Motorola Solutions, Inc 10-Q for FY2020 Q2

Motorola Solutions, Inc. (MSI)

10-Q 2020-08-07 For: 2020-06-27

Added on April 03, 2026

About this 10-Q

Motorola Solutions, Inc filed this 10-Q on August 7, 2020, covering the quarter ended June 27, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 27, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.62B; down 13.0% from $1.86B a year earlier
Net income: $135M; down 34.8% from net income of $207M a year earlier
Diluted EPS: $0.78; down 33.9% from $1.18 a year earlier

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			Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements			1
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 27, 2020 and June 29, 2019			1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 27, 2020 and June 29, 2019			2
Condensed Consolidated Balance Sheets as of June 27, 2020 (Unaudited) and December 31, 2019			3
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) for the Three and Six Months Ended June 27, 2020 and June 29, 2019			4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 27, 2020 and June 29, 2019			5
Notes to Condensed Consolidated Financial Statements (Unaudited)			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3 Quantitative and Qualitative Disclosures About Market Risk			37
Item 4 Controls and Procedures			38
PART II OTHER INFORMATION
Item 1 Legal Proceedings			39
Item 1A Risk Factors			39
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 3 Defaults Upon Senior Securities			40
Item 4 Mine Safety Disclosures			40
Item 5 Other Information			40
Item 6 Exhibits			41


	Three Months Ended						Six Months Ended
(In millions, except per share amounts)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net sales from products	$	877	$	1,118	$	1,764	$	2,063
Net sales from services	741		742		1,509		1,454
Net sales	1,618		1,860		3,273		3,517
Costs of products sales	413		490		812		934
Costs of services sales	439		439		908		879
Costs of sales	852		929		1,720		1,813
Gross margin	766		931		1,553		1,704
Selling, general and administrative expenses	297		351		638		676
Research and development expenditures	161		170		330		333
Other charges	90		61		109		116
Operating earnings	218		349		476		579
Other income (expense):
Interest expense, net	(58)		(56)		(109)		(111)
Gains on sales of investments and businesses, net	—		3		—		4
Other, net	16		(21)		34		(12)
Total other expense	(42)		(74)		(75)		(119)
Net earnings before income taxes	176		275		401		460
Income tax expense	40		67		67		100


Net earnings	136		208		334		360
Less: Earnings attributable to non-controlling interests	1		1		2		2
Net earnings attributable to Motorola Solutions, Inc.	$	135	$	207	$	332	$	358




Earnings per common share:
Basic	$	0.79	$	1.25	$	1.95	$	2.18



Diluted	$	0.78	$	1.18	$	1.90	$	2.04




Weighted average common shares outstanding:
Basic	170.0		164.9		170.3		164.4
Diluted	173.6		176.1		174.8		175.3
Dividends declared per share	$	0.64	$	0.57	$	0.64	$	0.57


	Three Months Ended						Six Months Ended
(In millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net earnings	$	136	$	208	$	334	$	360
Other comprehensive income (loss), net of tax (Note 4):
Foreign currency translation adjustments	78		(23)		(60)		7


Defined benefit plans	13		10		25		21
Total other comprehensive income (loss), net of tax	91		(13)		(35)		28
Comprehensive income	227		195		299		388
Less: Earnings attributable to non-controlling interests	1		1		2		2
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	226	$	194	$	297	$	386


(In millions, except par value)	June 27, 2020		December 31, 2019
ASSETS
Cash and cash equivalents	$	1,341	$	1,001
Accounts receivable, net	1,134		1,412
Contract assets	937		1,046
Inventories, net	449		447

Other current assets	225		272

Total current assets	4,086		4,178
Property, plant and equipment, net	965		992
Operating lease assets	462		554
Investments	157		159
Deferred income taxes	922		943
Goodwill	2,123		2,067
Intangible assets, net	1,242		1,327
Other assets	417		422
Total assets	$	10,374	$	10,642
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current portion of long-term debt	$	517	$	16
Accounts payable	498		618
Contract liabilities	1,294		1,449
Accrued liabilities	1,171		1,356

