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 September 26, 2020July 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
___________________________________________
MOTOROLA SOLUTIONS, INC.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)
____________________________________________
| | | | | | | | |
Delaware | | 36-1115800 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
|
500 W. Monroe Street, Chicago, Illinois 60661
(Address of principal executive offices, zip code)
| 60661 | Chicago, | | Illinois |
(Address of principal executive offices) |
(847) 576-5000
(Registrant’s telephone number, including area codecode)
(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 |
Common Stock | $0.01 | Par Value | | MSI | | New York Stock Exchange |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
(Do not check if a smaller reporting 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 outstanding of each of the issuer’s classes of common stockregistrant's Common Stock, $0.01 par value per share, outstanding as of the close of business on OctoberJuly 15, 20202021 was 169,522,860.169,324,600.
| | | | | | | | | | | |
| TABLE OF CONTENTS | | |
| For the Quarter Ended July 3, 2021 | | |
| | Page | |
| | | Page No. |
Item 1 1. | | | |
| Condensed Consolidated Statements of Operations for the Three and NineSix Months Ended September 26,July 3, 2021 and June 27, 2020 and September 28, 2019 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Item 2 2. | | | |
Item 3. | | | |
Item 4. | | | |
| | | |
Item 1. | | | |
Item 1A. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | Item 4 Mine Safety Disclosures | | |
Item 5. | | | |
Item 6. | | | |
| | | |
PartPART I—Financial InformationFINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In millions, except per share amounts) | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net sales from products | $ | 1,044 | | | $ | 1,196 | | | $ | 2,807 | | | $ | 3,260 | |
Net sales from services | 824 | | | 798 | | | 2,334 | | | 2,251 | |
Net sales | 1,868 | | | 1,994 | | | 5,141 | | | 5,511 | |
Costs of products sales | 487 | | | 501 | | | 1,325 | | | 1,435 | |
Costs of services sales | 472 | | | 486 | | | 1,354 | | | 1,365 | |
Costs of sales | 959 | | | 987 | | | 2,679 | | | 2,800 | |
Gross margin | 909 | | | 1,007 | | | 2,462 | | | 2,711 | |
Selling, general and administrative expenses | 313 | | | 359 | | | 951 | | | 1,035 | |
Research and development expenditures | 175 | | | 172 | | | 505 | | | 505 | |
Other charges | 69 | | | 63 | | | 178 | | | 180 | |
Operating earnings | 352 | | | 413 | | | 828 | | | 991 | |
Other income (expense): | | | | | | | |
Interest expense, net | (58) | | | (54) | | | (167) | | | (165) | |
Gains (losses) on sales of investments and businesses, net | (1) | | | 0 | | | (1) | | | 4 | |
Other, net | (42) | | | (11) | | | (8) | | | (22) | |
Total other expense | (101) | | | (65) | | | (176) | | | (183) | |
Net earnings before income taxes | 251 | | | 348 | | | 652 | | | 808 | |
Income tax expense | 45 | | | 80 | | | 112 | | | 180 | |
| | | | | | | |
| | | | | | | |
Net earnings | 206 | | | 268 | | | 540 | | | 628 | |
Less: Earnings attributable to non-controlling interests | 1 | | | 1 | | | 3 | | | 3 | |
Net earnings attributable to Motorola Solutions, Inc. | $ | 205 | | | $ | 267 | | | $ | 537 | | | $ | 625 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Earnings per common share: | | | | | | | |
Basic | $ | 1.21 | | | $ | 1.60 | | | $ | 3.16 | | | $ | 3.78 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted | $ | 1.18 | | | $ | 1.51 | | | $ | 3.08 | | | $ | 3.56 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 169.7 | | | 166.7 | | | 170.1 | | | 165.3 | |
Diluted | 173.5 | | | 176.4 | | | 174.3 | | | 175.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(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 | $ | 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 | | | 413 | | | 952 | | | 812 | |
Costs of services sales | 508 | | | 439 | | | 980 | | | 908 | |
Costs of sales | 1,019 | | | 852 | | | 1,932 | | | 1,720 | |
Gross margin | 952 | | | 766 | | | 1,812 | | | 1,553 | |
Selling, general and administrative expenses | 331 | | | 297 | | | 633 | | | 638 | |
Research and development expenditures | 181 | | | 161 | | | 361 | | | 330 | |
Other charges | 70 | | | 90 | | | 150 | | | 109 | |
Operating earnings | 370 | | | 218 | | | 668 | | | 476 | |
Other income (expense): | | | | | | | |
Interest expense, net | (44) | | | (58) | | | (98) | | | (109) | |
| | | | | | | |
Other, net | 14 | | | 16 | | | 60 | | | 34 | |
Total other expense | (30) | | | (42) | | | (38) | | | (75) | |
Net earnings before income taxes | 340 | | | 176 | | | 630 | | | 401 | |
Income tax expense | 46 | | | 40 | | | 90 | | | 67 | |
Net earnings | 294 | | | 136 | | | 540 | | | 334 | |
Less: Earnings attributable to non-controlling interests | 1 | | | 1 | | | 3 | | | 2 | |
Net earnings attributable to Motorola Solutions, Inc. | $ | 293 | | | $ | 135 | | | $ | 537 | | | $ | 332 | |
Earnings per common share: | | | | | | | |
Basic | $ | 1.73 | | | $ | 0.79 | | | $ | 3.17 | | | $ | 1.95 | |
Diluted | $ | 1.69 | | | $ | 0.78 | | | $ | 3.10 | | | $ | 1.90 | |
Weighted average common shares outstanding: | | | | | | | |
Basic | 169.6 | | | 170.0 | | | 169.4 | | | 170.3 | |
Diluted | 173.1 | | | 173.6 | | | 173.1 | | | 174.8 | |
See accompanying notesNotes to condensed consolidated financial statementsCondensed Consolidated Financial Statements (unaudited).
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net earnings | $ | 206 | | | $ | 268 | | | $ | 540 | | | $ | 628 | |
Other comprehensive income (loss), net of tax (Note 4): | | | | | | | |
Foreign currency translation adjustments | 30 | | | (33) | | | (30) | | | (26) | |
| | | | | | | |
| | | | | | | |
Defined benefit plans | 12 | | | 11 | | | 37 | | | 32 | |
Total other comprehensive income (loss), net of tax | 42 | | | (22) | | | 7 | | | 6 | |
Comprehensive income | 248 | | | 246 | | | 547 | | | 634 | |
Less: Earnings attributable to non-controlling interests | 1 | | | 1 | | | 3 | | | 3 | |
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders | $ | 247 | | | $ | 245 | | | $ | 544 | | | $ | 631 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
(In millions) | July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Net earnings | $ | 294 | | | $ | 136 | | | $ | 540 | | | $ | 334 | |
Other comprehensive income (loss), net of tax (Note 4): | | | | | | | |
Foreign currency translation adjustments | 6 | | | 78 | | | 25 | | | (60) | |
| | | | | | | |
| | | | | | | |
Defined benefit plans | 16 | | | 13 | | | 33 | | | 25 | |
Total other comprehensive income (loss), net of tax | 22 | | | 91 | | | 58 | | | (35) | |
Comprehensive income | 316 | | | 227 | | | 598 | | | 299 | |
Less: Earnings attributable to non-controlling interests | 1 | | | 1 | | | 3 | | | 2 | |
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders | $ | 315 | | | $ | 226 | | | $ | 595 | | | $ | 297 | |
See accompanying notesNotes to condensed consolidated financial statementsCondensed Consolidated Financial Statements (unaudited).
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | | | |
(In millions, except par value) | September 26, 2020 | | December 31, 2019 |
ASSETS |
Cash and cash equivalents | $ | 1,007 | | | $ | 1,001 | |
Accounts receivable, net | 1,155 | | | 1,412 | |
Contract assets | 1,069 | | | 1,046 | |
Inventories, net | 489 | | | 447 | |
| | | |
Other current assets | 251 | | | 272 | |
| | | |
Total current assets | 3,971 | | | 4,178 | |
Property, plant and equipment, net | 976 | | | 992 | |
Operating lease assets | 472 | | | 554 | |
Investments | 154 | | | 159 | |
Deferred income taxes | 876 | | | 943 | |
Goodwill | 2,207 | | | 2,067 | |
Intangible assets, net | 1,268 | | | 1,327 | |
Other assets | 437 | | | 422 | |
Total assets | $ | 10,361 | | | $ | 10,642 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
Current portion of long-term debt | $ | 212 | | | $ | 16 | |
Accounts payable | 536 | | | 618 | |
Contract liabilities | 1,359 | | | 1,449 | |
Accrued liabilities | 1,205 | | | 1,356 | |
| | | |
Total current liabilities | 3,312 | | | 3,439 | |
Long-term debt | 5,162 | | | 5,113 | |
| | | |
Operating lease liabilities | 401 | | | 497 | |
Other liabilities | 2,226 | | | 2,276 | |
| | | |
| | | |
Preferred stock, $100 par value | 0 | | | 0 | |
Common stock, $0.01 par value: | 2 | | | 2 | |
Authorized shares: 600.0 | | | |
Issued shares: 9/26/20—170.3; 12/31/19—171.0 | | | |
Outstanding shares: 9/26/20—169.4; 12/31/19—170.5 | | | |
Additional paid-in capital | 667 | | | 499 | |
Retained earnings | 1,008 | | | 1,239 | |
Accumulated other comprehensive loss | (2,433) | | | (2,440) | |
Total Motorola Solutions, Inc. stockholders’ equity (deficit) | (756) | | | (700) | |
Non-controlling interests | 16 | | | 17 | |
Total stockholders’ equity (deficit) | (740) | | | (683) | |
Total liabilities and stockholders’ equity (deficit) | $ | 10,361 | | | $ | 10,642 | |
| | | | | | | | | | | |
(In millions, except par value) | July 3, 2021 | | December 31, 2020 |
ASSETS |
Cash and cash equivalents | $ | 1,921 | | | $ | 1,254 | |
Accounts receivable, net | 1,169 | | | 1,390 | |
Contract assets | 757 | | | 933 | |
Inventories, net | 559 | | | 508 | |
| | | |
Other current assets | 254 | | | 242 | |
| | | |
Total current assets | 4,660 | | | 4,327 | |
Property, plant and equipment, net | 1,028 | | | 1,022 | |
Operating lease assets | 430 | | | 468 | |
Investments | 181 | | | 158 | |
Deferred income taxes | 981 | | | 966 | |
Goodwill | 2,219 | | | 2,219 | |
Intangible assets, net | 1,123 | | | 1,234 | |
Other assets | 509 | | | 482 | |
Total assets | $ | 11,131 | | | $ | 10,876 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
Current portion of long-term debt | $ | 9 | | | $ | 12 | |
Accounts payable | 547 | | | 612 | |
Contract liabilities | 1,416 | | | 1,554 | |
Accrued liabilities | 1,212 | | | 1,311 | |
| | | |
Total current liabilities | 3,184 | | | 3,489 | |
Long-term debt | 5,686 | | | 5,163 | |
| | | |
Operating lease liabilities | 340 | | | 402 | |
Other liabilities | 2,265 | | | 2,363 | |
| | | |
| | | |
Preferred stock, $100 par value: 0.5 shares authorized; NaN issued and outstanding | 0 | | | 0 | |
Common stock, $0.01 par value: | 2 | | | 2 | |
Authorized shares: 600.0 | | | |
Issued shares: 7/3/21—170.3; 12/31/20—170.2 | | | |
Outstanding shares: 7/3/21—169.3; 12/31/20—169.4 | | | |
Additional paid-in capital | 877 | | | 759 | |
Retained earnings | 1,151 | | | 1,127 | |
Accumulated other comprehensive loss | (2,388) | | | (2,446) | |
Total Motorola Solutions, Inc. stockholders’ equity (deficit) | (358) | | | (558) | |
Non-controlling interests | 14 | | | 17 | |
Total stockholders’ equity (deficit) | (344) | | | (541) | |
Total liabilities and stockholders’ equity (deficit) | $ | 11,131 | | | $ | 10,876 | |
See accompanying notesNotes to condensed consolidated financial statementsCondensed Consolidated Financial Statements (unaudited).
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | Shares | | Common Stock and Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests |
Balance as of December 31, 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 | |
Net earnings | | | | | | | 205 | | | 1 | |
Other comprehensive income | | | | | 42 | | | | | |
Issuance of common stock and stock options exercised | 0.4 | | | 10 | | | | | | | |
Share repurchase program | (0.7) | | | | | | | (105) | | | |
Share-based compensation expenses | | | 31 | | | | | | | |
Dividends declared $0.64 per share | | | | | | | (109) | | | |
Balance as of September 26, 2020 | 170.4 | | | $ | 669 | | | $ | (2,433) | | | $ | 1,008 | | | $ | 16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
(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 | 170.2 | | | $ | 761 | | | $ | (2,446) | | | $ | 1,127 | | | $ | 17 | |
Net earnings | | | | | | | 244 | | | 1 | |
Other comprehensive income | | | | | 36 | | | | | |
Issuance of common stock and stock options exercised | 1.4 | | | 44 | | | | | | | |
Share repurchase program | (1.0) | | | | | | | (170) | | | |
Share-based compensation expenses | | | 29 | | | | | | | |
Dividends declared $0.71 per share | | | | | | | (121) | | | |
Balance as of April 3, 2021 | 170.6 | | | $ | 834 | | | $ | (2,410) | | | $ | 1,080 | | | $ | 18 | |
Net earnings | | | | | | | 293 | | | 1 | |
Other comprehensive income | | | | | 22 | | | | | |
Issuance of common stock and stock options exercised | 0.2 | | | 14 | | | | | | | |
Share repurchase program | (0.5) | | | | | | | (102) | | | |
Share-based compensation expenses | | | 31 | | | | | | | |
Dividends declared $0.71 per share | | | | | | | (120) | | | |
Dividends paid to non-controlling interest on subsidiary common stock | | | | | | | | | (5) | |
Balance as of July 3, 2021 | 170.3 | | | $ | 879 | | | $ | (2,388) | | | $ | 1,151 | | | $ | 14 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 | 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 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | Shares | | Common Stock and Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Noncontrolling Interests |
Balance as of December 31, 2018 | 164.0 | | | $ | 421 | | | $ | (2,765) | | | $ | 1,051 | | | $ | 17 | |
Net earnings | | | | | | | 151 | | | 1 |
Other comprehensive income | | | | | 41 | | | | | |
Issuance of common stock and stock options exercised | 1.2 | | | 45 | | | | | | | |
Share repurchase program | (1.2) | | | | | | | (145) | | | |
Share-based compensation expenses | | | 27 | | | | | | | |
| | | | | | | | | |
Issuance of common stock for acquisition | 1.4 | | | 160 | | | | | | | |
Dividends declared $0.57 per share | | | | | | | (94) | | | |
Balance as of March 30, 2019 | 165.4 | | | $ | 653 | | | $ | (2,724) | | | $ | 963 | | | $ | 18 | |
Net earnings | | | | | | | 207 | | | 1 | |
Other comprehensive loss | | | | | (13) | | | | | |
Issuance of common stock and stock options exercised | 0.5 | | | 33 | | | | | | | |
Share repurchase program | (0.2) | | | | | | | (25) | | | |
Share-based compensation expenses | | | 30 | | | | | | | |
Dividends declared $0.57 per share | | | | | | | (94) | | | |
Dividends paid to non-controlling interest on subsidiary common stock | | | | | | | | | (3) | |
Balance as of June 29, 2019 | 165.7 | | | $ | 716 | | | $ | (2,737) | | | $ | 1,051 | | | $ | 16 | |
Net earnings | | | | | | | 267 | | | 1 | |
Other comprehensive income | | | | | (22) | | | | | |
Issuance of common stock and stock options exercised | 0.4 | | | 12 | | | | | | | |
Issuance of common stock for 2.00% senior convertible notes | 5.5 | | 988 | | | | | | | |
Share-based compensation expenses | | | 30 | | | | | | | |
Dividends declared $0.57 per share | | | | | | | (98) | | | |
Equity component of 1.75% senior convertible notes | | | 10 | | | | | | |
Repurchase of 2.00% senior convertible notes | | | (1,318) | | | | | | | |
Balance as of September 28, 2019 | 171.6 | | | $ | 438 | | | $ | (2,759) | | | $ | 1,220 | | | $ | 17 | |
| | | | | | | | | | | |
| Six Months Ended |
(In millions) | July 3, 2021 | | June 27, 2020 |
Operating | | | |
| | | |
| | | |
Net earnings | $ | 540 | | | $ | 334 | |
| | | |
| | | |
Adjustments to reconcile Net earnings to Net cash provided by operating activities: | | | |
Depreciation and amortization | 220 | | | 197 | |
| | | |
Non-cash other income | (24) | | | (40) | |
| | | |
Share-based compensation expenses | 60 | | | 69 | |
| | | |
Loss from the extinguishment of long-term debt | 18 | | | 0 | |
| | | |
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments: | | | |
Accounts receivable | 221 | | | 286 | |
Inventories | (53) | | | 3 | |
Other current assets and contract assets | 134 | | | 136 | |
Accounts payable, accrued liabilities, and contract liabilities | (298) | | | (454) | |
Other assets and liabilities | (37) | | | (15) | |
Deferred income taxes | (23) | | | 1 | |
Net cash provided by operating activities | 758 | | | 517 | |
Investing | | | |
Acquisitions and investments, net | (9) | | | (102) | |
Proceeds from sales of investments and businesses, net | 3 | | | 7 | |
Capital expenditures | (114) | | | (102) | |
Proceeds from sales of property, plant and equipment | 6 | | | 56 | |
Net cash used for investing activities | (114) | | | (141) | |
Financing | | | |
Net proceeds from issuance of debt | 844 | | | 0 | |
Proceeds from revolving credit facility draw | 0 | | | 800 | |
Repayments of debt | (348) | | | (8) | |
Repayment of revolving credit facility draw | 0 | | | (300) | |
Revolving credit facility renewal fees | (7) | | | 0 | |
Issuances of common stock | 60 | | | 49 | |
Purchases of common stock | (272) | | | (336) | |
| | | |
Payments of dividends | (242) | | | (218) | |
Payments of dividends to non-controlling interests | (5) | | | (4) | |
| | | |
Net cash provided by (used for) financing activities | 30 | | | (17) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Effect of exchange rate changes on total cash and cash equivalents | (7) | | | (19) | |
Net increase in total cash and cash equivalents | 667 | | | 340 | |
Cash and cash equivalents, beginning of period | 1,254 | | | 1,001 | |
Cash and cash equivalents, end of period | $ | 1,921 | | | $ | 1,341 | |
Supplemental Cash Flow Information | | | |
Cash paid during the period for: | | | |
Interest paid | $ | 102 | | | $ | 109 | |
Income and withholding taxes, net of refunds | $ | 179 | | | $ | 50 | |
See accompanying notesNotes to condensed consolidated financial statementsCondensed Consolidated Financial Statements (unaudited).
