loss of Hand or Foot, Loss of Sight, Loss of Speech and Loss of Hearing. “Loss of Hand or Foot” means complete Severance through or above the wrist or ankle joint. “Loss of Sight” means the total, permanent Loss of Sight of one eye. “Loss of Speech” means total and permanent loss of audible communication that is irrecoverable by natural, surgical or artificial means. “Loss of Hearing” means total and permanent Loss of Hearing in both ears that is irrecoverable and cannot be corrected by any means. “Loss of a Thumb and Index Finger of the Same Hand” means complete Severance through or above the metacarpophalangeal joints of the same hand (the joints between the fingers and the hand). “Severance” means the complete separation and dismemberment of the part from the body. Coma Benefit - We will pay 1% of the Principal Sum per month up to 11 months and thereafter in a lump sum of 100% of the Principal Sum if you become Comatose within 31 days of a Covered Accident and remain in a Coma for at least 31 days. We reserve the right, at the end of the first 31 days of Coma, to require proof that you remain Comatose. This proof may include, but is not limited to, requiring an independent medical examination at Our expense. Monthly payments will end on the first of the following dates: 1) the end of the month in which you die; 2) the end of the 11th month for which this benefit is payable; 3) the end of the month in which you recover from the Coma. You are deemed “Comatose” or in a “Coma” if you are in a profound stupor or state of complete and total unconsciousness, as the result of a Covered Accident. Disability Benefit (Permanent Total Disability) - We will pay 100% of the Principal Sum if you are under age 70 and Permanently Totally Disabled as a direct result of, and from no other cause but, a Covered Accident. Permanent Total Disability must begin within 365 days from the date of your Covered Accident. Disability Benefits will begin when: 1) the applicable Benefit Waiting Period of 365 days is satisfied; and 2) you provide satisfactory proof of Permanent Total Disability to Us.
CL1 Page 3 “Total Disability” or “Totally Disabled” means, due to an Injury from a Covered Accident, you: 1) if employed, cannot do any work for which you are, or may become, qualified by reason of education, experience or training; and 2) if not employed, cannot perform the normal and customary activities of a healthy person of like age and sex. “Permanent Total Disability” or “Permanently Totally Disabled” means you are Totally Disabled and are expected to remain so disabled, as certified by a Doctor, for the rest of your life. Permanent Total Disability must be the result of the same Covered Accident that caused the Total Disability. Emergency Medical Benefits - We will pay up to $10,000 for Covered Expenses incurred for emergency medical services to treat you if you: 1) suffer a Medical Emergency during the course of a Trip; and 2) are traveling 100 miles or more away from your place of permanent residence. Covered Expenses include expenses for guarantee of payment to a medical provider, Hospital or treatment facility. Benefits for these Covered Expenses will not be payable unless the charges incurred: 1) are Medically Necessary and do not exceed the charges for similar treatment, services or supplies in the locality where the expense is incurred; and 2) do not include charges that would not have been made if there were no insurance. Benefits will not be payable unless We authorize in writing, or by an authorized electronic or telephonic means, all expenses in advance, and services are rendered by Our assistance provider. Emergency Medical Evacuation Benefit - We will pay 100% of Covered Expenses incurred for your medical evacuation if you: 1) suffer a Medical Emergency during the course of the Trip; 2) require Emergency Medical Evacuation; and 3) are traveling 100 miles or more away from your place of permanent residence. Covered Expenses; 1) Medical Transport: expenses for transportation under medical supervision to a different hospital, treatment facility or to your place of residence for Medically Necessary treatment in the event of your Medical Emergency and upon the request of the Doctor designated by Our assistance provider in consultation with the local attending Doctor. 2) Dispatch of a Doctor or Specialist: the Doctor’s or specialist’s travel expenses and the medical services provided on location, if, based on the information available, your condition cannot be adequately assessed to evaluate the need for transport or evacuation and a doctor or specialist is dispatched by Our service provider to your location to make the assessment. 3) Return of Dependent Child(ren): expenses to return each Dependent child who is under age 18 to his or her principal residence if a) you are age 18 or older; and b) you are the only person traveling with the minor Dependent child(ren); and c) you suffer a Medical Emergency and must be confined in a Hospital. 4) Escort Services: expenses for an Immediate Family Member or companion who is traveling with you to join you during your emergency medical evacuation to a different hospital, treatment facility or your place of residence. Benefits for these Covered Expenses will not be payable unless: 1) the Doctor ordering the Emergency Medical Evacuation certifies the severity of your Medical Emergency requires an Emergency Medical Evacuation; 2) all transportation arrangements made for the Emergency Medical Evacuation are by the most direct and economical conveyance and route possible; 3) the charges incurred are Medically Necessary and do not exceed the Usual and Customary Charges for similar transportation, treatment, services or supplies in the locality where the expense is incurred; and 4) do not include charges that would not have been made if there were no insurance. Benefits will not be payable unless We authorize in writing, or by an authorized electronic or telephonic means, all expenses in advance, and services are rendered by Our assistance provider. In the event you refuse to be medically evacuated, we will not be liable for any medical expenses incurred after the date medical evacuation is recommended. Rehabilitation Benefit - We will pay $50,000 if you suffer an Accidental Dismemberment covered under the Policy and you are participating in a Rehabilitation Program that is prescribed by a Doctor. Benefits are payable for: 1) the facility providing the Rehabilitation Program in which you are participating; and 2) Immediate Family Members who incur expenses for travel to and from the location at which you are participating in a Rehabilitation Program provided actual receipts are submitted with the claim. Benefits will end when the first of the following events occur: 1) the date you complete the Rehabilitation Program; and 2) the date you die. “Immediate Family Member” means your parent, grandparent, spouse, child, brother, sister, or in-laws. “Rehabilitation Program” means a specialized, intensive program for rehabilitation or assimilation at an accredited medical facility specializing in research, surgery, and training of persons with Accidental Dismemberment Covered Losses as outlined in the Schedule of Covered Losses. Repatriation of Remains Benefit - We will pay 100% of Covered Expenses for preparation and return of your body to your home if you die as a result of a Medical Emergency while traveling 100 miles or more away from your place of permanent residence. Covered expenses include: 1) expenses for embalming or cremation; 2) the least costly coffin or receptacle adequate for transporting the remains; 3) transporting the remains; and 4) Escort Services which include expenses for an
CL1 Page 4 Immediate Family Member or companion who is traveling with you to join your body during the repatriation to your place of residence. All transportation arrangements must be made by the most direct and economical route and conveyance possible and may not exceed the Usual and Customary Charges for similar transportation in the locality where the expense is incurred. Benefits will not be payable unless We authorize in writing, or by an authorized electronic or telephonic means, all expenses in advance, and services are rendered by Our assistance provider. Seatbelt and Airbag Benefit - We will pay $25,000 when you die or are dismembered directly and independently from Injuries sustained while wearing a seatbelt and operating or riding as a passenger in an Automobile. An additional $10,000 if you were also positioned in a seat protected by a properly-functioning and properly deployed Supplemental Restraint System (Airbag). Verification of proper use of the seatbelt at the time of the Covered Accident and that the Supplemental Restraint System properly inflated upon impact must be a part of an official police report of the Covered Accident or be certified, in writing, by the investigating officer(s) and submitted with your claim to Us. If such certification or police report is not available or it is unclear whether you were wearing a seatbelt or positioned in a seat protected by a properly functioning and properly deployed Supplemental Restraint System, We will pay $1,000 to your beneficiary. In the case of a child, seatbelt means a child restraint, as required by state law and approved by the National Highway Traffic Safety Administration, properly secured and being used as recommended by its manufacturer for children of like age and weight at the time of the Covered Accident. "Supplemental Restraint System" means an airbag that inflates upon impact for added protection to the head and chest areas. "Automobile" means a self-propelled, private passenger motor vehicle with four or more wheels that is a type both designed and required to be licensed for use on the highway of any state or country. Automobile includes, but is not limited to, a sedan, station wagon, sport utility vehicle, or a motor vehicle of the pickup, van, camper, or motor-home type. Automobile does not include a mobile home or any motor vehicle that is used in mass or public transit. Special Adaptation Benefit - We will pay 10% of the Principal Sum up to $10,000, if you suffer a “Presumptive Disability” and require a special housing adaptation or a special Vehicle to accommodate the disability. Benefits will not be payable unless your Doctor certifies them as necessary. “Presumptive Disability” means We will presume you are Totally Disabled if you suffer the complete and irrecoverable loss of sight of both eyes, speech, hearing in both ears, or of any two limbs, hands or feet, provided the loss occurs within one year of the Covered Accident. “Vehicle” means a private passenger land motor vehicle. It includes automobiles, vans, and four wheel drive vehicles. It does not include a vehicle used for farming, commercial business, racing or any type of competitive speed event. Special Counseling Benefit - We will pay $100 per session for up to 10 counseling sessions for mental health counseling to assist you in dealing with a Covered Loss, if you suffer an Injury that results in a loss as outlined in the Schedule of Covered Losses for which the Accidental Death and Dismemberment Benefit is payable; and obtain mental health counseling. The Maximum Amount for this benefit is $1,000 per Covered Loss. Exclusions and Limitations: We will not pay benefits for any loss or Injury that is caused by, or results from: intentionally self-inflicted Injury. suicide or attempted suicide. war or any act of war, whether declared or not (except as provided by the Policy). a Covered Accident that occurs while on active duty service in the military, naval or air force of any country or international organization. Upon Our receipt of proof of service, We will refund any premium paid for this time. Reserve or National Guard active duty training is not excluded unless it extends beyond 31 days. sickness, disease, bodily or mental infirmity, bacterial infections, except infections which occur as a result of accidental injury or accidental involuntary or unintentional ingestion of a contaminated substance. piloting or serving as a crewmember in any aircraft (except as provided by the Policy). commission of, or attempt to commit, a felony. This insurance does not apply to the extent that trade or economic sanctions or other laws or regulations prohibit Us from providing insurance, including, but not limited to, the payment of claims.