Total current liabilities	3,480		3,439
Long-term debt	5,111		5,113

Operating lease liabilities	385		497
Other liabilities	2,213		2,276


Preferred stock, $100 par value	—		—
Common stock, $0.01 par value:	2		2
Authorized shares: 600.0
Issued shares: 6/27/20—170.7; 12/31/19—171.0
Outstanding shares: 6/27/20—169.9; 12/31/19—170.5
Additional paid-in capital	626		499
Retained earnings	1,017		1,239
Accumulated other comprehensive loss	(2,475)		(2,440)
Total Motorola Solutions, Inc. stockholders’ equity (deficit)	(830)		(700)
Non-controlling interests	15		17
Total stockholders’ equity (deficit)	(815)		(683)
Total liabilities and stockholders’ equity (deficit)	$	10,374	$	10,642


(In millions)	Shares	Common Stock and Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interests
Balance as of December 31, 2019	171.0	$	501	$	(2,440)	$	1,239	$	17
Net earnings						197		1
Other comprehensive loss				(126)
Issuance of common stock and stock options exercised	1.3	5
Share repurchase program	(1.6)					(253)
Share-based compensation expenses		38
Dividends declared $0.64 per share						(109)
Balance as of March 28, 2020	170.7	$	544	$	(2,566)	$	1,074	$	18
Net earnings						135		1
Other comprehensive income				91
Issuance of common stock and stock options exercised	0.6	53
Share repurchase program	(0.6)					(83)
Share-based compensation expenses		31
Dividends declared $0.64 per share						(109)
Dividends paid to non-controlling interest on subsidiary common stock								(4)
Balance as of June 27, 2020	170.7	$	628	$	(2,475)	$	1,017	$	15


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Balance at January 1, 2020		Charged to Earnings		Used		Adjustments*		Balance at June 27, 2020
Allowance for credit losses	$	63	$	24	$	(8)	$	(2)	$	77


	June 27, 2020		December 31, 2019
Current contract cost assets	$	22	$	24
Non-current contract cost assets	101		107


(in millions)	Statement Line Classification	June 27, 2020		December 31, 2019
Assets:
Operating lease assets	Operating lease assets	$	462	$	554
Finance lease assets	Property, plant, and equipment, net	31		41
		$	493	$	595
Current liabilities:
Operating lease liabilities	Accrued liabilities	$	123	$	122
Finance lease liabilities	Current portion of long-term debt	11		13
		$	134	$	135
Non-current liabilities:
Operating lease liabilities	Operating lease liabilities	$	385	$	497
Finance lease liabilities	Long-term debt	9		16
		$	394	$	513


(in millions)	Operating Leases		Finance Leases		Total
Remainder of 2020	$	61	$	6	$	67
2021	129		11		140
2022	113		4		117
2023	63		1		64
2024	52		—		52
Thereafter	154		—		154
Total lease payments	572		22		594
Less: interest	64		2		66
Present value of lease liabilities	$	508	$	20	$	528


	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Three Months Ended						Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Basic earnings per common share:
Earnings	$	135	$	207	$	332	$	358
Weighted average common shares outstanding	170.0		164.9		170.3		164.4
Per share amount	$	0.79	$	1.25	$	1.95	$	2.18
Diluted earnings per common share:
Earnings	$	135	$	207	$	332	$	358
Weighted average common shares outstanding	170.0		164.9		170.3		164.4
Add effect of dilutive securities:
Share-based awards	3.6		4.6		4.5		4.7
2.00% senior convertible notes	—		6.6		—		6.2
1.75% senior convertible notes	—		—		—		—
Diluted weighted average common shares outstanding	173.6		176.1		174.8		175.3
Per share amount	$	0.78	$	1.18	$	1.90	$	2.04


	June 27, 2020		December 31, 2019
Accounts receivable	$	1,211	$	1,475
Less allowance for credit losses	(77)		(63)
	$	1,134	$	1,412