Condensed Consolidated Statements of Cash Flows | | | | | | | | |
| 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 | | |
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Operating | | | |
Net earnings attributable to Motorola Solutions, Inc. | $ | 537 | | | $ | 625 | |
Earnings attributable to non-controlling interests | 3 | | | 3 | |
Net earnings | 540 | | | 628 | |
| | | |
| | | |
Adjustments to reconcile Net earnings to Net cash provided by operating activities: | | | |
Depreciation and amortization | 300 | | | 290 | |
| | | |
Non-cash other charges (income) | (28) | | | 27 | |
| | | |
Share-based compensation expenses | 100 | | | 87 | |
Losses (gains) on sales of investments and businesses, net | 1 | | | (4) | |
Losses from the extinguishment of long term debt | 56 | | | 50 | |
Gain from the extinguishment of 2.00% senior convertible notes | 0 | | | (4) | |
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments: | | | |
Accounts receivable | 312 | | | 30 | |
Inventories | 2 | | | (88) | |
Other current assets and contract assets | (1) | | | 104 | |
Accounts payable, accrued liabilities, and contract liabilities | (379) | | | (143) | |
Other assets and liabilities | (18) | | | 10 | |
Deferred income taxes | 24 | | | 41 | |
Net cash provided by operating activities | 909 | | | 1,028 | |
Investing | | | |
Acquisitions and investments, net | (282) | | | (623) | |
Proceeds from sales of investments and businesses, net | 8 | | | 10 | |
Capital expenditures | (151) | | | (189) | |
Proceeds from sales of property, plant and equipment | 56 | | | 0 | |
Net cash used for investing activities | (369) | | | (802) | |
Financing | | | |
Net proceeds from issuance of debt | 892 | | | 1,804 | |
Repayments of debt | (911) | | | (1,435) | |
Proceeds from unsecured revolving credit facility draw | 800 | | | 0 | |
Repayment of unsecured revolving credit facility draw | (600) | | | 0 | |
Issuances of common stock | 59 | | | 82 | |
Purchases of common stock | (441) | | | (170) | |
| | | |
Payments of dividends | (327) | | | (281) | |
Payments of dividends to non-controlling interests | (4) | | | (3) | |
Settlement of conversion premium on 2.00% senior convertible notes | 0 | | | (326) | |
Net cash used for financing activities | (532) | | | (329) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Effect of exchange rate changes on total cash and cash equivalents | (2) | | | (14) | |
Net increase (decrease) in total cash and cash equivalents | 6 | | | (117) | |
Cash and cash equivalents, beginning of period | 1,001 | | | 1,257 | |
Cash and cash equivalents, end of period | $ | 1,007 | | | $ | 1,140 | |
Supplemental Cash Flow Information | | | |
Cash paid during the period for: | | | |
Interest paid | $ | 178 | | | $ | 176 | |
Income and withholding taxes, net of refunds | 90 | | | 111 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except as noted)
(Unaudited)
1.Basis of Presentation
The condensed consolidated financial statements as of September 26, 2020July 3, 2021 and for the three and ninesix months ended September 26,July 3, 2021 and June 27, 2020 and September 28, 2019 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, 2019.2020 (the "Form 10-K"). The results of operations for the three and ninesix months ended September 26, 2020July 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 3 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 Motorola Solutions’the Company's existing command center softwareCommand Center Software suite critical mobile technologytechnological 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 $108$107 million of cash, net of cash acquired. The acquisition demonstrates Motorola Solutions’the Company's continued investment in video securityVideo Security and analytics,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.
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 securityVideo Security and analytics portfolio,Access Control technology, providing enhanced geographical reach across a wider customer base. The business is a part of both the ProductProducts and Systems Integration segment and the Software and Services segment.
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 acquisition expands the Company’sCompany'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’sCompany'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.
On October 16, 2019, the Company acquired a data solutions business for vehicle location information for a purchase price of $85 million, net of cash acquired. The acquisition enhances the Company's video security platform by adding data to the Company’s existing license plate recognition (“LPR”) database within the Software and Services segment.
On July 11, 2019, the Company acquired WatchGuard, Inc. ("WatchGuard"), a provider of in-car and body-worn video solutions for $271 million, inclusive of share-based compensation withheld at a fair value of $16 million that will be expensed over an average service period of two years. The acquisition was settled with $250 million of cash, net of cash acquired. The acquisition expands the Company's video security platform within both the Product and Systems Integration segment and the Software and Services segment.
On March 11, 2019, the Company acquired Avtec, Inc. ("Avtec"), a provider of dispatch communication equipment for U.S. public safety and commercial customers for a purchase price of $136 million in cash, net of cash acquired. This acquisition expands the Company's commercial portfolio with new capabilities, allowing it to offer an enhanced platform for customers to communicate, coordinate resources, and secure their facilities. The business is part of both the Product and Systems Integration segment and the Software and Services segment.
On January 7, 2019, the Company announced that it acquired VaaS International Holdings ("VaaS"), a global provider of data and image analytics for vehicle location for $445 million, inclusive of share-based compensation withheld at a fair value of $38 million that will be expensed over an average service period of one year. The acquisition was settled with $231 million of cash, net of cash acquired, and 1.4 million of shares issued at a fair value of $160 million for a purchase price of $391 million. This acquisition expands the Company's video security platform within both the Product and Systems Integration segment and the Software and Services segment.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU")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 ("EPS").share. The ASU clarifies that the average market price should be used to calculate the diluted EPSearnings 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. The ASU is effective for the Company on January 1, 2021 with early adoption permitted. Portions of the amendment within the ASU require retrospective, modified retrospective or prospective adoption methods. The adoption of the ASU will not have a significant impact on the financial statement disclosures.
In August 2018, the FASB issuedCompany adopted ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for the defined benefit pension plans and other postretirement plans. The ASU is effective for the Company on January 1, 2021 with early adoption permitted. The ASU requires a retrospective adoption method. The Company does not believe the ASU will have a material impact on its financial statement disclosures.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019, May 2019 and November 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," and ASU No. 2019-11,"Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” which provided additional implementation guidance on the previously issued ASU. The Company adopted ASC 3262019-12 as of January 1, 2020 using2021 on a modified retrospective transition approach for all credit losses. Consequently, financial information was not updatedprospective basis and disclosures required under ASC 326 are not provided for dates and periods before January 1, 2020.
The Company considered the impact of adoption by reviewing historical losses in conjunction with current and future economic conditions on the following financial assets: i) cash equivalents, ii) accounts receivable, iii) contract assets, and iv) long-term receivables. Historical losses for these financial assets were previously insignificant with the exception of accounts receivable. The Company estimates credit losses on accounts receivable based on historical losses and then takes into account estimates of current and future economic conditions. The Company’s historical loss model is based on past due customer receivable balances and considers past collection experience, historical write-offs as well as the customer’s overall financial condition. Customer receivables are considered past due if payments have not been received within the agreed invoice terms. These historical losses are aggregated based on the type of customer (Direct and Indirect) and the geographic region (North America and International). The adoption of this standard did not have a material impact to the Company'son its financial statements.
The following table displays the rollforward of the allowance for credit losses on the Company's trade receivables:
| | | | | | | | | | | | | | | | | |
| Balance at January 1, 2020 | Charged to Earnings | Used | Adjustments* | Balance at September 26, 2020 |
Allowance for credit losses | $ | 63 | | $ | 38 | | $ | (26) | | $ | (2) | | $ | 73 | |
*Adjustments include translation adjustmentsstatements and disclosures.
2. Revenue from Contracts with Customers
Disaggregation of Revenue
The following table summarizes the disaggregation of ourthe Company's revenue by segment, geography,region, major productproducts and service typeservices and customer type for the three and ninesix months ended September 26,July 3, 2021 and June 27, 2020, and September 28, 2019, consistent with the information reviewed by ourthe Company's chief operating decision maker for evaluating the financial performance of the Company's reportable segments:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 26, 2020 | | September 28, 2019 |
| Products and Systems Integration | | Software and Services | | Products and Systems Integration | | Software and Services |
Regions: | | | | | | | |
North America | $ | 863 | | | $ | 405 | | | $ | 980 | | | $ | 364 | |
International | 300 | | | 300 | | | 369 | | | 281 | |
| $ | 1,163 | | | $ | 705 | | | $ | 1,349 | | | $ | 645 | |
| | | | | | | |
Major Products and Services: | | | | | | | |
Devices | $ | 719 | | | $ | 0 | | | $ | 896 | | | $ | 0 | |
Systems and Systems Integration | 444 | | | 0 | | | 453 | | | 0 | |
Services | 0 | | | 514 | | | 0 | | | 479 | |
Software | 0 | | | 191 | | | 0 | | | 166 | |
| $ | 1,163 | | | $ | 705 | | | $ | 1,349 | | | $ | 645 | |
| | | | | | | |
Customer Type: | | | | | | | |
Direct | $ | 733 | | | $ | 637 | | | $ | 860 | | | $ | 602 | |
Indirect | 430 | | | 68 | | | 489 | | | 43 | |
| $ | 1,163 | | | $ | 705 | | | $ | 1,349 | | | $ | 645 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | $ | 869 | | | $ | 443 | | | $ | 1,312 | | | $ | 719 | | | $ | 374 | | | $ | 1,093 | |
International | 329 | | | 330 | | | 659 | | | 249 | | | 276 | | | 525 | |
| $ | 1,198 | | | $ | 773 | | | $ | 1,971 | | | $ | 968 | | | $ | 650 | | | $ | 1,618 | |
| | | | | | | | | | | |
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 | 0 | | | 134 | | | 134 | | | 0 | | | 117 | | | 117 | |
| $ | 1,198 | | | $ | 773 | | | $ | 1,971 | | | $ | 968 | | | $ | 650 | | | $ | 1,618 | |
| | | | | | | | | | | |
Customer Types: | | | | | | | | | | | |
Direct | $ | 706 | | | $ | 706 | | | $ | 1,412 | | | $ | 634 | | | $ | 611 | | | $ | 1,245 | |
Indirect | 492 | | | 67 | | | 559 | | | 334 | | | 39 | | | 373 | |
| $ | 1,198 | | | $ | 773 | | | $ | 1,971 | | | $ | 968 | | | $ | 650 | | | $ | 1,618 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| 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 | $ | 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 | |
| | | | | | | | | | | |
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 | 0 | | | 254 | | | 254 | | | 0 | | | 223 | | | 223 | |
| $ | 2,213 | | | $ | 1,531 | | | $ | 3,744 | | | $ | 1,961 | | | $ | 1,312 | | | $ | 3,273 | |
| | | | | | | | | | | |
Customer Types: | | | | | | | | | | | |
Direct | $ | 1,310 | | | $ | 1,396 | | | $ | 2,706 | | | $ | 1,275 | | | $ | 1,232 | | | $ | 2,507 | |
Indirect | 903 | | | 135 | | | 1,038 | | | 686 | | | 80 | | | 766 | |
| $ | 2,213 | | | $ | 1,531 | | | $ | 3,744 | | | $ | 1,961 | | | $ | 1,312 | | | $ | 3,273 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 26, 2020 | | September 28, 2019 |
| Products and Systems Integration | | Software and Services | | Products and Systems Integration | | Software and Services |
Regions: | | | | | | | |
North America | $ | 2,330 | | | $ | 1,146 | | | $ | 2,646 | | | $ | 1,026 | |
International | 794 | | | 871 | | | 1,010 | | | 829 | |
| $ | 3,124 | | | $ | 2,017 | | | $ | 3,656 | | | $ | 1,855 | |
| | | | | | | |
Major Products and Services: | | | | | | | |
Devices | $ | 1,921 | | | $ | 0 | | | $ | 2,391 | | | $ | 0 | |
Systems and Systems Integration | 1,203 | | | 0 | | | 1,265 | | | 0 | |
Services | 0 | | | 1,490 | | | 0 | | | 1,400 | |
Software | 0 | | | 527 | | | 0 | | | 455 | |
| $ | 3,124 | | | $ | 2,017 | | | $ | 3,656 | | | $ | 1,855 | |
| | | | | | | |
Customer Type: | | | | | | | |
Direct | $ | 2,008 | | | $ | 1,869 | | | $ | 2,289 | | | $ | 1,737 | |
Indirect | 1,116 | | | 148 | | | 1,367 | | | 118 | |
| $ | 3,124 | | | $ | 2,017 | | | $ | 3,656 | | | $ | 1,855 | |
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 pricesvalues associated with remaining performance obligations which arewere not yet satisfied as of September 26, 2020 are $6.8July 3, 2021 was $7.1 billion. A total of $2.9$3.3 billion iswas from Products and Systems Integration performance obligations that are not yet satisfied, of which $1.4$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 $3.9$3.8 billion iswas from Software and Services performance obligations that arewere not yet satisfied as of September 26, 2020.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 $1.4$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
| | | | | | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 | | | | |
Accounts receivable, net | $ | 1,155 | | | $ | 1,412 | | | | | |
Contract assets | 1,069 | | | 1,046 | | | | | |
Contract liabilities | 1,359 | | | 1,449 | | | | | |
Non-current contract liabilities | 266 | | | 274 | | | | | |
| | | | | | | | | | | | | | | |
(In millions) | July 3, 2021 | | December 31, 2020 | | | | |
Accounts receivable, net | $ | 1,169 | | | $ | 1,390 | | | | | |
Contract assets | 757 | | | 933 | | | | | |
Contract liabilities | 1,416 | | | 1,554 | | | | | |
Non-current contract liabilities | 296 | | | 283 | | | | | |
Revenue recognized during the three months ended September 26,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 June 27, 2020 is $349 million, compared to $342 million of revenueMarch 28, 2020. Revenue recognized during the threesix months ended September 28, 2019July 3, 2021 which was previously included in Contract liabilities as of June 29, 2019. RevenueDecember 31, 2020 was $705 million, compared to $631 million recognized during the ninesix months ended September 26,June 27, 2020 which was previously included in Contract liabilities as of December 31, 2019 is $807 million, compared to $783 million of revenue recognized during the nine months ended September 28, 2019 which was previously included in Contract liabilities as of December 31, 2018.2019. Revenue of $12$10 million and $48$15 million was reversed during the three and ninesix months ended September 26, 2020July 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. Revenue of $26contracts, compared to $12 million and $42$34 million was reversedof reversals for the three and ninesix months ended September 28, 2019 driven by changes in the estimates of progress on system contracts.
June 27, 2020, respectively.There were 0 material expected credit losses recognizedrecorded on contract assets during each of the three and ninesix months ended September 26, 2020July 3, 2021 and September 28, 2019.June 27, 2020.
Contract Cost Balances
| | | | | | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 | | | | |
Current contract cost assets | $ | 25 | | | $ | 24 | | | | | |
Non-current contract cost assets | 101 | | | 107 | | | | | |
| | | | | | | | | | | | | | | |
(In millions) | July 3, 2021 | | December 31, 2020 | | | | |
Current contract cost assets | $ | 30 | | | $ | 23 | | | | | |
Non-current contract cost assets | 110 | | | 105 | | | | | |
Amortization of non-current contract cost assets was $13$12 million and $35$25 million for the three and ninesix months ended September 26, 2020,July 3, 2021, respectively, and $10$11 million and $32$22 million for the three and ninesix months ended September 28, 2019,June 27, 2020, respectively.