CL1 Page 5 War Risk Coverage: We will pay benefits for Covered Losses due to Covered Accidents resulting from war or acts of war anywhere in the world, except the following countries: the United States The Covered Person’s Home Country The Covered Person’s Country of Permanent Assignment The war exclusion is deleted to the extent coverage is provide by the terms and conditions of War Risk Coverage. “Home Country” means a country from which you hold a passport. If you hold passports from more than one Country, your Home Country will be the country that you declared to Us in writing as your Home Country. “Country of Permanent Assignment” means a country, other than your Home Country, in which the Policyholder requires you to work for a period of time that exceeds 180 continuous days. We will not pay more than $15,000,000 per occurrence for war risk benefits. This limit shall apply to Injuries sustained from all acts of war in a consecutive 72-hour period. If but for this limit We would pay more than $15,000,000, then the benefits We will pay to each Covered Person will be reduced in the same proportion, so that the total amount We will pay for war risk coverage is $15,000,000. Out-of-Country Medical Expense Benefit In addition to the accident benefits provided by your business travel plan, we will pay the additional benefits listed below if you are injured as the result of a Covered Accident or become sick while traveling on business outside your Home Country or Country of Permanent Assignment provided the trip does not exceed 180 days. This coverage will begin on the later of the scheduled departure date or the date you leave your Home Country or Country of Permanent Assignment on a trip authorized by the Participating Organization. Coverage will end on the earliest of your scheduled return date, the date you return to your Home Country or Country of Permanent Assignment, or the date your Personal Deviation is more than 14 days. Medical Expense Benefits - We will pay for Covered Expenses that result directly from a Covered Accident or Sickness. These benefits are payable to the earlier of the date you return to your Home Country or Country of Permanent Assignment, or 26 weeks from the date of a Covered Accident or Sickness provided the first Covered Expense was incurred within 30 days after the date of Covered Accident or Sickness. The Maximum Benefit for all Accident and Sickness benefits for you is $250,000; for your spouse is $250,000; and for your children is $250,000, subject to a Deductible of $0 per Covered Accident or Sickness. The following limits also apply: The maximum for Dental Treatment (Injury only) is $1,000. The maximum for Emergency Medical Treatment of Pregnancy is treated as any other medical condition. The maximum for Room & Board charges is the average semi-private room rate. The maximum for ICU Room & Board Charges is two (2) times the average semi-private room rate. Medical Expense Benefits are only payable: 1) for 100% of the Usual and Customary Charges incurred after the Deductible, if any, has been met; 2) for those Medically Necessary Covered Expenses that the Covered Person incurs; and 3) for charges incurred for services rendered to you while traveling outside of your Home Country or Country of Permanent Assignment. Emergency Medical, Emergency Medical Evacuation and Repatriation of Remains Benefits are extended to include travel outside of your Home Country or Country of Permanent Assignment. In addition to the exclusions above, We will not pay benefits for any loss, treatment, or services resulting from: Routine physicals and care of any kind. Routine dental care and treatment. Cosmetic surgery, except for reconstructive surgery needed as the result of an Injury. Routine nursery care.