	June 27, 2020		December 31, 2019
Finished goods	$	226	$	209
Work-in-process and production materials	355		374
	581		583
Less inventory reserves	(132)		(136)
	$	449	$	447


	June 27, 2020		December 31, 2019
Current contract cost assets (Note 2)	$	22	$	24
Tax-related deposits	48		77
Other	155		171
	$	225	$	272


	Three Months Ended
	June 27, 2020						June 29, 2019
	Products and Systems Integration		Software and Services		Products and Systems Integration		Software and Services
Regions:
North America	$	719	$	374	$	911	$	342
International	249		276		327		280
	$	968	$	650	$	1,238	$	622

Major Products and Services:
Devices	$	582	$	—	$	809	$	—
Systems and Systems Integration	386		—		429		—
Services	—		484		—		469
Software	—		166		—		153
	$	968	$	650	$	1,238	$	622

Customer Type:
Direct	$	634	$	611	$	771	$	582
Indirect	334		39		467		40
	$	968	$	650	$	1,238	$	622


	Six Months Ended
	June 27, 2020						June 29, 2019
	Products and Systems Integration		Software and Services		Products and Systems Integration		Software and Services
Regions:
North America	$	1,467	$	742	$	1,666	$	662
International	494		570		641		548
	$	1,961	$	1,312	$	2,307	$	1,210

Major Products and Services:
Devices	$	1,202	$	—	$	1,495	$	—
Systems and Systems Integration	759		—		812		—
Services	—		976		—		921
Software	—		336		—		289
	$	1,961	$	1,312	$	2,307	$	1,210

Customer Type:
Direct	$	1,275	$	1,232	$	1,429	$	1,135
Indirect	686		80		878		75
	$	1,961	$	1,312	$	2,307	$	1,210


	Six Months Ended
(in millions)	June 27, 2020		June 29, 2019

Supplemental cash flow information:
Net cash used for operating activities related to operating leases	$	84	$	80
Net cash used for operating activities related to finance leases	1		1
Net cash used for financing activities related to finance leases	6		8
Assets obtained in exchange for lease liabilities:
Operating leases	$	24	$	45


	June 27, 2020		December 31, 2019
Land	$	6	$	15
Leasehold improvements	403		410
Machinery and equipment	2,100		2,051
	2,509		2,476
Less accumulated depreciation	(1,544)		(1,484)
	$	965	$	992


	June 27, 2020		December 31, 2019





Common stock	$	23	$	25
Strategic investments, at cost	46		40
Company-owned life insurance policies	70		74
Equity method investments	18		20

	$	157	$	159


	June 27, 2020		December 31, 2019
Defined benefit plan assets	$	260	$	223
Non-current contract cost assets (Note 2)	101		107
Other	56		92
	$	417	$	422


	June 27, 2020		December 31, 2019
Compensation	$	193	$	347
Tax liabilities	72		95
Dividend payable	109		110
Trade liabilities	140		161
Operating lease liabilities (Note 3)	123		122
Other	534		521
	$	1,171	$	1,356


	Notional Amount
Net Buy (Sell) by Currency	June 27, 2020		December 31, 2019
Euro	$	213	$	134
British Pound	100		107
Danish Krone	27		18
Australian dollar	(110)		(123)
Chinese renminbi	(68)		(79)


	Fair Values of Derivative Instruments
June 27, 2020	Other Current Assets		Accrued Liabilities
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	3	$	—
Derivatives not designated as hedging instruments:
Foreign exchange contracts	6		3
Total derivatives	$	9	$	3


	Three Months Ended						Six Months Ended			Financial Statement Location
Foreign Exchange Contracts	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Effective portion	$	(11)	$	6	$	8	$	8	Accumulated other comprehensive income
Forward points recognized	1		2		2		3		Other income
Undesignated derivatives recognized	12		(3)		(4)		(7)		Other expense