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 | $ | 34 | | | $ | 33 | | | $ | 67 | | | $ | 67 | |
Finance lease cost | | | | | | | |
Amortization of right-of-use assets | 3 | | | 3 | | | 6 | | | 6 | |
Interest on lease liabilities | 0 | | | 0 | | | 0 | | | 1 | |
Total finance lease cost | 3 | | | 3 | | | 6 | | | 7 | |
| | | | | | | |
Short-term lease cost | 1 | | | 1 | | | 2 | | | 1 | |
Variable cost | 9 | | | 9 | | | 18 | | | 17 | |
Sublease income | (1) | | | (1) | | | (2) | | | (2) | |
Net lease expense | $ | 46 | | | $ | 45 | | | $ | 91 | | | $ | 90 | |
3. Leases
The components of the Company's lease expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended | | Nine Months Ended |
(in millions) | | | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Lease expense: | | | | | | | | | | |
Operating lease cost | | | | $ | 34 | | | $ | 33 | | | $ | 101 | | | $ | 99 | |
Finance lease cost | | | | | | | | | | |
Amortization of right-of-use assets | | | | 3 | | | 3 | | | 9 | | | 9 | |
Interest on lease liabilities | | | | 0 | | | 1 | | | 1 | | | 1 | |
Total finance lease cost | | | | 3 | | | 4 | | | 10 | | | 10 | |
Short-term lease cost | | | | 1 | | | 1 | | | 2 | | | 4 | |
Variable cost | | | | 10 | | | 8 | | | 27 | | | 25 | |
Sublease income | | | | (2) | | | (1) | | | (4) | | | (3) | |
Net lease expense | | | | $ | 46 | | | $ | 45 | | | $ | 136 | | | $ | 135 | |
Lease Assets and Liabilities | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Statement Line Classification | | July 3, 2021 | | December 31, 2020 | | |
Assets: | | | | | | | | |
Operating lease assets | | Operating lease assets | | $ | 430 | | | $ | 468 | | | |
Finance lease assets | | Property, plant, and equipment, net | | 24 | | | 30 | | | |
| | | | $ | 454 | | | $ | 498 | | | |
Current liabilities: | | | | | | | | |
Operating lease liabilities | | Accrued liabilities | | $ | 129 | | | $ | 126 | | | |
Finance lease liabilities | | Current portion of long-term debt | | 8 | | | 11 | | | |
| | | | $ | 137 | | | $ | 137 | | | |
Non-current liabilities: | | | | | | | | |
Operating lease liabilities | | Operating lease liabilities | | $ | 340 | | | $ | 402 | | | |
Finance lease liabilities | | Long-term debt | | 2 | | | 5 | | | |
| | | | $ | 342 | | | $ | 407 | | | |
Other Information Related to Leases
Lease assets and liabilities consist of the following:
| | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Statement Line Classification | | September 26, 2020 | | December 31, 2019 | | |
Assets: | | | | | | | | |
Operating lease assets | | Operating lease assets | | $ | 472 | | | $ | 554 | | | |
Finance lease assets | | Property, plant, and equipment, net | | 30 | | | 41 | | | |
| | | | $ | 502 | | | $ | 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 | | $ | 401 | | | $ | 497 | | | |
Finance lease liabilities | | Long-term debt | | 7 | | | 16 | | | |
| | | | $ | 408 | | | $ | 513 | | | |
| | | | | | | | | | | | | |
| 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 | $ | 95 | | | $ | 84 | | | |
Net cash used for operating activities related to finance leases | 0 | | | 1 | | | |
Net cash used for financing activities related to finance leases | 7 | | | 6 | | | |
Assets obtained in exchange for lease liabilities: | | | | | |
Operating leases | $ | 22 | | | $ | 24 | | | |
| | | | | |
For the nine months ended September 26, 2020, the Company exercised a break option reducing the term of an International office lease by five years. This resulted in a reduction to both the right of use ("ROU") asset and lease liabilities by approximately $47 million. | | | | | | | | | | | |
| July 3, 2021 | | December 31, 2020 |
| | | |
Weighted average remaining lease terms (years): | | | |
Operating leases | 6 | | 6 |
Finance leases | 1 | | 2 |
Weighted average discount rate: | | | |
Operating leases | 3.16 | % | | 3.30 | % |
Finance leases | 4.14 | % | | 4.21 | % |
Other information related to leases is as follows:
| | | | | | | | | | | | | |
| Nine Months Ended | | |
(in millions) | September 26, 2020 | | September 28, 2019 | | |
| | | | | |
Supplemental cash flow information: | | | | | |
Net cash used for operating activities related to operating leases | $ | 116 | | | $ | 110 | | | |
Net cash used for operating activities related to finance leases | 1 | | | 1 | | | |
Net cash used for financing activities related to finance leases | 9 | | | 11 | | | |
Assets obtained in exchange for lease liabilities: | | | | | |
Operating leases | $ | 64 | | | $ | 69 | | | |
| | | | | |
Future Lease Payments | | | | | | | | | | | | | | | | | |
| July 3, 2021 |
(in millions) | Operating Leases | | Finance Leases | | Total |
Remainder of 2021 | $ | 50 | | | $ | 5 | | | $ | 55 | |
2022 | 135 | | | 5 | | | 140 | |
2023 | 79 | | | 1 | | | 80 | |
2024 | 64 | | | 0 | | | 64 | |
2025 | 51 | | | 0 | | | 51 | |
Thereafter | 140 | | | 0 | | | 140 | |
Total lease payments | 519 | | | 11 | | | 530 | |
Less: interest | 50 | | | 1 | | | 51 | |
Present value of lease liabilities | $ | 469 | | | $ | 10 | | | $ | 479 | |
| | | | | | | | | | | |
(in millions) | September 26, 2020 | | December 31, 2019 |
| | | |
Weighted average remaining lease terms (years): | | | |
Operating leases | 6 | | 7 |
Finance leases | 2 | | 2 |
Weighted average discount rate: | | | |
Operating leases | 3.31 | % | | 3.61 | % |
Finance leases | 4.23 | % | | 4.28 | % |
Future lease payments as of September 26, 2020 are as follows:
| | | | | | | | | | | | | | | | | |
(in millions) | Operating Leases | | Finance Leases | | Total |
Remainder of 2020 | $ | 29 | | | $ | 3 | | | $ | 32 | |
2021 | 136 | | | 11 | | | 147 | |
2022 | 120 | | | 5 | | | 125 | |
2023 | 67 | | | 0 | | | 67 | |
2024 | 54 | | | 0 | | | 54 | |
Thereafter | 184 | | | 0 | | | 184 | |
Total lease payments | 590 | | | 19 | | | 609 | |
Less: interest | 66 | | | 1 | | | 67 | |
Present value of lease liabilities | $ | 524 | | | $ | 18 | | | $ | 542 | |
4. Other Financial Data
Statements of Operations Information
Other Charges (Income)
Other charges (income) included in Operating earnings consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Other charges (income): | | | | | | | |
Intangibles amortization (Note 15) | $ | 54 | | | $ | 52 | | | $ | 158 | | | $ | 154 | |
Reorganization of business (Note 14) | 10 | | | 15 | | | 48 | | | 27 | |
| | | | | | | |
| | | | | | | |
Losses (gains) on legal settlements | 0 | | | (5) | | | 9 | | | (5) | |
Fixed asset impairment | 0 | | | 0 | | | 5 | | | 0 | |
Gain on sale of property, plant and equipment | 0 | | | 0 | | | (50) | | | 0 | |
Acquisition-related transaction fees | 5 | | | 1 | | | 8 | | | 4 | |
| | | | | | | |
| $ | 69 | | | $ | 63 | | | $ | 178 | | | $ | 180 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Other charges: | | | | | | | |
Intangibles amortization (Note 15) | $ | 58 | | | $ | 51 | | | $ | 116 | | | $ | 104 | |
Reorganization of business (Note 14) | 6 | | | 26 | | | 20 | | | 38 | |
Operating lease asset impairments | 0 | | | 0 | | | 7 | | | 0 | |
Acquisition-related transaction fees | 3 | | | 1 | | | 4 | | | 3 | |
Losses on legal settlements | 3 | | | 7 | | | 3 | | | 9 | |
Fixed asset impairment | 0 | | | 5 | | | 0 | | | 5 | |
Gain on sale of property, plant and equipment | 0 | | | 0 | | | 0 | | | (50) | |
| | | | | | | |
| $ | 70 | | | $ | 90 | | | $ | 150 | | | $ | 109 | |
During the ninesix months ended September 26,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.
Other Income (Expense)
Interest expense, net, and Other, net, both included in Other income (expense), consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Interest income (expense), net: | | | | | | | |
Interest expense | $ | (60) | | | $ | (60) | | | $ | (175) | | | $ | (178) | |
Interest income | 2 | | | 6 | | | 8 | | | 13 | |
| $ | (58) | | | $ | (54) | | | $ | (167) | | | $ | (165) | |
Other, net: | | | | | | | |
Net periodic pension and postretirement benefit (Note 8) | $ | 20 | | | $ | 17 | | | $ | 60 | | | $ | 50 | |
| | | | | | | |
Gain from the extinguishment of 2.00% senior convertible notes (Note 5) | 0 | | | 4 | | | 0 | | | 4 | |
Losses from the extinguishment of long-term debt (Note 5) | (56) | | | (7) | | | (56) | | | (50) | |
Investment impairments | 0 | | | (5) | | | 0 | | | (16) | |
Foreign currency gain (loss) | (15) | | | 3 | | | (19) | | | (7) | |
Gain (loss) on derivative instruments | 10 | | | (9) | | | 6 | | | (16) | |
Gains on equity method investments | 1 | | | 2 | | | 1 | | | 3 | |
Fair value adjustments to equity investments | (4) | | | (18) | | | 1 | | | (3) | |
Other | 2 | | | 2 | | | (1) | | | 13 | |
| $ | (42) | | | $ | (11) | | | $ | (8) | | | $ | (22) | |
During the three and nine months ended September 28, 2019, the Company recorded investment impairment charges of $5 million and $16 million, representing other-than-temporary declines in the value in the Company's strategic investment portfolio. Investment impairment charges are included in Other within Other income (expense) in the Company’s Condensed Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Interest income (expense), net: | | | | | | | |
Interest expense | $ | (46) | | | $ | (60) | | | $ | (102) | | | $ | (114) | |
Interest income | 2 | | | 2 | | | 4 | | | 5 | |
| $ | (44) | | | $ | (58) | | | $ | (98) | | | (109) | |
Other, net: | | | | | | | |
Net periodic pension and postretirement benefit (Note 8) | $ | 31 | | | $ | 19 | | | $ | 60 | | | $ | 39 | |
| | | | | | | |
| | | | | | | |
Loss from the extinguishment of long-term debt (Note 5) | (18) | | | 0 | | | (18) | | | 0 | |
| | | | | | | |
Foreign currency gain (loss) | (6) | | | (21) | | | 8 | | | (3) | |
Gain (loss) on derivative instruments | (1) | | | 12 | | | (9) | | | (4) | |
Gains on equity method investments | 2 | | | 0 | | | 3 | | | 0 | |
Fair value adjustments to equity investments | 8 | | | 4 | | | 13 | | | 5 | |
Other | (2) | | | 2 | | | 3 | | | (3) | |
| $ | 14 | | | $ | 16 | | | $ | 60 | | | $ | 34 | |
Earnings Per Common Share
The computation of basic and diluted earnings per common share is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts attributable to Motorola Solutions, Inc. common stockholders |
| Three Months Ended | | Six Months Ended |
| July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Basic earnings per common share: | | | | | | | |
Earnings | $ | 293 | | | $ | 135 | | | $ | 537 | | | $ | 332 | |
Weighted average common shares outstanding | 169.6 | | | 170.0 | | | 169.4 | | | 170.3 | |
Per share amount | $ | 1.73 | | | $ | 0.79 | | | $ | 3.17 | | | $ | 1.95 | |
Diluted earnings per common share: | | | | | | | |
Earnings | $ | 293 | | | $ | 135 | | | $ | 537 | | | $ | 332 | |
Weighted average common shares outstanding | 169.6 | | | 170.0 | | | 169.4 | | | 170.3 | |
Add effect of dilutive securities: | | | | | | | |
Share-based awards | 3.5 | | | 3.6 | | | 3.7 | | | 4.5 | |
1.75% senior convertible notes | 0 | | | 0 | | | 0 | | | 0 | |
Diluted weighted average common shares outstanding | 173.1 | | | 173.6 | | | 173.1 | | | 174.8 | |
Per share amount | $ | 1.69 | | | $ | 0.78 | | | $ | 3.10 | | | $ | 1.90 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Amounts attributable to Motorola Solutions, Inc. common stockholders |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Basic earnings per common share: | | | | | | | |
Earnings | $ | 205 | | | $ | 267 | | | $ | 537 | | | $ | 625 | |
Weighted average common shares outstanding | 169.7 | | | 166.7 | | | 170.1 | | | 165.3 | |
Per share amount | $ | 1.21 | | | $ | 1.60 | | | $ | 3.16 | | | $ | 3.78 | |
Diluted earnings per common share: | | | | | | | |
Earnings | $ | 205 | | | $ | 267 | | | $ | 537 | | | $ | 625 | |
Weighted average common shares outstanding | 169.7 | | | 166.7 | | | 170.1 | | | 165.3 | |
Add effect of dilutive securities: | | | | | | | |
Share-based awards | 3.8 | | | 4.8 | | | 4.2 | | | 4.7 | |
2.00% senior convertible notes | 0 | | | 4.9 | | | 0 | | | 5.7 | |
1.75% senior convertible notes | 0 | | | 0 | | | 0 | | | 0 | |
Diluted weighted average common shares outstanding | 173.5 | | | 176.4 | | | 174.3 | | | 175.7 | |
Per share amount | $ | 1.18 | | | $ | 1.51 | | | $ | 3.08 | | | $ | 3.56 | |
ForIn the computation of diluted earnings per common share for the three months ended September 26, 2020,July 3, 2021, the assumed exercise of 0.50.4 million options, including 0.2 million subject to market based contingent option agreements, were excluded because their inclusion would have been antidilutive. For the ninesix months ended September 26, 2020,July 3, 2021, 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.
In the computation of diluted earnings per common share for the three months ended September 28, 2019 the assumed exercise of 0.01June 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. InFor the computation of the diluted earnings per common share for the ninesix months ended September 28, 2019,June 27, 2020, the assumed exercise of 0.30.4 million options, including 0.1 million subject to market based contingent option agreements, were excluded because their inclusion would have been antidilutive.
As of September 26, 2020,July 3, 2021, the Company had $1.0 billion of 1.75% senior convertible notesSenior Convertible Notes outstanding which mature inon September 15, 2024 ("New 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 New Senior Convertible Notes in cash. Because of the Company’s intention to settle the par value of the New Senior Convertible Notes in cash, Motorola Solutions does not reflect any shares underlying the New Senior
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 September 26, 2020,July 3, 2021, there was no dilutive effect of the New 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. See further discussion in Note 5.
Balance Sheet Information
Accounts Receivable, Net
Accounts receivable, net, consists of the following:
| | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 |
Accounts receivable | $ | 1,228 | | | $ | 1,475 | |
Less allowance for credit losses | (73) | | | (63) | |
| $ | 1,155 | | | $ | 1,412 | |
| | | | | | | | | | | |
| July 3, 2021 | | December 31, 2020 |
Accounts receivable | $ | 1,244 | | | $ | 1,465 | |
Less allowance for credit losses | (75) | | | (75) | |
| $ | 1,169 | | | $ | 1,390 | |
Inventories, Net
Inventories, net, consist of the following:
| | | September 26, 2020 | | December 31, 2019 | | July 3, 2021 | | December 31, 2020 |
Finished goods | Finished goods | $ | 279 | | | $ | 209 | | Finished goods | $ | 261 | | | $ | 271 | |
Work-in-process and production materials | Work-in-process and production materials | 340 | | | 374 | | Work-in-process and production materials | 429 | | | 360 | |
| | 619 | | | 583 | | | 690 | | | 631 | |
Less inventory reserves | Less inventory reserves | (130) | | | (136) | | Less inventory reserves | (131) | | | (123) | |
| | $ | 489 | | | $ | 447 | | | $ | 559 | | | $ | 508 | |
Other Current Assets
Other current assets consist of the following:
| | | September 26, 2020 | | December 31, 2019 | | July 3, 2021 | | December 31, 2020 |
Current contract cost assets (Note 2) | Current contract cost assets (Note 2) | $ | 25 | | | $ | 24 | | Current contract cost assets (Note 2) | $ | 30 | | | $ | 23 | |
Tax-related deposits | Tax-related deposits | 65 | | | 77 | | Tax-related deposits | 44 | | | 52 | |
Other | Other | 161 | | | 171 | | Other | 180 | | | 167 | |
| | $ | 251 | | | $ | 272 | | | $ | 254 | | | $ | 242 | |
Property, Plant and Equipment, Net
Property, plant and equipment, net, consistsconsist of the following:
| | | September 26, 2020 | | December 31, 2019 | | July 3, 2021 | | December 31, 2020 |
Land | Land | $ | 6 | | | $ | 15 | | Land | $ | 4 | | | $ | 6 | |
Leasehold improvements | Leasehold improvements | 415 | | | 410 | | Leasehold improvements | 473 | | | 439 | |
Machinery and equipment | Machinery and equipment | 2,169 | | | 2,051 | | Machinery and equipment | 2,378 | | | 2,276 | |
| | 2,590 | | | 2,476 | | | 2,855 | | | 2,721 | |
Less accumulated depreciation | Less accumulated depreciation | (1,614) | | | (1,484) | | Less accumulated depreciation | (1,827) | | | (1,699) | |
| | $ | 976 | | | $ | 992 | | | $ | 1,028 | | | $ | 1,022 | |
Depreciation expense for the three months ended September 26,July 3, 2021 and June 27, 2020 and September 28, 2019 was $49$52 million and $47 million, respectively. Depreciation expense for the ninesix months ended September 26,July 3, 2021 and June 27, 2020 and September 28, 2019 was $142$104 million and $136$93 million, respectively.