CL1 Page 6 Eye refractions or eye examinations for the purpose of prescribing corrective lenses or for the fitting thereof; eyeglasses, contact lenses, and hearing aids. Services, supplies, or treatment including any period of Hospital confinement which is not recommended, approved, and certified as medically necessary and reasonable by a Doctor, or expenses which are non-medical in nature. Treatment or service provided by a private duty nurse. Treatment by any Immediate Family Member or member of the Insured’s household. Expenses incurred during holiday travel, or travel for purposes of seeking medical care or treatment, or for any other travel that is not in the course of the Policyholder’s business (unless Personal Deviations are specifically covered). Covered medical expenses for which the Covered Person would not be responsible for in the absence of the Policy. Any expense paid or payable by any other valid and collectible group insurance plan. Injury or sickness for which benefits are paid or payable under any workers’ compensation or occupational disease law or act, or similar legislation, whether United States federal or foreign law. If we determine the benefits paid under the Out-of-Country Medical Plan are eligible benefits under any other benefit plan, We may seek to recover any expenses covered by another plan to the extent that the Insured is eligible for reimbursement. IMPORTANT NOTICE This policy provides travel insurance benefits for individuals traveling outside of their home country. This policy does not constitute comprehensive health insurance coverage (often referred to as “major medical coverage”) and does not satisfy a person’s individual obligation to secure the requirement of minimum essential coverage under the Affordable Care Act (ACA). For more information about the ACA, please refer to www.HealthCare.gov. Definitions: “Covered Accident” means an accident that occurs while coverage is in force for you and results directly in a loss or Injury covered by the Policy for which benefits are payable. “Covered Person” means any eligible person for whom the required premium is paid. “Injury” means accidental bodily harm sustained by you that results directly from a Covered Accident. All injuries sustained by one person in any one Accident, including all related conditions and recurrent symptoms of these injuries, are considered a single Injury. Medical Emergency” means a condition caused by an Injury or Sickness that manifests itself by symptoms of sufficient severity that a prudent lay person possessing an average knowledge of health and medicine would reasonably expect that failure to receive immediate medical attention would place the health of the person in serious jeopardy. “Sickness” means an illness, disease or condition that causes a loss for which you incur medical expenses while covered under this Policy. All related conditions and recurrent symptoms of the same or similar condition will be considered one Sickness. “Trip” means travel by air, land, or sea from your Home Country. “We, Our, Us” means the insurance company underwriting this insurance or its authorized agent. You must provide notification of a claim within 90 days of an Accident or Loss. If notice cannot be given within that time, it must be given as soon as reasonably possible. This notice should identify you, the Policyholder, and the Policy Number. Policy Number: ADD N04156870, Underwritten by ACE American Insurance Company, 436 Walnut Street, Philadelphia, PA 19106 Contact Information: For customer service, eligibility verification, plan information, or to file a claim, contact: Chubb NA at 800-336-0627 (from inside the U.S.) or 302-476-6194 (from outside the U.S.); fax 302-476-6154 for claims or inquiries or e-mail diane.basa@chubb.com or aceaandhclaims@chubb.com. Mail claims to: Chubb Accident & Health, PO Box 5124, Scranton, PA 18505-0556. Travel Assistance Services: Please contact the Policyholder for information about your travel assistance services and how to contact the assistance provider when you are traveling.
CL1 Page 7 This Description of Coverage is a brief description of the important features of the insurance plan. It is not a contract of insurance. The terms and conditions of coverage are set forth in the Policy issued to your employer. The Policy is subject to the laws of the state in which it was issued. Coverage may not be available in all states or certain terms or conditions may be different if required by state law. Please keep this information as a reference.
Exhibit 31.1
CERTIFICATION
I, Gregory Q. Brown, Chairman and Chief Executive Officer, Motorola Solutions, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Motorola Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2021
| /s/ GREGORY Q. BROWN | |||||
| Gregory Q. Brown | |||||
| Chairman and Chief Executive Officer | |||||
| Motorola Solutions, Inc. | |||||
Exhibit 31.2
CERTIFICATION
I, Jason J. Winkler, Executive Vice President and Chief Financial Officer, Motorola Solutions, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Motorola Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2021
| /s/ JASON J. WINKLER | |||||
| Jason J. Winkler | |||||
| Executive Vice President and Chief Financial Officer | |||||
| Motorola Solutions, Inc. | |||||
Exhibit 32.1
CERTIFICATION
I, Gregory Q. Brown, Chairman and Chief Executive Officer, Motorola Solutions, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to my knowledge:
(1)the quarterly report on Form 10-Q for the period ended July 3, 2021 (the “Quarterly Report”), which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of Motorola Solutions, Inc.
This certificate is being furnished solely for purposes of Section 906.
Dated: August 5, 2021
| /s/ GREGORY Q. BROWN | |||||
| Gregory Q. Brown | |||||
| Chairman and Chief Executive Officer | |||||
| Motorola Solutions, Inc. | |||||
Exhibit 32.2
CERTIFICATION
I, Jason J. Winkler, Executive Vice President and Chief Financial Officer, Motorola Solutions, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to my knowledge:
(1)the quarterly report on Form 10-Q for the period ended July 3, 2021 (the “Quarterly Report”), which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of Motorola Solutions, Inc.
This certificate is being furnished solely for purposes of Section 906.
Dated: August 5, 2021
| /s/ JASON J. WINKLER | |||||
| Jason J. Winkler | |||||
| Executive Vice President and Chief Financial Officer | |||||
| Motorola Solutions, Inc. | |||||