	U.S. Pension Benefit Plans						Non-U.S. Pension Benefit Plans						Postretirement Health Care Benefits Plan
Three Months Ended	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Service cost	$	—	$	—	$	1	$	1	$	—	$	—
Interest cost	36		51		7		10		—		1
Expected return on plan assets	(56)		(69)		(20)		(21)		(3)		(3)
Amortization of:
Unrecognized net loss	15		12		3		4		1		1
Unrecognized prior service benefit	—		—		(1)		—		(3)		(4)

Net periodic pension benefits	$	(5)	$	(6)	$	(10)	$	(6)	$	(5)	$	(5)


June 27, 2020	Level 1		Level 2		Total
Assets:
Foreign exchange derivative contracts	$	—	$	9	$	9



Common stock	23		—		23
Liabilities:
Foreign exchange derivative contracts	$	—	$	3	$	3


	January 1, 2020		Additional Charges		Adjustments		Amount Used		June 27, 2020

Employee separation costs	$	78	$	68	$	(9)	$	(41)	$	96


	June 27, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Completed technology	$	740	$	177	$	738	$	148
Patents	2		2		2		2
Customer-related	1,217		565		1,222		518
Other intangibles	73		46		75		42
	$	2,032	$	790	$	2,037	$	710


	Three Months Ended														Six Months Ended
(Dollars in millions, except per share amounts)	June 27, 2020		% of Sales*		June 29, 2019		% of Sales*		June 27, 2020		% of Sales*		June 29, 2019		% of Sales*
Net sales from products	$	877			$	1,118			$	1,764			$	2,063
Net sales from services	741				742				1,509				1,454
Net sales	1,618				1,860				3,273				3,517
Costs of products sales	413		47.1	%	490		43.8	%	812		46.0	%	934		45.3	%
Costs of services sales	439		59.2	%	439		59.2	%	908		60.2	%	879		60.5	%
Costs of sales	852				929				1,720				1,813
Gross margin	766		47.3	%	931		50.1	%	1,553		47.4	%	1,704		48.5	%
Selling, general and administrative expenses	297		18.4	%	351		18.9	%	638		19.5	%	676		19.2	%
Research and development expenditures	161		10.0	%	170		9.1	%	330		10.1	%	333		9.5	%
Other charges	90		5.6	%	61		3.3	%	109		3.3	%	116		3.3	%
Operating earnings	218		13.5	%	349		18.8	%	476		14.5	%	579		16.5	%
Other income (expense):
Interest expense, net	(58)		(3.6)	%	(56)		(3.0)	%	(109)		(3.3)	%	(111)		(3.2)	%
Gains on sales of investments and businesses, net	—		—	%	3		0.2	%	—		—	%	4		0.1	%
Other, net	16		1.0	%	(21)		(1.1)	%	34		1.0	%	(12)		(0.3)	%
Total other expense	(42)		(2.6)	%	(74)		(4.0)	%	(75)		(2.3)	%	(119)		(3.4)	%
Net earnings before income taxes	176		10.9	%	275		14.8	%	401		12.3	%	460		13.1	%
Income tax expense	40		2.5	%	67		3.6	%	67		2.0	%	100		2.8	%
Net earnings	136		8.4	%	208		11.2	%	334		10.2	%	360		10.2	%
Less: Earnings attributable to non-controlling interests	1		0.1	%	1		0.1	%	2		0.1	%	2		0.1	%


Net earnings attributable to Motorola Solutions, Inc.	$	135	8.3	%	$	207	11.1	%	$	332	10.1	%	$	358	10.2	%



Earnings per diluted common share	$	0.78			$	1.18			$	1.90			$	2.04


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⁾
3/26/2020 to 04/22/2020	422,725	$	133.99	422,725	$	951,642,406
04/23/2020 to 05/20/2020	87,586	$	129.68	87,586	$	940,284,511
05/21/2020 to 06/24/2020	112,541	$	136.99	112,541	$	924,867,844
Total	622,852	$	133.93	622,852


Exhibit No.						Exhibit
*31.1						Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2						Certification of Jason J. Winkler pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1						Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2						Certification of Jason J. Winkler pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.SCH						XBRL Taxonomy Extension Scheme Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


*			Filed herewith
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