Investments
Investments consist of the following: | | | | | | | | | | | | | | | |
| July 3, 2021 | | December 31, 2020 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Common stock | $ | 30 | | | $ | 19 | | | | | |
Strategic investments, at cost | 54 | | | 46 | | | | | |
Company-owned life insurance policies | 79 | | | 77 | | | | | |
Equity method investments | 18 | | | 16 | | | | | |
| | | | | | | |
| $ | 181 | | | $ | 158 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Common stock | $ | 17 | | | $ | 25 | | | | | |
Strategic investments, at cost | 47 | | | 40 | | | | | |
Company-owned life insurance policies | 72 | | | 74 | | | | | |
Equity method investments | 18 | | | 20 | | | | | |
| | | | | | | |
| $ | 154 | | | $ | 159 | | | | | |
| | | | | | | |
| | | | | | | |
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
Other assets consist of the following:
| | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 |
Defined benefit plan assets | $ | 279 | | | $ | 223 | |
Non-current contract cost assets (Note 2) | 101 | | | 107 | |
Other | 57 | | | 92 | |
| $ | 437 | | | $ | 422 | |
| | | | | | | | | | | |
| July 3, 2021 | | December 31, 2020 |
Defined benefit plan assets | $ | 332 | | | $ | 283 | |
Non-current contract cost assets (Note 2) | 110 | | | 105 | |
Other | 67 | | | 94 | |
| $ | 509 | | | $ | 482 | |
Accrued Liabilities
Accrued liabilities consist of the following:
| | | September 26, 2020 | | December 31, 2019 | | July 3, 2021 | | December 31, 2020 |
Compensation | Compensation | $ | 266 | | | $ | 347 | | Compensation | $ | 235 | | | $ | 291 | |
Tax liabilities | Tax liabilities | 59 | | | 95 | | Tax liabilities | 81 | | | 147 | |
Dividend payable | Dividend payable | 109 | | | 110 | | Dividend payable | 120 | | | 120 | |
Trade liabilities | Trade liabilities | 143 | | | 161 | | Trade liabilities | 157 | | | 164 | |
Operating lease liabilities (Note 3) | Operating lease liabilities (Note 3) | 123 | | | 122 | | Operating lease liabilities (Note 3) | 129 | | | 126 | |
Other | Other | 505 | | | 521 | | Other | 490 | | | 463 | |
| | $ | 1,205 | | | $ | 1,356 | | | $ | 1,212 | | | $ | 1,311 | |
Other Liabilities
Other liabilities consist of the following:
| | | September 26, 2020 | | December 31, 2019 | | July 3, 2021 | | December 31, 2020 |
Defined benefit plans | Defined benefit plans | $ | 1,472 | | | $ | 1,524 | | Defined benefit plans | $ | 1,504 | | | $ | 1,578 | |
| Non-current contract liabilities (Note 2) | Non-current contract liabilities (Note 2) | 266 | | | 274 | | Non-current contract liabilities (Note 2) | 296 | | | 283 | |
Unrecognized tax benefits | 54 | | | 53 | | |
| Deferred income taxes | Deferred income taxes | 179 | | | 184 | | Deferred income taxes | 178 | | | 180 | |
| Other | Other | 255 | | | 241 | | Other | 287 | | | 322 | |
| | $ | 2,226 | | | $ | 2,276 | | | $ | 2,265 | | | $ | 2,363 | |
Stockholders’ Equity (Deficit)
Share Repurchase Program: During the three and ninesix months ended September 26, 2020,July 3, 2021, the Company paid an aggregate of $105$102 million and $441$272 million, including transaction costs, to repurchase approximately 0.70.5 million and 2.91.5 million shares at an average price of $147.35$206.85 and $152.79$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 September 26, 2020,July 3, 2021, the Company had $820 million$2.4 billion of authority available for future repurchases.
Payment of Dividends: During the three months ended September 26,July 3, 2021 and June 27, 2020, and September 28, 2019, the Company paid $109$121 million and $94$109 million, respectively, in cash dividends to holders of its common stock. During the ninesix months ended September 26,July 3, 2021 and June 27, 2020, and September 28, 2019, the Company paid $327$242 million and $281$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.
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 ninesix months ended September 26, 2020July 3, 2021 and September 28, 2019:June 27, 2020:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Foreign Currency Translation Adjustments: | Foreign Currency Translation Adjustments: | | Foreign Currency Translation Adjustments: | | | | | | | |
Balance at beginning of period | Balance at beginning of period | $ | (470) | | | $ | (437) | | | $ | (410) | | | $ | (444) | | Balance at beginning of period | $ | (341) | | | $ | (548) | | | $ | (360) | | | $ | (410) | |
Other comprehensive income (loss) before reclassification adjustment | Other comprehensive income (loss) before reclassification adjustment | 34 | | | (33) | | | (27) | | | (23) | | Other comprehensive income (loss) before reclassification adjustment | 6 | | | 75 | | | 23 | | | (61) | |
Tax expense | (4) | | | 0 | | | (3) | | | (3) | | |
Tax benefit | | Tax benefit | 0 | | | 3 | | | 2 | | | 1 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | 30 | | | (33) | | | (30) | | | (26) | | Other comprehensive income (loss), net of tax | 6 | | | 78 | | | 25 | | | (60) | |
| Balance at end of period | Balance at end of period | $ | (440) | | | $ | (470) | | | $ | (440) | | | $ | (470) | | Balance at end of period | $ | (335) | | | $ | (470) | | | $ | (335) | | | $ | (470) | |
| Defined Benefit Plans: | Defined Benefit Plans: | | | | | | | | Defined Benefit Plans: | | | | | | | |
Balance at beginning of period | Balance at beginning of period | $ | (2,005) | | | $ | (2,300) | | | $ | (2,030) | | | $ | (2,321) | | Balance at beginning of period | $ | (2,069) | | | $ | (2,018) | | | $ | (2,086) | | | $ | (2,030) | |
| Reclassification adjustment - Actuarial net losses into Other income | 20 | | | 16 | | | 58 | | | 50 | | |
Reclassification adjustment - Prior service benefits into Other expense | (4) | | | (4) | | | (12) | | | (11) | | |
Reclassification adjustment - Actuarial net losses into Other income (Note 8) | | Reclassification adjustment - Actuarial net losses into Other income (Note 8) | 21 | | | 19 | | | 43 | | | 38 | |
Reclassification adjustment - Prior service benefits into Other expense (Note 8) | | Reclassification adjustment - Prior service benefits into Other expense (Note 8) | (2) | | | (4) | | | (4) | | | (8) | |
| Tax expense | (4) | | | (1) | | | (9) | | | (7) | | |
Tax benefit | | Tax benefit | (3) | | | (2) | | | (6) | | | (5) | |
| Other comprehensive income, net of tax | Other comprehensive income, net of tax | 12 | | | 11 | | | 37 | | | 32 | | Other comprehensive income, net of tax | 16 | | | 13 | | | 33 | | | 25 | |
Balance at end of period | Balance at end of period | $ | (1,993) | | | $ | (2,289) | | | $ | (1,993) | | | $ | (2,289) | | Balance at end of period | $ | (2,053) | | | $ | (2,005) | | | $ | (2,053) | | | $ | (2,005) | |
Total Accumulated other comprehensive loss | Total Accumulated other comprehensive loss | $ | (2,433) | | | $ | (2,759) | | | $ | (2,433) | | | $ | (2,759) | | Total Accumulated other comprehensive loss | $ | (2,388) | | | $ | (2,475) | | | $ | (2,388) | | | $ | (2,475) | |
5. Debt and Credit Facilities | | | | | | | | | | | |
| | | |
| July 3, 2021 | | December 31, 2020 |
3.5% senior notes due 2023 | $ | 0 | | | $ | 323 | |
4.0% senior notes due 2024 | 584 | | | 583 | |
1.75% senior convertible notes due 2024 | 999 | | | 995 | |
6.5% debentures due 2025 | 70 | | | 70 | |
7.5% debentures due 2025 | 252 | | | 252 | |
4.6% senior notes due 2028 | 693 | | | 692 | |
6.5% debentures due 2028 | 24 | | | 24 | |
4.6% senior notes due 2029 | 803 | | | 803 | |
2.3% senior notes due 2030 | 892 | | | 892 | |
2.75% senior notes due 2031 | 844 | | | 0 | |
6.625% senior notes due 2037 | 37 | | | 37 | |
5.5% senior notes due 2044 | 396 | | | 396 | |
5.22% debentures due 2097 | 92 | | | 92 | |
Other long-term debt | 11 | | | 18 | |
| 5,697 | | | 5,177 | |
Adjustments for unamortized gains on interest rate swap terminations | (2) | | | (2) | |
Less: current portion | (9) | | | (12) | |
Long-term debt | $ | 5,686 | | | $ | 5,163 | |
On May 24, 2021, the Company issued $850 million of 2.75% senior notes due 2031. The Company 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 its outstanding long-term debt for a purchase price of $341 million, excluding $3 million of accrued interest.
5. DebtAfter accelerating the amortization of debt discounts and Credit Facilitiesdebt 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.
| | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 |
$2.2 billion unsecured revolving credit facility due April 2022 | $ | 200 | | | $ | 0 | |
| | | |
| | | |
| | | |
3.75% senior notes due 2022 | 0 | | | 550 | |
3.5% senior notes due 2023 | 323 | | | 597 | |
4.0% senior notes due 2024 | 582 | | | 593 | |
1.75% senior convertible notes due 2024 | 993 | | | 988 | |
6.5% debentures due 2025 | 70 | | | 72 | |
7.5% debentures due 2025 | 252 | | | 254 | |
4.6% senior notes due 2028 | 692 | | | 691 | |
6.5% debentures due 2028 | 24 | | | 24 | |
4.6% senior notes due 2029 | 804 | | | 804 | |
2.3% senior notes due 2030 | 892 | | | 0 | |
6.625% senior notes due 2037 | 37 | | | 37 | |
5.5% senior notes due 2044 | 396 | | | 396 | |
5.22% debentures due 2097 | 92 | | | 91 | |
Other long-term debt | 19 | | | 35 | |
| 5,376 | | | 5,132 | |
Adjustments for unamortized gains on interest rate swap terminations | (2) | | | (3) | |
Less: current portion | (212) | | | (16) | |
Long-term debt | $ | 5,162 | | | $ | 5,113 | |
As of September 26, 2020,July 3, 2021, the Company had a $2.2$2.25 billion syndicated, unsecured revolving credit facility scheduled to mature in April 2022March 2026 (the "2017"2021 Motorola Solutions Credit Agreement"Agreement"). The 20172021 Motorola Solutions Credit Agreement includes a $500 million letter of credit sub-limit withand fronting commitments of $450 million of fronting commitments.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. FollowingThe 2021 Motorola Solutions Credit Agreement includes provisions allowing the turmoilCompany to replace LIBOR with a replacement benchmark rate in the financial markets caused by the COVID-19 Pandemic, the Company borrowed $800 millionfuture under the facility to bolster its cash holdings out of precautioncertain conditions defined in the first quarter of 2020, of which $600 million was repaid during the nine months ended September 26, 2020. As of September 26, 2020, the outstanding loan amount was $200 million. Subsequent to the quarter, the company repaid an additional $100 million, bringing the outstanding loan amount to $100 million. The weighted average borrowing rate for amounts outstanding during the three and nine months ended September 26, 2020 were 1.50% and 1.71%, respectively.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 20172021 Motorola Solutions Credit Agreement.Agreement. The Company was in compliance with its financial covenants as of September 26, 2020. In August of 2020, the Company issued $900 million of 2.30% Senior notes due 2030. The Company recognized net proceeds of $892 million after debt issuance costs and debt discounts. A portion of these proceeds were then used to redeem $552 million in principal amount outstanding of the 3.75% Senior notes due 2022 for a redemption price of $582 million, excluding approximately $7 million of accrued interest. The remaining proceeds were used to repurchase $293 million in principal amount outstanding of its long-term debt under a tender offer, for a purchase price of $315 million, excluding approximately $5 million of accrued interest, all of which occurred during the three months ended September 26, 2020. After accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately $56 million related to the redemption and the repurchase in Other, net within Other income (expense) in the Condensed Consolidated Statements of Operations.
As of September 26, 2020, the Company had $1.0 billion of 1.75% senior convertible notes with Silver Lake, which mature in September 2024 ("New Senior Convertible Notes"). 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, as may be adjusted for dividends declared, per $1,000 principal amount (which is equal to an initial conversion price of $203.50 per share). The exercise price adjusts automatically for dividends. In the event of conversion, the Company intends to settle the principal amount of the New Senior Convertible Notes in cash. The Company has recorded a debt liability associated with the New 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, the Company has 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.July 3, 2021.
The Company has an unsecured commercial paper program, backed by the unsecured revolving credit facility,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 September 26, 2020July 3, 2021 the Company had 0 outstanding debt under the commercial paper program.
6. Risk Management
Foreign Currency Risk
As of September 26, 2020, theThe Company had outstanding foreign exchange contracts with notional amounts totaling $1.0$1.2 billion compared to $1.1 billion outstanding atfor each of the periods ended July 3, 2021 and December 31, 2019.2020. The Company does not believe these financial instruments should subject it to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions.
The following table shows the 5 largest net notional amounts of the positions to buy or sell foreign currency as of September 26, 2020,July 3, 2021, and the corresponding positions as of December 31, 2019:2020:
| | | Notional Amount | | Notional Amount |
Net Buy (Sell) by Currency | Net Buy (Sell) by Currency | September 26, 2020 | | December 31, 2019 | Net Buy (Sell) by Currency | July 3, 2021 | | December 31, 2020 |
Euro | Euro | $ | 196 | | | $ | 134 | | Euro | $ | 173 | | | $ | 177 | |
Canadian dollar | | Canadian dollar | 54 | | | 61 | |
British pound | British pound | 134 | | | 107 | | British pound | 48 | | | 86 | |
Norwegian krone | 29 | | | 32 | | |
Chinese renminbi | | Chinese renminbi | (99) | | | (90) | |
Australian dollar | Australian dollar | (93) | | | (123) | | Australian dollar | (89) | | | (88) | |
Chinese renminbi | (77) | | | (79) | | |
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 September 26, 2020,July 3, 2021, all of the counterparties havehad investment grade credit ratings. As of September 26, 2020,July 3, 2021, the Company had $1$5 million of exposure to aggregate credit risk with all counterparties.
The following tables summarize the fair values and locations in the Condensed Consolidated Balance Sheets of all derivative financial instruments held by the Company as of September 26, 2020July 3, 2021 and December 31, 2019:
| | | | | | | | | | | |
| Fair Values of Derivative Instruments |
September 26, 2020 | Other Current Assets | | Accrued Liabilities |
Derivatives designated as hedging instruments: | | | |
Foreign exchange contracts | $ | 0 | | | $ | 2 | |
Derivatives not designated as hedging instruments: | | | |
Foreign exchange contracts | 1 | | | 7 | |
Total derivatives | $ | 1 | | | $ | 9 | |
2020: | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
July 3, 2021 | Other Current Assets | | Accrued Liabilities |
Derivatives designated as hedging instruments: | | | |
Foreign exchange contracts | $ | 4 | | | $ | 1 | |
Derivatives not designated as hedging instruments: | | | |
Foreign exchange contracts | 1 | | | 10 | |
Total derivatives | $ | 5 | | | $ | 11 | |
| | | Fair Values of Derivative Instruments | | Fair Values of Derivative Instruments |
December 31, 2019 | Other Current Assets | | Accrued Liabilities | |
December 31, 2020 | | December 31, 2020 | Other Current Assets | | Accrued Liabilities |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | | | |
Foreign exchange contracts | Foreign exchange contracts | $ | 3 | | | $ | 0 | | Foreign exchange contracts | $ | 0 | | | $ | 5 | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | |
Foreign exchange contracts | Foreign exchange contracts | 1 | | | 5 | | Foreign exchange contracts | 14 | | | 3 | |
Total derivatives | Total derivatives | $ | 4 | | | $ | 5 | | Total derivatives | $ | 14 | | | $ | 8 | |
The following table summarizes the effect of derivatives on the Company's condensed consolidated financial statements for the three and
ninesix months ended
September 26, 2020July 3, 2021 and
September 28, 2019:June 27, 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | $ | (1) | | | $ | (11) | | | $ | 3 | | | $ | 8 | |
Forward points recognized | Other income (expense) | 0 | | | 1 | | | 1 | | | 2 | |
Undesignated derivatives recognized | Other income (expense) | (1) | | | 12 | | | (9) | | | (4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | Financial Statement Location |
Foreign Exchange Contracts | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | |
Effective portion | $ | (5) | | | $ | 8 | | | $ | 3 | | | $ | 16 | | | Accumulated other comprehensive income |
Forward points recognized | 0 | | | 2 | | | 2 | | | 5 | | | Other income |
Undesignated derivatives recognized | 10 | | | (9) | | | 6 | | | (16) | | | Other 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 investmentinvestments 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 investmentinvestments being hedged, until the investment isinvestments are sold or liquidated. As of September 26, 2020,July 3, 2021, the Company had €94€100 million of net investment hedges in certain Euro functional subsidiaries and £60£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 ninesix months ended September 26, 2020,July 3, 2021, the Company amortized $2$1 million of income from the excluded components through interest expense. During the three and ninesix months ended September 28, 2019,June 27, 2020, the Company amortized $2$1 million and $5$2 million, respectively, of income from the excluded components through interest expense.
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.
The following table provides details of income taxes: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Net earnings before income taxes | $ | 340 | | | $ | 176 | | | $ | 630 | | | $ | 401 | |
Income tax expense | 46 | | | 40 | | | 90 | | | 67 | |
Effective tax rate | 14 | % | | 23 | % | | 14 | % | | 17 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net earnings before income taxes | $ | 251 | | | $ | 348 | | | $ | 652 | | | $ | 808 | |
Income tax expense | 45 | | | 80 | | | 112 | | | 180 | |
Effective tax rate | 18 | % | | 23 | % | | 17 | % | | 22 | % |
During the three and nine months ended September 26, 2020, the Company recorded $45 million and $112 million of net tax expense, resulting in anThe effective tax rate of 18% and 17%, respectively. Duringfor the three and nine months ended September 28, 2019, the Company recorded $80 million and $180 millionJuly 3, 2021 of net tax expense, resulting in an effective tax rate of 23% and 22%, respectively. The three and nine months ended September 26, 2020 and September 28, 2019 effective tax rates are14% was different from the U.S. federal statutory tax rate of 21% due to state tax expense, offset primarily 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 relatedof 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 stock compensation and favorable U.S. return-to-provision adjustments. state tax expense, offset by excess tax benefits on share-based compensation.
The effective tax rate for the three and ninesix months ended September 26, 2020July 3, 2021 of 18% and 17%, respectively, is14% was lower than the effective tax raterates for the three and ninesix months ended
September 28, 2019 June 27, 2020 of 23% and 22%17%, respectively, primarily due to an increaseda tax benefit of forecasted research and development$33 million related to a partial release of a valuation allowance recorded on the U.S. foreign tax credit in the annual effective tax rate and favorable U.S. return-to-provision adjustments recorded in 2020.
carryforward.
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 | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 0 | | | $ | 0 | |
Interest cost | 29 | | | 36 | | | 5 | | | 7 | | | 1 | | | 1 | |
Expected return on plan assets | (59) | | | (56) | | | (25) | | | (22) | | | (2) | | | (3) | |
Amortization of: | | | | | | | | | | | |
Unrecognized net loss | 17 | | | 14 | | | 4 | | | 4 | | | 0 | | | 1 | |
Unrecognized prior service benefit | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | (4) | |
| | | | | | | | | | | |
Net periodic pension benefits | $ | (13) | | | $ | (6) | | | $ | (16) | | | $ | (10) | | | $ | (3) | | | $ | (5) | |
| | | U.S. Pension Benefit Plans | | Non-U.S. Pension Benefit Plans | | Postretirement Health Care Benefits Plan | |
Three Months Ended | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | |
| | | U.S. Pension Benefit Plans | | Non-U.S. Pension Benefit Plans | | Postretirement Health Care Benefits Plan |
Six Months Ended | | Six Months Ended | July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Service cost | Service cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Service cost | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | | $ | 0 | | | $ | 0 | |
Interest cost | Interest cost | 36 | | | 50 | | | 7 | | | 9 | | | 0 | | | 1 | | Interest cost | 58 | | | 72 | | | 10 | | | 14 | | | 1 | | | 1 | |
Expected return on plan assets | Expected return on plan assets | (57) | | | (69) | | | (21) | | | (20) | | | (3) | | | (2) | | Expected return on plan assets | (118) | | | (112) | | | (50) | | | (42) | | | (5) | | | (5) | |
Amortization of: | Amortization of: | | Amortization of: | |
Unrecognized net loss | Unrecognized net loss | 15 | | | 11 | | | 4 | | | 4 | | | 1 | | | 1 | | Unrecognized net loss | 34 | | | 29 | | | 8 | | | 7 | | | 1 | | | 2 | |
Unrecognized prior service benefit | Unrecognized prior service benefit | 0 | | | 0 | | | (1) | | | 0 | | | (3) | | | (4) | | Unrecognized prior service benefit | 0 | | | 0 | | | (1) | | | (1) | | | (3) | | | (7) | |
| Net periodic pension benefits | Net periodic pension benefits | $ | (6) | | | $ | (8) | | | $ | (11) | | | $ | (7) | | | $ | (5) | | | $ | (4) | | Net periodic pension benefits | $ | (26) | | | $ | (11) | | | $ | (32) | | | $ | (21) | | | $ | (6) | | | $ | (9) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefit Plans | | Non-U.S. Pension Benefit Plans | | Postretirement Health Care Benefits Plan |
Nine Months Ended | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Service cost | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 2 | | | $ | 0 | | | $ | 0 | |
Interest cost | 108 | | | 152 | | | 21 | | | 29 | | | 1 | | | 2 | |
Expected return on plan assets | (169) | | | (207) | | | (63) | | | (62) | | | (8) | | | (7) | |
Amortization of: | | | | | | | | | | | |
Unrecognized net loss | 44 | | | 35 | | | 11 | | | 12 | | | 3 | | | 3 | |
Unrecognized prior service benefit | 0 | | | 0 | | | (1) | | | 0 | | | (11) | | | (11) | |
| | | | | | | | | | | |
Net periodic pension benefits | $ | (17) | | | $ | (20) | | | $ | (31) | | | $ | (19) | | | $ | (15) | | | $ | (13) | |
9. Share-Based Compensation Plans
Compensation expense for the Company’s share-based plans was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Share-based compensation expense included in: | | | | | | | |
Costs of sales | $ | 3 | | | $ | 3 | | | $ | 12 | | | $ | 11 | |
Selling, general and administrative expenses | 18 | | | 16 | | | 57 | | | 46 | |
Research and development expenditures | 10 | | | 11 | | | 31 | | | 30 | |
Share-based compensation expense included in Operating earnings | 31 | | | 30 | | | 100 | | | 87 | |
Tax benefit | (5) | | | (5) | | | (17) | | | (16) | |
Share-based compensation expense, net of tax | $ | 26 | | | $ | 25 | | | $ | 83 | | | $ | 71 | |
Decrease in basic earnings per share | $ | (0.15) | | | $ | (0.15) | | | $ | (0.49) | | | $ | (0.43) | |
Decrease in diluted earnings per share | $ | (0.15) | | | $ | (0.14) | | | $ | (0.48) | | | $ | (0.40) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | $ | 4 | | | $ | 4 | | | $ | 8 | | | $ | 9 | |
Selling, general and administrative expenses | 19 | | | 18 | | | 36 | | | 39 | |
Research and development expenditures | 8 | | | 9 | | | 16 | | | 21 | |
Share-based compensation expense included in Operating earnings | 31 | | | 31 | | | 60 | | | 69 | |
Tax benefit | (2) | | | (5) | | | (8) | | | (11) | |
Share-based compensation expense, net of tax | $ | 29 | | | $ | 26 | | | $ | 52 | | | $ | 58 | |
Decrease in basic earnings per share | $ | (0.17) | | | $ | (0.15) | | | $ | (0.31) | | | $ | (0.34) | |
Decrease in diluted earnings per share | $ | (0.17) | | | $ | (0.15) | | | $ | (0.30) | | | $ | (0.33) | |
| | | | | | | |
During the ninesix months ended September 26, 2020,July 3, 2021, the Company granted 0.50.4 million restricted stock units ("RSUs")(RSUs), 0.030.1 million performance stock units ("PSUs")(PSUs) and 0.1 million market stock units ("MSUs")(MSUs) with an aggregate grant-date fair value of $67$64 million, $7$15 million, and $9$10 million, respectively, and 0.2 million stock options and 0.10.2 million performance options ("POs")(POs) with an aggregate grant-date fair value of $6$8 million and $9$10 million, respectively. The share-based compensation expense will generally be recognized over the vesting period of three years.
During the nine months ended September 26, 2020, the Company granted 0.1 million shares of restricted stock in connection with acquisitions, for an aggregate grant-date fair value of $9 million related to compensation withheld from the purchase prices that will be expensed over an average service period of two years.
10. Fair Value Measurements
The Company may hold certain fixed income securities, equity securities and derivatives, which are recognized and disclosed at fair value in the financial statements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date and is measured using the fair value hierarchy. This hierarchy prescribes valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions about current market conditions. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations, in which all significant inputs are observable, in active markets.
Level 3 — Valuations derived from valuation techniques, in which one or more significant inputs are unobservable.
The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of September 26, 2020July 3, 2021 and December 31, 20192020 were as follows:
| September 26, 2020 | Level 1 | | Level 2 | | | Total | |
July 3, 2021 | | July 3, 2021 | Level 1 | | Level 2 | | | Total |
Assets: | Assets: | | | | Assets: | | | |
Foreign exchange derivative contracts | Foreign exchange derivative contracts | $ | 0 | | | $ | 1 | | | | $ | 1 | | Foreign exchange derivative contracts | $ | 0 | | | $ | 5 | | | | $ | 5 | |
| Common stock | Common stock | 17 | | | 0 | | | | 17 | | Common stock | 30 | | | 0 | | | | 30 | |
Liabilities: | Liabilities: | | | | Liabilities: | | | |
Foreign exchange derivative contracts | Foreign exchange derivative contracts | $ | 0 | | | $ | 9 | | | | $ | 9 | | Foreign exchange derivative contracts | $ | 0 | | | $ | 11 | | | | $ | 11 | |
|
| December 31, 2019 | Level 1 | | Level 2 | | | Total | |
December 31, 2020 | | December 31, 2020 | Level 1 | | Level 2 | | | Total |
Assets: | Assets: | | | | Assets: | | | |
Foreign exchange derivative contracts | Foreign exchange derivative contracts | $ | 0 | | | $ | 4 | | | | $ | 4 | | Foreign exchange derivative contracts | $ | 0 | | | $ | 14 | | | | $ | 14 | |
| Common stock | Common stock | 25 | | | 0 | | | | 25 | | Common stock | 19 | | | 0 | | | | 19 | |
Liabilities: | Liabilities: | | | | Liabilities: | | | |
Foreign exchange derivative contracts | Foreign exchange derivative contracts | $ | 0 | | | $ | 5 | | | | $ | 5 | | Foreign exchange derivative contracts | $ | 0 | | | $ | 8 | | | | $ | 8 | |
|
The Company had no Level 3 holdings as of September 26, 2020July 3, 2021 or December 31, 2019.2020.
At September 26, 2020July 3, 2021 and December 31, 2019,2020, the Company had $308$811 million and $322$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 September 26, 2020July 3, 2021 and December 31, 20192020 was $5.9$6.3 billion and $5.5$5.8 billion (Level 2), respectively.
All other financial instruments are carried at cost, which is not materially different from the instruments’ fair values.
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 ninesix months ended September 26, 2020July 3, 2021 and September 28, 2019:June 27, 2020:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Contract-specific discounting facility | | Contract-specific discounting facility | $ | 36 | | | $ | 54 | | | $ | 107 | | | $ | 98 | |
Accounts receivable sales proceeds | Accounts receivable sales proceeds | $ | 82 | | | $ | 4 | | | $ | 238 | | | $ | 31 | | Accounts receivable sales proceeds | 8 | | | 34 | | | 8 | | | 58 | |
Long-term receivables sales proceeds | Long-term receivables sales proceeds | 45 | | | 56 | | | 115 | | | 132 | | Long-term receivables sales proceeds | 30 | | | 29 | | | 84 | | | 70 | |
Total proceeds from receivable sales | Total proceeds from receivable sales | $ | 127 | | | $ | 60 | | | $ | 353 | | | $ | 163 | | Total proceeds from receivable sales | $ | 74 | | | $ | 117 | | | $ | 199 | | | $ | 226 | |
|
At September 26, 2020,July 3, 2021, the Company had retained servicing obligations for $1.0 billion$931 million of long-term receivables, compared to $984$983 million at December 31, 2019.2020. 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 $59$99 million at September 26, 2020,July 3, 2021, compared to $78 million at December 31, 2019.2020.
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 FebruaryMarch 14, 2020,2017, the Company announced thatfiled a jurycomplaint in the U.S. District Court for the Northern District of Illinois decided in the Company's favor in its trade secret theft and copyright infringement case(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 Motorola Solutionsthe Company $345.8 million in compensatory damages and $418.8 million in punitive damages, for a total of $764.6 million. AThe Court denied Hytera’s motion for a new trial was filed by Hytera in Aprilon October 20, 2020. TheOn 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 upheldawaits the damages awardedCourt'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 on October 20, 2020, subsequentby Hytera is still to be determined by the Court. On March 25, 2021, the Court entered rulings favorable to the quarter. OtherCompany with respect to several of the Company's post-trial motions, are fully briefed and awaiting ruling, including the Company's motion for a permanent global injunction, as well as the Company's requests for attorneys' fees and increased damagesits motion to include post-trial amounts.require Hytera to turn over certain assets in satisfaction of the Company’s judgment award.
On May 27, 2020, Hytera America, Inc. and Hytera Communications America (West), Inc. each filed for Chapter 11 bankruptcy protection in May 2020; the U.S. Bankruptcy Court for the Central District of California (the “Bankruptcy Court”). The Company filed motions in the Bankruptcy Court to dismiss the bankruptcy proceedings in July 2020. As ofOn January 22, 2021, the third quarter of 2020, the United States Bankruptcy Court grantedentered an agreed order, allowing a continuancepartial sale of Hytera’sHytera's U.S. assets in the bankruptcy proceedings. The proposed sale motion anddoes not include Hytera inventory accused of including the Company’s motion to dismiss Hytera’s bankruptcy.
13. Segment Information
The following table summarizes Net sales by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Products and Systems Integration | $ | 1,163 | | | $ | 1,349 | | | $ | 3,124 | | | $ | 3,656 | |
Software and Services | 705 | | | 645 | | | 2,017 | | | 1,855 | |
| $ | 1,868 | | | $ | 1,994 | | | $ | 5,141 | | | $ | 5,511 | |
The following table summarizes the Operating earnings by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Products and Systems Integration | $ | 164 | | | $ | 258 | | | $ | 305 | | | $ | 568 | |
Software and Services | 188 | | | 155 | | | 523 | | | 423 | |
Operating earnings | 352 | | | 413 | | | 828 | | | 991 | |
Total other expense | (101) | | | (65) | | | (176) | | | (183) | |
Earnings before income taxes | $ | 251 | | | $ | 348 | | | $ | 652 | | | $ | 808 | |
intellectual property.
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 | $ | 1,198 | | | $ | 968 | | | $ | 2,213 | | | $ | 1,961 | |
Software and Services | 773 | | | 650 | | | 1,531 | | | 1,312 | |
| $ | 1,971 | | | $ | 1,618 | | | $ | 3,744 | | | $ | 3,273 | |
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 | $ | 139 | | | $ | 49 | | | $ | 216 | | | $ | 141 | |
Software and Services | 231 | | | 169 | | | 452 | | | 335 | |
Operating earnings | 370 | | | 218 | | | 668 | | | 476 | |
Total other expense | (30) | | | (42) | | | (38) | | | (75) | |
Earnings before income taxes | $ | 340 | | | $ | 176 | | | $ | 630 | | | $ | 401 | |
14. Reorganization of Business
The Company maintains a formal Involuntary Severance Plan (the “Severance Plan”), which permits the Company to offer eligible employees severance benefits based on years of service and employment grade level in the event that employment is involuntarily terminated as a result of a reduction-in-force or restructuring. The Severance Plan includes defined formulas to calculate employees’ termination benefits. In addition to the Involuntary Severance Plan, during the nine months ended September 26, 2020, the Company accepted voluntary applications to its Severance Plan from a defined subset of employees within the United States. Voluntary applicants received termination benefits based on the formulas defined in the Severance Plan. However, termination benefits, which are normally different based on employment level grade and capped at nine months of salary, were equalized for all employment level grades and capped at a full year’s salary for the voluntary applicants.
20202021 Charges
During the three months ended September 26, 2020,July 3, 2021, the Company recorded net reorganization of business charges of $13$9 million, including $10$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 $13$9 million were charges of $16$12 million related to employee separation, partially offset by $3 million of reversals for accruals no longer needed.
During the ninesix months ended September 26, 2020,July 3, 2021, the Company recorded net reorganization of business charges of $72$25 million, including $48$20 million of charges in Other charges and $24$5 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $72$25 million were charges of $85$30 million related to employee separation, partially offset by $13$5 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment: | | | | | | | | | | | |
July 3, 2021 | Three Months Ended | | Six Months Ended |
| | | |
Products and Systems Integration | $ | 7 | | | $ | 19 | |
Software and Services | 2 | | | 6 | |
| $ | 9 | | | $ | 25 | |
| | | | | | | | | | | |
September 26, 2020 | Three Months Ended | | Nine Months Ended |
Products and Systems Integration | $ | 10 | | | $ | 58 | |
Software and Services | 3 | | | 14 | |
| $ | 13 | | | $ | 72 | |
The following table displays a rollforwardReorganization of the reorganization of business accruals established for employee separation costs from January 1, 2020 to September 26, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2020 | | Additional Charges | | Adjustments | | Amount Used | | September 26, 2020 |
| | | | | | | | | |
Employee separation costs | $ | 78 | | | $ | 85 | | | $ | (13) | | | $ | (63) | | | $ | 87 | |
| | | | | | | | | |
Businesses Accruals | | | | | | | | | | | | | | | | | | | | | | | | | | |
January 1, 2021 | | Additional Charges | | Adjustments | | Amount Used | | July 3, 2021 |
$ | 79 | | | $ | 30 | | | $ | (5) | | | $ | (56) | | | $ | 48 | |
Employee Separation Costs
At January 1, 2020,2021, the Company had an accrual of $78$79 million for employee separation costs. The 20202021 additional charges of $85$30 million represent severance costs for approximately 900400 employees. The adjustment of $13$5 million reflects reversals for accruals no longer needed. The $63$56 million used reflects cash payments to severed employees. The remaining accrual of $87$48 million, which is included in Accrued liabilities in the Company’s Condensed Consolidated Balance Sheets at September 26, 2020,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.
20192020 Charges
During the three months ended September 28, 2019,June 27, 2020, the Company recorded net reorganization of business charges of $18$41 million, including $15$26 million of charges in Other charges and $3$15 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $18$41 million were charges of $19$46 million related to employee separation, costs and $1partially offset by $5 million of reversals for accruals no longer needed.
During the ninesix months ended September 28, 2019,June 27, 2020, the Company recorded net reorganization of business charges of $37$59 million, including $27$38 million of charges in Other charges and $10$21 million of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the $37$59 million were charges of $48$68 million related to employee separation costs and $11$9 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
| September 28, 2019 | Three Months Ended | | Nine Months Ended | |
June 27, 2020 | | June 27, 2020 | Three Months Ended | | Six Months Ended |
| Products and Systems Integration | Products and Systems Integration | $ | 14 | | | $ | 29 | | Products and Systems Integration | $ | 33 | | | $ | 47 | |
Software and Services | Software and Services | 4 | | | 8 | | Software and Services | 8 | | | 12 | |
| | $ | 18 | | | $ | 37 | | | $ | 41 | | | $ | 59 | |
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 softwareCommand 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 fourteen and seven years, respectively. The business is part of the Software and Services segment. The purchase accounting is not yet complete andwas completed as suchof the final allocation between income tax accounts, intangible assets, net liabilities and goodwill may be subject to change.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 $108$107 million of cash, net of cash acquired. The acquisition demonstrates Motorola Solutions’ continued investment in video securityVideo Security and analytics,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 $42$35 million of goodwill, $30 million of identifiable intangible assets, and $36$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 fifteen, two, 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 intangible assets, net assets 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 securityVideo Security and analytics portfolio,Access Control technology, providing enhanced geographical reach across a wider customer base. The Company recognized $14$18 million of goodwill, $22 million of identifiable intangible assets and $1$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 is not yet complete andwas completed as suchof the final allocation between income tax accounts, intangible assets, net assets and goodwill may be subject to change.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 is not yet complete andwas completed as suchof the final allocation between income tax accounts and goodwill may be subject to change.first quarter of 2021.
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 is not yet complete and as such the final allocation between income tax accounts and goodwill may be subject to change.
On October 16, 2019, the Company acquired a data solutions business for vehicle location information for a purchase price of $85 million in cash, net of cash acquired. The acquisition enhances the Company's video security platform by adding data to the Company’s existing LPR database within the Software and Services segment. The Company recognized $54 million of goodwill, $28 million of identifiable intangible assets, and $3 million of net assets. The goodwill is deductible for tax purposes. The identifiable intangible assets were classified as $22 million of customer relationships and $6 million of developed technology and will be amortized over a period of sixteen years and five years, respectively. 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 July 11, 2019, the Company acquired WatchGuard, a provider of in-car and body-worn video solutions for $271 million, inclusive of share-based compensation withheld at a fair value of $16 million that will be expensed over an average service period of two years. The acquisition was settled with $250 million, net of cash acquired. The acquisition expands the Company's video security solutions platform. The business is part of both the Products and Systems Integration and Software and Services segments. The Company recognized $156 million of goodwill, $63 million of identifiable intangible assets, and $31 million of net assets. The goodwill is not deductible for tax purposes. The identifiable intangible assets were classified as $33 million of customer relationships and $30 million of completed technology that will be amortized over a period of thirteen years and seven years, respectively. The purchase accounting was completed as of the third quarter of 2020.
On March 11, 2019, the Company announced that it acquired Avtec, a provider of dispatch communication equipment for U.S. public safety and commercial customers for a purchase price of $136 million in cash, net of cash acquired. This acquisition expands the Company's commercial portfolio with new capabilities, allowing it to offer an enhanced platform for customers to communicate, coordinate resources, and secure their facilities. The business will be part of both the Products and Systems Integration and Software and Services segments. The Company recognized $68 million of goodwill, $64 million of identifiable intangible assets, and $4 million of net assets. The goodwill is deductible for tax purposes. The identifiable intangible assets were classified as $43 million of completed technology and $21 million of customer relationship intangibles and will be amortized over a period of 15 years. The purchase accounting was completed as of the third quarter of 2019.
On January 7, 2019, the Company announced that it acquired VaaS, a company that is a global provider of data and image analytics for vehicle location for $445 million, inclusive of share-based compensation withheld at a fair value of $38 million that will be expensed over an average service period of one year. The acquisition was settled with $231 million of cash, net of cash acquired, and 1.4 million of shares issued at a fair value of $160 million for a purchase price of $391 million to be utilized in the purchase price allocation. The business will be part of both the Products and Systems Integration and Software and Services segments. The Company recognized $261 million of goodwill, $141 million of identifiable intangible assets, and $11 million of net liabilities. The goodwill is not deductible for tax purposes. The identifiable intangible assets were classified as $99 million of completed technology that will be amortized over a period of ten years and $42 million of customer relationship intangibles that will be amortized over a period of 15 years. The purchase accounting was completed as of the first quarter of 2020.2021.Intangible Assets
Amortized intangible assets were comprised of the following:
| | | September 26, 2020 | | December 31, 2019 | | July 3, 2021 | | December 31, 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Completed technology | Completed technology | $ | 760 | | | $ | 193 | | | $ | 738 | | | $ | 148 | | Completed technology | $ | 766 | | | $ | 245 | | | $ | 766 | | | $ | 210 | |
Patents | 2 | | | 2 | | | 2 | | | 2 | | |
Customer-related | Customer-related | 1,284 | | | 613 | | | 1,222 | | | 518 | | Customer-related | 1,354 | | | 777 | | | 1,335 | | | 685 | |
Other intangibles | Other intangibles | 77 | | | 47 | | | 75 | | | 42 | | Other intangibles | 81 | | | 56 | | | 80 | | | 52 | |
| | $ | 2,123 | | | $ | 855 | | | $ | 2,037 | | | $ | 710 | | | $ | 2,201 | | | $ | 1,078 | | | $ | 2,181 | | | $ | 947 | |
Amortization expense on intangible assets was $54$58 million and $158$116 million for the three and ninesix months ended September 26, 2020,July 3, 2021, respectively. Amortization expense on intangible assets was $52$51 million and $154$104 million for the three and ninesix months ended September 28, 2019,June 27, 2020, respectively. As of September 26, 2020,July 3, 2021, annual amortization expense is estimated to be $210$209 million in 2020, $208 million 2021, $206 million in 2022, $108 million in 2023, $83 million in 2024, and $73 million in 2025.2025, and $69 million in 2026.
Amortized intangible assets were comprised of the following by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Products and Systems Integration | $ | 690 | | | $ | 116 | | | $ | 652 | | | $ | 82 | |
Software and Services | 1,433 | | | 739 | | | 1,385 | | | 628 | |
| $ | 2,123 | | | $ | 855 | | | $ | 2,037 | | | $ | 710 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| July 3, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Products and Systems Integration | $ | 694 | | | $ | 154 | | | $ | 692 | | | $ | 129 | |
Software and Services | 1,507 | | | 924 | | | 1,489 | | | 818 | |
| $ | 2,201 | | | $ | 1,078 | | | $ | 2,181 | | | $ | 947 | |
Goodwill
The following table displays a rollforwardroll-forward of the carrying amount of goodwill by segment from January 1, 20202021 to September 26, 2020:
| | | | | | | | | | | | | | | | | |
| Products and Systems Integration | | Software and Services | | Total |
Balance as of January 1, 2020 | $ | 973 | | | $ | 1,094 | | | $ | 2,067 | |
| | | | | |
| | | | | |
| | | | | |
Goodwill acquired | 46 | | | 99 | | | 145 | |
| | | | | |
Foreign currency | 0 | | | (5) | | | (5) | |
Balance as of September 26, 2020 | $ | 1,019 | | | $ | 1,188 | | | $ | 2,207 | |
| | | | | |
| | | | | |
| | | | | |
July 3, 2021: | | | | | | | | | | | | | | | | | |
| Products and Systems Integration | | Software and Services | | Total |
Balance as of January 1, 2021 | $ | 1,019 | | | $ | 1,200 | | | $ | 2,219 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Purchase accounting adjustments | (3) | | | (1) | | | (4) | |
Foreign currency | 0 | | | 4 | | | 4 | |
Balance as of July 3, 2021 | $ | 1,016 | | | $ | 1,203 | | | $ | 2,219 | |
| | | | | |
| | | | | |
| | | | | |
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” orSolutions,” the “Company,” “we,” “our,” or “us”) for the three and ninesix months ended September 26,July 3, 2021 and June 27, 2020, and September 28, 2019, 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, 2019.2020 (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
ThirdBusiness 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.
Second Quarter Financial Results
•Net sales were $1.9 billion in the third quarter of 2020 compared to $2.0 billion in the thirdsecond quarter of 2019.2021 compared to $1.6 billion in the second quarter of 2020.
•Operating earnings were $352$370 million in the thirdsecond quarter of 20202021 compared to $413$218 million in the thirdsecond quarter of 2019.2020.
•Net earnings attributable to Motorola Solutions, Inc. were $205$293 million, or $1.18$1.69 per diluted common share, in the thirdsecond quarter of 2020,2021, compared to $267$135 million, or $1.51$0.78 per diluted common share, in the thirdsecond quarter of 2019.2020.
•Our operatingOperating cash flow decreased $119increased $241 million to $909$758 million in the first nine monthshalf of 20202021 compared to $517 million in the first nine monthshalf of 2019.2020.
•We repurchased $441$272 million of common stock and paid $327$242 million in dividends in the first nine monthshalf of 2020.2021.
Recent DevelopmentsCOVID-19
In March 2020,response to the COVID-19 outbreak was declared a pandemic, by the World Health Organization. In response, 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 in an effortslowdowns. The COVID-19 pandemic continues to limitbe dynamic, and near-term challenges across the spreadeconomy remain. Although vaccines are now being distributed and administered across many parts of COVID-19. These eventsthe world, new variants of the virus have resulted in a significant decline in global economic activity,emerged and accordingly, wemay continue to emerge that have assessedshown 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 havingencouraging office workers to work remotely, suspendingreducing 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 our video security business,Video Security and Access Control, we have adapted our software and hardware offerings to provide analytics overaddressing occupancy counting, face mask detection, and thermal detection capabilities.
We have assessed the adequacybelieve our existing balances of cash and cash equivalents, along with other short-term liquidity arrangements, will continue to be sufficient to satisfy our liquidity as ofrequirements associated with our existing operations. We were in compliance with all applicable covenants in the third quarter of 2020 and believe the measures taken over the past few years and months allow us the ability to operate under the current conditions. During the first quarter of 2020, we proactively withdrew $800 million from our2021 unsecured revolving credit facility as of which $600 million was repaid during the nine months ended September 26, 2020 and $100 million was repaid subsequent to the quarter. This leaves $2.1 billion of capacity on the committed facility.July 3, 2021. Additionally, we have no bond maturities until 2023.
2024. We continue to evaluateassess our financial position during this economic slowdown.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 revenuenet sales and operating margin will be limited. In our Products and Systems Integration segment, the impacts on revenue and operating margin were more significant during the first half of the year and are expected to have a reduced impact in the fourth quarter of 2020. Reduced demand, particularly in our professional and commercial radio business (“PCR”), as well as delays in engagements with our state and local customers in the near term, will most likely lead to year-over-year sales declineslimited for the segment in 2020, as compared to 2019.remainder of 2021. Within the Products and Systems Integration segment, we are encouraged by strong LMR backlog, and the resiliency of the video security businessVideo Security and Access Control technology that experienced growth in the second quarter of 2021 and which we expect growth for fiscal year 2020. Given the prioritization of mission-critical communication solutions, we do not anticipate funding at the state and local levels to have a material, negative effect on expected revenuescontinue to grow for the remainder of 2020. We have also taken actions in a number of areas to reduce our operating expenses, mostly driven by lower variable compensation, travel costs, contractor spend and reduced real estate footprint to limit the negative effect on operating margins for the year despite the expected reduction of revenue.2021. In addition, our supply chain partners have been supportivein 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 do their partevaluate 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 ensure that service levels toreceive funding from the Company and its customers remain fulfilled.ARPA.
Lastly, we evaluated whether there were any impairment indicators as of September 26, 2020,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. We concluded that asAs of the end of the thirdsecond quarter of 2020,2021, we concluded our assets were fairly stated and recoverable.
Recent Acquisitions
On August 28, 2020, we 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 our 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, we acquired Pelco, Inc. ("Pelco"), a global provider of video security solutions for a purchase price of $110 million. The acquisition was settled with $108 million of cash, net of cash acquired. The acquisition demonstrates our continued investment in video security and analytics, adding a broad range of products that can be used in a variety of commercial and industrial environments and use cases. The business is part of both the Products and Systems Integration segment and the Software and Services segment.
On June 16, 2020 we 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 our video security and analytics portfolio, providing enhanced geographical reach across a wider customer base. The business is a part of both the Product and Systems Integration segment and the Software and Services segment.
On April 30, 2020, we acquired a cybersecurity services business for $32 million of cash, net of cash acquired. The acquisition expands our 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, we 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 our 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.
On October 16, 2019, we acquired a data solutions business for vehicle location information for a purchase price of $85 million, net of cash acquired. The acquisition enhances our video security platform by adding data to our existing license plate recognition (“LPR”) database within our Software and Services segment.
On July 11, 2019, we acquired WatchGuard, Inc. ("WatchGuard"), a provider of in-car and body-worn video solutions for $271 million, inclusive of share-based compensation withheld at a fair value of $16 million that will be expensed over an average service period of two years. The acquisition was settled with $250 million of cash, net of cash acquired. The acquisition expands our video security platform within both the Product and Systems Integration segment and the Software and Services segment.
On March 11, 2019, we acquired Avtec, Inc. ("Avtec"), a provider of dispatch communications for U.S. public safety and commercial customers for a purchase price of $136 million in cash, net of cash acquired. This acquisition expands our commercial portfolio with new capabilities, allowing us to offer an enhanced platform for customers to communicate, coordinate resources and secure their facilities. The business is part of both the Product and Systems Integration segment and the Software and Services segment.
On January 7, 2019, we announced that we acquired VaaS International Holdings ("VaaS"), a company that is a global provider of data and image analytics for vehicle location for $445 million, inclusive of share-based compensation withheld at a fair value of $38 million that will be expensed over an average service period of one year. The acquisition was settled with $231 million of cash, net of cash acquired, and 1.4 million of shares issued at a fair value of $160 million for a purchase price of $391 million. This acquisition expands our video security platform within both the Product and Systems Integration segment and the Software and Services segment.
Segment Financial Highlights
A summary of our segment results for the third quarter of 2020 is as follows: | | | | | | | | | | | | | | | | | |
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 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
•In the Products and Systems Integration segment, net sales were $1.2 billion in the third quarter of 2020, a decrease of $186 million, or 14%, compared to $1.3 billion in the third quarter of 2019. On a geographic basis, net sales decreased in both the North America and International regions compared to the year-ago quarter primarily driven by lower PCR and public safety land mobile radio ("LMR") sales, partially offset by growth in video security. Operating earnings were $164 million in the third quarter of 2020, compared to $258 million in the third quarter of 2019. Operating margins decreased in 2020 to 14.1% from 19.1% in 2019 primarily driven by lower sales and gross margin contribution, partially offset by lower operating expenses primarily driven by lower Hytera-related legal expenses, travel expenses, employee incentive costs, indirect expenses, and reorganization charges.
•In the Software and Services segment, net sales were $705 million in the third quarter of 2020, an increase of $60 million, or 9%, compared to net sales of $645 million in the third quarter of 2019. On a geographic basis, net sales increased in both the North America and International regions compared to the year-ago quarter. Operating earnings were $188 million in the third quarter of 2020, compared to $155 million in the third quarter of 2019. Operating margins increased in 2020 to 26.7% from 24.0% in 2019 driven by higher sales and gross margin contribution, along with reduced operating expenses primarily driven by operating leverage, inclusive of lower employee incentive costs and travel expenses.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(Dollars in millions, except per share amounts) | September 26, 2020 | | % of Sales* | | September 28, 2019 | | % of Sales* | | September 26, 2020 | | % of Sales* | | September 28, 2019 | | % of Sales* |
Net sales from products | $ | 1,044 | | | | | $ | 1,196 | | | | | $ | 2,807 | | | | | $ | 3,260 | | | |
Net sales from services | 824 | | | | | 798 | | | | | 2,334 | | | | | 2,251 | | | |
Net sales | 1,868 | | | | | 1,994 | | | | | 5,141 | | | | | 5,511 | | | |
Costs of products sales | 487 | | | 46.6 | % | | 501 | | | 41.9 | % | | 1,325 | | | 47.2 | % | | 1,435 | | | 44.0 | % |
Costs of services sales | 472 | | | 57.3 | % | | 486 | | | 60.9 | % | | 1,354 | | | 58.0 | % | | 1,365 | | | 60.6 | % |
Costs of sales | 959 | | | | | 987 | | | | | 2,679 | | | | | 2,800 | | | |
Gross margin | 909 | | | 48.7 | % | | 1,007 | | | 50.5 | % | | 2,462 | | | 47.9 | % | | 2,711 | | | 49.2 | % |
Selling, general and administrative expenses | 313 | | | 16.7 | % | | 359 | | | 18.0 | % | | 951 | | | 18.5 | % | | 1,035 | | | 18.8 | % |
Research and development expenditures | 175 | | | 9.4 | % | | 172 | | | 8.6 | % | | 505 | | | 9.8 | % | | 505 | | | 9.2 | % |
Other charges | 69 | | | 3.7 | % | | 63 | | | 3.2 | % | | 178 | | | 3.5 | % | | 180 | | | 3.3 | % |
Operating earnings | 352 | | | 18.9 | % | | 413 | | | 20.7 | % | | 828 | | | 16.1 | % | | 991 | | | 18.0 | % |
Other income (expense): | | | | | | | | | | | | | | | |
Interest expense, net | (58) | | | (3.1) | % | | (54) | | | (2.7) | % | | (167) | | | (3.3) | % | | (165) | | | (3.0) | % |
Gains (losses) on sales of investments and businesses, net | (1) | | | (0.1) | % | | — | | | — | % | | (1) | | | — | % | | 4 | | | 0.1 | % |
Other, net | (42) | | | (2.2) | % | | (11) | | | (0.6) | % | | (8) | | | (0.2) | % | | (22) | | | (0.4) | % |
Total other expense | (101) | | | (5.4) | % | | (65) | | | (3.3) | % | | (176) | | | (3.4) | % | | (183) | | | (3.3) | % |
Net earnings before income taxes | 251 | | | 13.4 | % | | 348 | | | 17.5 | % | | 652 | | | 12.7 | % | | 808 | | | 14.7 | % |
Income tax expense | 45 | | | 2.4 | % | | 80 | | | 4.0 | % | | 112 | | | 2.2 | % | | 180 | | | 3.3 | % |
Net earnings | 206 | | | 11.0 | % | | 268 | | | 13.4 | % | | 540 | | | 10.5 | % | | 628 | | | 11.4 | % |
Less: Earnings attributable to non-controlling interests | 1 | | | — | % | | 1 | | | 0.1 | % | | 3 | | | 0.1 | % | | 3 | | | 0.1 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net earnings attributable to Motorola Solutions, Inc. | $ | 205 | | | 11.0 | % | | $ | 267 | | | 13.4 | % | | $ | 537 | | | 10.4 | % | | $ | 625 | | | 11.3 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Earnings per diluted common share | $ | 1.18 | | | | | $ | 1.51 | | | | | $ | 3.08 | | | | | $ | 3.56 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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
Results of Operations—Three months ended September 26, 2020July 3, 2021 compared to three months ended September 28, 2019June 27, 2020
The results of operations for the thirdsecond quarter of 20202021 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.
Net Sales
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Net sales from Products and Systems Integration | $ | 1,163 | | | $ | 1,349 | | | (14) | % |
Net sales from Software and Services | 705 | | | 645 | | | 9 | % |
Net sales | $ | 1,868 | | | $ | 1,994 | | | (6) | % |
The ProductsWe use the following U.S. GAAP key financial performance measures to manage our business on a consolidated basis and Systems Integration segment’s net sales represented 62%by reporting segment, and to monitor and assess our results of our net sales in the third quarter of 2020 and 68% in the third quarter of 2019. The Software and Services segment’s net sales represented 38% of our net sales in the third quarter of 2020 and 32% in the third quarter of 2019.
Net sales decreased in the third quarter of 2020 compared to the third quarter of 2019. The 14% decline in sales within the Products and Systems Integration segment was driven by a 19% decline in the International region and a 12% decline in the North America region. The 9% increase in sales within the Software and Services segment was driven by an 11% increase in the North America region and a 7% increase in the International region. Net sales includes:operations:
•Net sales: a decline inmeasure of our revenue for the Products and Systems Integration segment, inclusive of $31 million of revenue from acquisitions, driven by a decline in public safety LMR and PCR devices, partially offset by growth in video security;current period.
•growth in the SoftwareOperating earnings: a measure of our earnings from operations, before non-operating expenses and Services segment, inclusive of $24 million of revenue from acquisitions, driven by services and software sales in both North America and International; andincome taxes.
•$6 million from favorable currency rates.
Regional results include:
•Operating margins: a 6% decline in the North America region, inclusivemeasure of revenue from acquisitions, driven by declines in public safety LMR and PCR devices, partially offset by growth in services, video security and software; andour operating earnings as a percentage of total net sales.
•an 8% decline in the International region, inclusiveConsidered together, we believe these measures are strong indicators of revenue from acquisitions, driven by declines in PCR devicesour overall performance and public safety LMR, partially offset by growth in services, video securityour ability to create shareholder value. A discussion of our results of operations and software.financial condition follows.
Products and Systems Integration
The 14% decrease in the Products and Systems Integration segment was driven by the following:
•20% decline in Devices revenue, inclusive of revenue from acquisitions, primarily driven by a decline in public safety LMR and PCR in both the North America and International regions;
•2% decline in Systems and Systems Integration revenue, inclusive of revenue from acquisitions, driven by a delay in customer engagement due to the COVID-19 pandemic; and
•$31 million of revenue from acquisitions.
Software and Services
The 9% increase in the Software and Services segment was driven by the following:
•7% growth in Services, inclusive of acquisitions, driven by North America;
•15% growth in Software, driven primarily by acquisitions and increases in both video security and command center software; and
•$24 million of revenue from acquisitions.
Gross Margin
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Gross margin | $ | 909 | | | $ | 1,007 | | | (10) | % |
Gross margin was 48.7% of net sales in the third quarter of 2020 compared to 50.5% in the third quarter of 2019. The primary drivers of the decrease are as follows:
•lower gross margin contribution in Products and Systems Integration primarily driven by lower sales in public safety LMR and PCR sales; and
•partially offset by higher margins within Software and Services, inclusive of acquisitions, primarily driven by higher gross margin contribution from sales growth in both services and software and an improved mix of service offerings, along with lower travel and incentive costs within the Services business.
Selling, General and Administrative Expenses
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Selling, general and administrative expenses | $ | 313 | | | $ | 359 | | | (13) | % |
SG&A expenses decreased 13% compared to the third quarter of 2019. SG&A expenses were 16.7% of net sales compared to 18.0% of net sales in the third quarter of 2019. The decrease in SG&A expenditures is primarily due to reduced Hytera-related legal expenses, travel expenses, employee incentive costs, and indirect expenses. The overall reduction in SG&A expenses was partially offset by higher expenses associated with acquired businesses.
Research and Development Expenditures
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Research and development expenditures | $ | 175 | | | $ | 172 | | | 2 | % |
R&D expenditures increased 2% primarily due to higher operating expenses associated with acquired businesses, partially offset by lower employee incentive costs. R&D expenditures were 9.4% of net sales compared to 8.6% of net sales in the third quarter of 2019.
Other Charges
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Other charges | $ | 69 | | | $ | 63 | |
Other charges increased by $6 million in the third quarter of 2020 compared to the third quarter of 2019. The change is driven by the following:
•$5 million of acquisition-related transaction fees in the third quarter of 2020 compared to $1 million in the third quarter of 2019;
•No legal settlements in the third quarter of 2020 compared to a $5 million legal settlement gain in the third quarter of 2019; and
•partially offset by $10 million of net reorganization business charges in the third quarter of 2020 compared to $15 million in the third quarter of 2019 (see further detail in “Reorganization of Businesses” section).
Operating Earnings
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Operating earnings from Products and Systems Integration | $ | 164 | | | $ | 258 | |
Operating earnings from Software and Services | 188 | | | 155 | |
Operating earnings | $ | 352 | | | $ | 413 | |
Operating earnings were down $61 million, or 15%, compared to the third quarter of 2019. The decrease in Operating earnings was due to:
•Products and Systems Integration, which was down $94 million, primarily driven by lower sales and gross margin contribution, partially offset by lower operating expenses primarily driven by lower Hytera-related legal expenses, travel expenses, employee incentive costs, indirect expenses, and reorganization charges;
•partially offset by Software and Services, which was up $33 million, driven by higher sales and gross margin contribution, along with reduced operating expenses primarily driven by operating leverage, inclusive of lower employee incentive costs and travel expenses.
Interest Expense, net
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Interest expense, net | $ | (58) | | | $ | (54) | |
The increase in net interest expense in the third quarter of 2020 compared to the third quarter of 2019 was a result of lower interest income earned on cash due to lower interest rates as of and for the period ending September 26, 2020 compared to the period ending September 28, 2019.
Other, net
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Other, net | $ | (42) | | | $ | (11) | |
The increase in net Other expenses in the third quarter of 2020 as compared to the third quarter of 2019 was driven by:
•$56 million loss on extinguishment of long term debt in the third quarter of 2020 compared to $7 million loss in the third quarter of 2019;
•$15 million of foreign currency losses in the third quarter of 2020 compared to $3 million of foreign currency gains in the third quarter of 2019;
•partially offset by a $10 million gain on derivatives in the third quarter of 2020 compared to a $9 million loss on derivatives in the third quarter of 2019; and
•$4 million of losses related to fair value adjustments to equity investments in the third quarter of 2020 compared to $18 million of losses related to fair value adjustments to equity investments in the third quarter of 2019.
Effective Tax Rate
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Income tax expense | $ | 45 | | | $ | 80 | |
Income tax expense decreased by $35 million compared to the third quarter of 2019, resulting in an effective tax rate of 18%. Our effective tax rate for the three months ended September 26, 2020 is lower than the effective tax rate for the three months ended September 28, 2019 of 23%, primarily due to an increased benefit of forecasted research and development tax credit in the annual effective tax rate and favorable U.S. return-to-provision adjustments recorded in 2020.
Results of Operations—Nine months ended September 26, 2020 compared to Nine months ended September 28, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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
| | | | | | | | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Net sales from Products and Systems Integration | $ | 3,124 | | | $ | 3,656 | | | (15) | % |
Net sales from Software and Services | 2,017 | | | 1,855 | | | 9 | % |
Net sales | $ | 5,141 | | | $ | 5,511 | | | (7) | % |
The Products and Systems Integration segment’s net sales represented 61% of our net sales in the first nine monthssecond quarter of 20202021 and 66%60% in the first nine monthssecond quarter of 2019.2020. The Software and Services segment’s net sales represented 39% of our net sales in the first nine monthssecond quarter of 20202021 and 34%40% in the first nine monthssecond quarter of 2019.2020.
Net sales decreasedincreased $353 million, or 22%, in the first nine monthssecond quarter of 20202021 compared to the first nine monthssecond quarter of 2019.2020. The $230 million, or 24%, increase in net sales within the Products and Systems Integration segment declined approximately 15% which was compriseddriven by an increase of a 21% decline in the International region and a 12% decline in the North America region. The Software and Services segment increased approximately 9% which is comprised of a 12% increase in the North America region and a 5%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:
•a declinean increase in the Products and Systems Integration segment, inclusive of $75$38 million of revenue from acquisitions, driven by a declinean increase in PCR, Video Security and Access Control and public safety LMR, partially offset by growth in video security;LMR;
•growthan increase in the Software and Services segment, inclusive of $68$9 million of revenue from acquisitions, driven by Servicesan increase in North AmericaLMR services, Video Security and Software, driven by increases in both video securityAccess Control and command center software;Command Center Software; and
•$666 million from favorable currency rates.
Regional results include:
•a 9% decline20% 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, driven by a decline in PCR within the Product and Systems Integration segment, partially offset by growth of video security and a 5% increase in the Software and Services segment; and
•a 5% decline in the North America region primarily driven by a decline in PCR and public safety LMR within the Products and System Integration segment, partially offset by growth of video security, and a 12%an increase in the SoftwareLMR, Video Security and Services segment driven by Services in North AmericaAccess Control and Software primarily from acquisitions.Command Center Software.
Products and Systems IntegrationIntegration
The 15% decrease24% increase in the Products and Systems Integration segment was driven by the following:
•20% decline$150 million, or 18% growth in Devices revenue, inclusive of acquisitions, primarilyLMR, driven by a decline in PCRboth the North America and public safety LMR, partially offset by growth of our video security business;International regions;
•5% decline$80 million, or 60% growth in SystemsVideo Security and Systems IntegrationAccess Control, inclusive of revenue inclusive offrom acquisitions, driven by a decline in customer engagement due toboth the COVID-19 pandemic;North America and International regions; and
•partially offset by $75$32 million of revenue from acquisitions.favorable currency rates.
Software and Services
The 9%19% increase in the Software and Services segment was driven by the following:
•7%$64 million, or 13% growth in Services,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;America and International regions;
•16%$17 million, or 15% growth in Command Center Software, inclusive of revenue from acquisitions, driven primarily by acquisitionsboth the North America and growth in both video security and command center software;International regions; and
•$6834 million of revenue from acquisitions.favorable currency rates.
Gross Margin
| | | | | | | | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Gross margin | $ | 2,462 | | | $ | 2,711 | | | (9) | % |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(In millions) | July 3, 2021 | | June 27, 2020 | | % Change |
Gross margin | $ | 952 | | | $ | 766 | | | 24 | % |
Gross margin was 47.9%48.3% of net sales in the first nine monthssecond quarter of 20202021 compared to 49.2%47.3% in the first nine monthssecond quarter of 2019.2020. The primary drivers of the decrease are as follows:this increase were:
•lowerhigher gross margin contribution in the Products and Systems Integration as a resultsegment, inclusive of the decline in PCR and public safety LMR sales, as well as lower margins in Systems and Systems Integrationacquisitions, primarily driven by a delayhigher sales volume and reduced reorganization of business charges, partially offset by an increase in engagements from COVID-19;employee incentive costs; and
•partially offset by higher marginsgross margin within the Software and Services segment, inclusive of acquisitions, primarily driven by higher gross margin contribution from sales growth driven byand improved mix of service offerings, and lower travel andpartially offset by an increase in employee incentive costs.
Selling, General and Administrative Expenses
| | | | | | | | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Selling, general and administrative expenses | $ | 951 | | | $ | 1,035 | | | (8) | % |
| | | | | | | | | | | | | | | | | |
| 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 8%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:
•$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.
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 nine monthshalf of 2019. SG&A expenses were 18.5% of2020. The $252 million, or 13%, increase in net sales compared to 18.8%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:
•$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 nine monthshalf of 2019.2021 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 expenditures isexpenses was primarily due to reducedlower third party expenses, lower Hytera-related legal expenses, lower share-based compensation expenses and lower travel expenses, employee incentive costs, and indirect 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
| | | | | | | | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 | | % Change |
Research and development expenditures | $ | 505 | | | $ | 505 | | | — | % |
| | | | | | | | | | | | | | | | | |
| Six Months Ended |
(In millions) | July 3, 2021 | | June 27, 2020 | | % Change |
Research and development expenditures | $ | 361 | | | $ | 330 | | | 9 | % |
R&D expenditures remained consistentincreased 9% in the first half of 2021 compared to the first nine monthshalf of 2019.2020 primarily due to higher employee incentive costs and higher expenses associated with acquired businesses. R&D expenditures were 9.8% of net sales compareddecreased to 9.2%9.6% of net sales in the first nine monthshalf of 2019.2021 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 | |
| | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Other charges | $ | 178 | | | $ | 180 | |
Other charges decreasedincreased by $2$41 million in the first nine months quarterhalf of 20202021 compared to the first nine monthshalf of 2019.2020. The change iswas driven primarily by the following:
•a $50 million gain on the sale of property, plant and equipment from the sale of a manufacturing facility in Europe in the first nine monthshalf of 2020.2020 that did not recur in the first half of 2021;
•$48116 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 nine monthshalf of 20202021 compared to $27$38 million in the first nine monthshalf of 20192020 (see further detail in the “Reorganization of Businesses” section)Business” section in this Part I, Item 2 of this Form 10-Q); and
•$93 million of losses on legal settlements in the first nine monthshalf of 20202021 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 $5$50 million gain on a legal settlementthe sale of property, plant and equipment in the first ninehalf 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 2019;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 acquisition-related transactions feesforeign currency gains in the first nine monthshalf of 20202021 compared to $4$3 million of foreign currency losses in the first nine monthshalf of 2019;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
•$5partially offset by an $18 million loss on the extinguishment of fixed asset impairmentslong-term debt in the first nine monthshalf of 2020.
2021.
Operating Earnings
| | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Operating earnings from Products and Systems Integration | $ | 305 | | | $ | 568 | |
Operating earnings from Software and Services | 523 | | | 423 | |
Operating earnings | $ | 828 | | | $ | 991 | |
Operating earnings were down $163 million, or 16%, compared to the first nine months of 2019. The decrease in Operating earnings was due to:
•Products and Systems Integration, which was down $263 million, driven by lower sales and gross margin contribution, partially offset by lower operating expenses primarily driven by a $50 million gain from the sale of a manufacturing facility in Europe and lower employee incentive costs, indirect expenses, and travel expenses. The overall reduction in operating expenses was offset by: i) $27 million higher reorganization of business charges, ii) $11 million higher share-based compensation expenses, and iii) higher operating expenses from acquisitions; and
•partially offset by Software and Services, which was up $100 million, primarily driven by higher sales and gross margin contribution, along with reduced operating expenses due to operating leverage, inclusive of lower employee incentive costs and travel expenses. The overall reduction in operating expenses was partially offset by: i) $7 million of higher reorganization of business charges and ii) higher operating expenses from acquisitions.
Interest Expense, net
| | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Interest expense, net | $ | (167) | | | $ | (165) | |
The increase in net interest expense in the first nine months of 2020 compared to the first nine months of 2019 was primarily a result of lower interest income earned on cash due to lower interest rates, partially offset by lower interest rates on debt outstanding for the period ending September 26, 2020 compared to the period ending September 28, 2019.
Other, net
| | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Other, net | $ | (8) | | | $ | (22) | |
The decrease in net Other expense in the first nine months of 2020 as compared to the first nine months of 2019 was driven by the following:
•$6 million gain on derivatives in the first nine months of 2020 compared to a $16 million loss on the derivatives in the first nine months of 2019;
•$16 million of investment impairments in the first nine months of 2019;
•partially offset by $19 million of foreign currency loss in the first nine months of 2020 compared to $7 million of foreign currency loss in the first nine months of 2019; and
•$56 million loss on extinguishment of long-term debt in the first nine months of 2020 compared to $50 million loss on extinguishment of long term debt in the first nine months of 2019.
Effective Tax Rate
| | | | | | | | | | | |
| Nine Months Ended |
(In millions) | September 26, 2020 | | September 28, 2019 |
Income tax expense | $ | 112 | | | $ | 180 | |
| | | | | | | | | | | |
| Six Months Ended |
(In millions) | July 3, 2021 | | June 27, 2020 |
Income tax expense | $ | 90 | | | $ | 67 | |
Income tax expense decreasedincreased by $68$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 first nine months of 2019,U.S. foreign tax credit carryforward, resulting in an effective tax rate of 17%14%. Our effective tax rate for the ninesix months ended September 26, 2020 isJuly 3, 2021 was lower than the effective tax rate for the ninesix months ended September 28, 2019June 27, 2020 of 22%17%, primarily due to an increaseda tax benefit of forecasted research and development$33 million related to a partial release of a valuation allowance recorded on the U.S. foreign tax credit in the annual effective tax rate and favorable U.S. return-to-provision adjustments recorded in 2020.carryforward.
Reorganization of Business
During the thirdsecond quarter of 2020,2021, we recorded net reorganization of business charges of $13$9 million, including $10$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 $13$9 million were charges of $16$12 million related to employee separation costs, partially offset by $3 million of reversals for accruals no longer needed.
During the first nine monthshalf of 2020,2021, we recorded net reorganization of business charges of $72$25 million, including $48$20 million of charges recorded within Other charges and $24$5 million in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $72$25 million were charges of $85$30 million related to employee separation costs, partially offset by $13$5 million of reversals for accruals no longer needed.
During the thirdsecond quarter of 2019,2020, we recorded net reorganization of business charges of $18$41 million, including $15$26 million of charges in Other charges and $3$15 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $18$41 million were charges of $19$46 million related to employee separation costs, and $1partially offset by $5 million of reversals for accruals no longer needed.
During the first nine monthshalf of 2019,2020, we recorded net reorganization of business charges of $37$59 million, including $27$38 million of charges in Other charges and $10$21 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $37$59 million were charges of $48$68 million related to employee separation costs, and $11partially offset by $9 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by business segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Products and Systems Integration | $ | 10 | | | $ | 14 | | | $ | 58 | | | $ | 29 | |
Software and Services | 3 | | | 4 | | | 14 | | | 8 | |
| $ | 13 | | | $ | 18 | | | $ | 72 | | | $ | 37 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 $63$56 million in the first nine monthshalf of 20202021 and $44$41 million in the first nine monthshalf of 2019.2020. The reorganization of business accrual at September 26, 2020July 3, 2021 was $87$48 million related to employee separation costs that are expected to be paid within one year.
Liquidity and Capital Resources
| | | | | | | | | | | |
| Nine Months Ended |
| September 26, 2020 | | September 28, 2019 |
Cash flows provided by (used for): | | | |
Operating activities | $ | 909 | | | $ | 1,028 | |
Investing activities | (369) | | | (802) | |
Financing activities | (532) | | | (329) | |
Effect of exchange rates on cash and cash equivalents | (2) | | | (14) | |
Increase (decrease) in cash and cash equivalents | $ | 6 | | | $ | (117) | |
| | | | | | | | | | | |
| 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 September 26, 2020, $517 millionJuly 3, 2021, $1.3 billion of the $1.0$1.9 billion cash and cash equivalents balance was held in the U.S. and $490$567 million was held in other countries, with $142$228 million held in the United Kingdom.
Operating Activities
The decreaseincrease in operating cash flows provided by operating activities from the first nine monthshalf of 20192020 to the first nine monthshalf of 20202021 was driven primarily by a reductionan increase in earnings as a result of lowerincreased sales volume.
volume and improved working capital, partially offset by higher income tax payments.Investing Activities
The decrease in net cash flows used byfor investing activities from the first nine monthshalf of 20192020 to the first nine monthshalf of 20202021 was primarily due to:
•a $341$93 million decrease in cash used for acquisitions and investments; partially offset by a
•a $38$50 million decrease in capital expenditures due to lower payments for the Airwave and ESN networks; and
•a $56 million increase in the proceeds from the sale of property, plant and equipment driven by the sale of a European manufacturing facility in the first nine monthshalf of 2020.2020; and
•$12 million increase in capital expenditures due to higher payments for the Airwave and ESN networks.
Financing Activities
The increase in cash usedflows provided by financing activities in the first nine monthshalf of 20202021 as compared to the cash used for financing activities in the first nine monthshalf of 20192020 was primarily driven by (also see further discussion in the "Debt," "Share Repurchase Program" and "Dividends" below)sections below in this Part I, Item 2 of this Form 10-Q):
•a $200$64 million decrease in share repurchases in the first half of 2021 compared to the first half of 2020;
•$844 million of net increaseproceeds from the issuance of debt in short-term debt duethe first half of 2021 compared to $800 million of proceeds received from the draw on our syndicated, unsecured revolving credit facility during the first nine monthshalf of 2020;
•a $271partially offset by $348 million increase in share repurchasesof repayments of debt in the first nine monthshalf of 2020 as2021 compared to $300 million of repayments on the revolving credit facility and $8 million of repayments of debt in the first nine monthshalf of 2019;2020; and
•a $46$24 million increase in the payment of dividends in the first nine monthshalf of 2020 as2021 compared to the first nine monthshalf of 2019;
•a $388 million decrease in net proceeds received from the issuance of long-term debt, inclusive of repayments, during the first nine months of 2020 compared to the first nine months of 2019; and
•a $326 million decrease in settlements of conversion premium on senior convertible notes in the first nine months of 2019.2020.
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 ninesix months ended September 26, 2020July 3, 2021 and September 28, 2019:June 27, 2020:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 | | July 3, 2021 | | June 27, 2020 | | July 3, 2021 | | June 27, 2020 |
Contract-specific discounting facility | | Contract-specific discounting facility | $ | 36 | | | $ | 54 | | | $ | 107 | | | $ | 98 | |
Accounts receivable sales proceeds | Accounts receivable sales proceeds | $ | 82 | | | $ | 4 | | | $ | 238 | | | $ | 31 | | Accounts receivable sales proceeds | 8 | | | 34 | | | $ | 8 | | | $ | 58 | |
Long-term receivables sales proceeds | Long-term receivables sales proceeds | 45 | | | 56 | | | 115 | | | 132 | | Long-term receivables sales proceeds | 30 | | | 29 | | | 84 | | | 70 | |
Total proceeds from sales of accounts receivable | $ | 127 | | | $ | 60 | | | $ | 353 | | | $ | 163 | | |
Total proceeds from receivable sales | | Total proceeds from receivable sales | $ | 74 | | | $ | 117 | | | $ | 199 | | | $ | 226 | |
|
During the ninethree and six months ended September 26, 2020,July 3, 2021, we utilized a new cost-efficientcontract-specific receivable discounting facility to neutralizewhich began during the impact of increased payment terms under a renegotiated and extended long-term contract in Europesix months ended June 27, 2020, resulting in accounts receivable sales of $67$36 million and $165$107 million, during the three and nine months ended September 26, 2020, respectively. The net benefit to our operating cash flow from the utilization of the new receivable discounting facility for the three and nine months ended September 26, 2020, was $13 million and $67 million, respectively, when adjusted for amounts that would still be collected from the customer within the periods in the absence of utilizing the discounting facility. The proceeds of our receivable sales are included in "Operating activities"Operating activities within our Condensed Consolidated Statements of Cash Flows.
Debt
We had outstanding debt of $5.4$5.7 billion and $5.1$5.2 billion, including the current portions of $212$9 million and $16$12 million, at September 26, 2020July 3, 2021 and December 31, 2019,2020, respectively.
On May 24, 2021, we issued $850 million of 2.75% senior notes due 2031. We haverecognized 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 $2.2purchase 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 April 2022March 2026 (the "2017"2021 Motorola Solutions Credit Agreement"Agreement"). The 20172021 Motorola Solutions Credit Agreement includes a $500 million letter of credit sub-limit with $450 millionand fronting commitments of fronting commitments.$450 million. Borrowings under the facility bear interest at the prime rate plus the applicable margin, or at a spread above LIBOR,the London Interbank Offered Rate ("LIBOR"), at our option. Following the turmoilThe 2021 Motorola Solutions Credit Agreement includes provisions allowing us to replace LIBOR with a replacement benchmark rate in the financial markets caused by the COVID-19 Pandemic, we borrowed $800 millionfuture under the facility to bolster our cash holdings out of precautioncertain conditions defined in the first quarter of 2020, of which, $600 million was repaid during the nine months ended September 26, 2020. As of September 26, 2020, the outstanding loan amount was $200 million. Subsequent to the quarter, we repaid an additional $100 million. The weighted average borrowing rate on outstanding amounts outstanding during the three and nine months ended September 26, 2020 were 1.50% and 1.71%, respectively.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 20172021 Motorola Solutions Credit Agreement.Agreement. We were in compliance with our financial covenants as of September 26, 2020.July 3, 2021.
In August of 2020, we issued $900 million of 2.30% Senior notes due 2030. We recognized net proceeds of $892 million after debt issuance costs and debt discounts. A portion of these proceeds were then used to redeem $552 million in principal amount outstanding of the 3.75% Senior notes due 2022 under the make-whole provisions, for a redemption price of $582 million, excluding approximately $7 million of accrued interest. The remaining proceeds were used to repurchase $293 million in principal amount outstanding of our long-term debt under a tender offer, for a purchase price of $315 million, excluding approximately $5 million of accrued interest, all of which occurred during the three months ended September 26, 2020. After accelerating the amortization of debt issuance costs and debt discounts, we recognized a loss of approximately $56 related to the redemption and the repurchase in Other within Other income (expense) in the Condensed Consolidated Statements of Operations.
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 ("New 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 New Senior Convertible Notes in cash. We recorded a debt liability associated with the New 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 unsecured revolving credit facility,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 September 26, 2020July 3, 2021 we had no outstanding debt under the commercial paper program.
We continue to believe that we hold sufficienthave 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 cover the day-to-dayrepatriate funds from foreign jurisdictions, cash provided by operations, of our business as well as any future volatility or uncertainty that may ariseliquidity 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 capital markets.impact of COVID-19 on our liquidity.
Share Repurchase Program
During the three and ninesix months ended September 26, 2020,July 3, 2021, we paid an aggregate of $105$102 million and $441$272 million, respectively, including transaction costs, to repurchase approximately 0.70.5 million and 2.91.5 million shares at an average price of $147.35$206.85 and $152.79$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 September 26, 2020,July 3, 2021, the Company had used approximately $13.2$13.6 billion of the share repurchase authority to repurchase shares, leaving $820 million$2.4 billion of authority available for future repurchases.
Dividends
During the thirdsecond quarter of 20202021 we paid $109$121 million in cash dividends to holders of our common stock. During the nine months ended September 26, 2020first half of 2021 we paid $327$242 million in cash dividends to holders of our common stock. Subsequent to the quarter, we paid an additional $109$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 $59$99 million at September 26, 2020,July 3, 2021, compared to $78 million at December 31, 2019.2020.
Recent Accounting Pronouncements
In August 2020, the FinancialSee “Recent Accounting Standards Board ("FASB") issuedPronouncements” and “Recently Adopted Accounting Standards Update ("ASU") No. 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - ContractsPronouncements” 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 characteristicsNote 1, “Basis 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 ("EPS"). The ASU clarifies that the average market price should be usedPresentation” to calculate the diluted EPS denominator when the exercise price or the number of shares that may be issued is variable. The ASU is effective for us on January 1, 2022, including the interim periods, with early adoption permitted. The ASU permits the use of either a full or modified retrospective method of adoption. We are still evaluating the impact of adoption on our condensed consolidated financial statements and disclosures.
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 simplifying other areas of accounting for income taxes. The ASU is effective on Januaryincluded in Part I, Item 1 2021 with early adoption permitted. Portions of the amendment within the ASU require retrospective, modified retrospective or prospective adoption methods. The adoption of the ASU will not have a significant impact on the financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for the defined benefit pension plans and other postretirement plans. The ASU is effective for us on January 1, 2021 with early adoption permitted. The ASU requires a retrospective adoption method. We do not believe the ASU will have a material impact on our financial statement disclosures.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires us to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019, May 2019 and November 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," and ASU No. 2019-11," Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” which provided additional implementation guidance on the previously issued ASU. We adopted ASC 326 as of January 1, 2020 using a modified retrospective transition approach for all credit losses. Consequently, financial information was not updated and disclosures required under ASC 326 are not provided for dates and periods before January 1, 2020.
We considered the impact of adoption by reviewing historical losses in conjunction with current and future economic conditions on the following financial assets: i) cash equivalents, ii) accounts receivable, iii) contract assets and iv) long-term receivables. Historical losses for these financial assets were previously insignificant with the exception of accounts receivable. We estimate credit losses on accounts receivable based on historical losses and then take into account estimates of current and future economic conditions. Our historical loss model is based on past due customer receivable balances and considers past collection experience, historical write-offs as well as the customer’s overall financial condition. Customer receivables are considered past due if payments have not been received within the agreed invoice terms. These historical losses are aggregated based on the type of customer (direct and indirect) and the geographic region (North America and International). The adoption of this standard did not have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Financial Instruments
As of September 26, 2020, we had outstanding foreign exchange contracts with notional amounts totaling $1.0 billion, comparedThere have been no material changes to $1.1 billion outstanding as of December 31, 2019. Management believes that these financial instruments should not subject us to undueour interest rate risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of September 26, 2020, andrisk during the corresponding positions as of December 31, 2019:
| | | | | | | | | | | |
| Notional Amount |
Net Buy (Sell) by Currency | September 26, 2020 | | December 31, 2019 |
Euro | $ | 196 | | | $ | 134 | |
British pound | 134 | | | 107 | |
Norwegian krone | 29 | | | 32 | |
Chinese renminbi | (77) | | | (79) | |
Australian dollar | (93) | | | (123) | |
Forward-Looking Statements
Except for historical matters, the matters discussed in this Form 10-Q 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 tosix months ended July 3, 2021. For a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this Form 10-Q. Forward-looking statements include, but are not limited to, statements included in: (1) “Management's Discussion and Analysis,” about: (a) the effect of COVID-19 on our Software and Services segment, Product and Systems Integration segment, and day-to-day operations, including the effect of state and local government budgets, governmental lockdowns and restrictions, as well as safety precautions implemented by the Company, (b) the impact of global economic and political conditions, (c) the impact of acquisitions on our business, (d) our business strategies and expected results, (e) future payments, charges, use of accruals and expected cost-saving benefits associated with our productivity improvement plans, reorganization of business programs, and employee separation costs, (f) our ability and cost to repatriate funds, (g) our ability to settle the principal amount of the New Senior Convertible Notes in cash, (h) our ability and cost to access the capital markets at our current ratings, (i) our ability to borrow and the amount available under our credit facilities, (j) the return of capital to shareholders through dividends and/or repurchasing shares, (k) the adequacydiscussion of our cash balancesexposure to meet current operating requirements,interest rate risk and (l) the outcome and effect of ongoing and future legal proceedings, (2) The impact of new FASB Accounting Standards Updates onforeign currency risk, refer to our financial statements, (3)disclosures set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures aboutAbout Market Risk,” about the impact of foreign currency exchange risks, (4) “Legal Proceedings,” about the ultimate disposition of pending legal matters, including our ability to obtain an injunction against Hytera. Motorola Solutions undertakes no obligation to publicly update any forward-looking statement or risk factor, whether as a result of new information, future events or otherwise.
SomeRisk” of the risk factors that affect our business and financial results are discussed in Part I, “Item 1A: Risk Factors” on pages 10 through 22 of our 2019 Annual Report on Form 10-K, on page 34 of our 2020 first quarterly report Form 10-Q, and in our other SEC filings available for free on the SEC's website at www.sec.gov and on Motorola Solutions' website at www.motorolasolutions.com. We wish to caution the reader that the risk factors discussed in each of these documents and those described in our other Securities and Exchange Commission filings, could cause our actual results to differ materially from those stated in the forward-looking statements.
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 quarterly reportForm 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 September 26, 2020July 3, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PartPART II—Other InformationOTHER INFORMATION
Item 1. Legal Proceedings
TheIn addition to the matter referenced below, the Company is a defendant in various lawsuits,subject to legal proceedings and claims that have not been fully resolved and actions, which arisehave arisen in the normalordinary 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.
On February 14, 2020, the Company announced that a jurySee Note 12, “Commitments and Contingencies,” to our condensed consolidated financial statements included in the U.S. District CourtPart I, Item 1 of this Form 10-Q for the Northern District of Illinois decided in the Company's favor in its trade secret theft and copyright infringement case against Hytera Communications Corporation Limited of Shenzhen, China; Hytera America, Inc.; and Hytera Communications America (West), Inc. (collectively, “Hytera”). In connection with this verdict, the jury awarded Motorola Solutions $345.8 million in compensatory damages and $418.8 million in punitive damages, for a total of $764.6 million. A motion for a new trial was filed by Hytera in April 2020. The Court denied the motion and upheld the damages awarded to the Company on October 20, 2020, subsequent to the quarter. Other post-trial motions are fully briefed and awaiting ruling, including the Company's motion for a permanent global injunction, as well as the Company's requests for attorneys' fees and increased damages to include post-trial amounts. Hytera America, Inc. and Hytera Communications America (West), Inc. each filed for Chapter 11 bankruptcy protection in May 2020; the Company filed motions to dismiss the bankruptcy proceedings in July 2020. As of the third quarter of 2020, the United States Bankruptcy Court granted a continuance of Hytera’s sale motion and the Company’s motion to dismiss Hytera’s bankruptcy.information regarding our legal proceedings.
Item 1A. Risk Factors
NoneIn 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 28, 2020, the Company issued 17,806 shares of common stock in connection with the acquisition of Callyo. The stock was issued for an aggregate grant-date fair value of $3 million that will be expensed over an average service period of two years. These shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, in a privately negotiated transaction not involving any public offering or solicitation.
The following table provides information with respect to acquisitions by the Company of shares of its common stock during the quarter ended September 26, 2020.July 3, 2021.
ISSUER PURCHASES OF EQUITY SECURITIESIssuer 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) |
06/25/2020 to 07/22/2020 | 203,313 | | | $ | 131.52 | | | 203,313 | | | $ | 898,127,461 | |
07/23/2020 to 08/19/2020 | 67,273 | | | $ | 148.64 | | | 67,273 | | | $ | 888,127,723 | |
08/20/2020 to 09/23/2020 | 443,815 | | | $ | 154.41 | | | 443,815 | | | $ | 819,599,716 | |
Total | 714,401 | | | $ | 147.35 | | | 714,401 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
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)Through a seriesAs originally announced on July 28, 2011, and subsequently amended, the Board of actions, the board of directorsDirectors has authorized the Company to repurchase an aggregate amount of up to $14.0$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 September 26, 2020,July 3, 2021, the Company had used approximately $13.2$13.6 billion, including transaction costs, to repurchase shares, leaving $820 million$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.
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 |
| | Amended and Restated Bylaws of Motorola Solutions, Inc. as of August 27, 2020 (incorporated by reference to Exhibit 3.1 to Motorola Solutions’ Current Report on Form 8-K filed on August 27, 2020 (file No. 1-7221)). |
| | |
| | |
| | |
| | |
| | |
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. ©2020©2021 Motorola Solutions, Inc. All rights reserved. |
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) |
October 29, 2020August 5, 2021
EXHIBIT INDEX
| | | | | | | | |
Exhibit No. | | Exhibit |
3.1 | | Amended and Restated Bylaws of Motorola Solutions, Inc. as of August 27, 2020 (incorporated by reference to Exhibit 3.1 to Motorola Solutions’ Current Report on Form 8-K filed on August 27, 2020 (file No. 1-7221)). |
*10.1 | | First Amendment to the Motorola Solutions Omnibus Incentive Plan of 2015, effective May 18, 2015 (an amendment and restatement of the Motorola Solutions Omnibus Incentive Plan of 2006). |
*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. |
101.INS | | 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 | | 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) |
___________________________________