MSI-9.29.2012-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
Form 10-Q
____________________________________________
(Mark One)
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| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the period ended September 29, 2012
or
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| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-7221
____________________________________________
MOTOROLA SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________
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| | |
DELAWARE (State of Incorporation) | | 36-1115800 (I.R.S. Employer Identification No.) |
1303 E. Algonquin Road, Schaumburg, Illinois (Address of principal executive offices) | | 60196 (Zip Code) |
Registrant’s telephone number, including area code:
(847) 576-5000
____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x | | Accelerated filer ¨ | | Non-accelerated filer | | Smaller reporting company ¨ |
| | (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on September 29, 2012:
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Class | | Number of Shares |
Common Stock; $.01 Par Value | | 280,500,435 |
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Item 1 Financial Statements | |
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Item 4 Mine Safety Disclosures | |
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Part I—Financial Information
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In millions, except per share amounts) | September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Net sales from products | $ | 1,567 |
| | $ | 1,552 |
| | $ | 4,574 |
| | $ | 4,379 |
|
Net sales from services | 586 |
| | 533 |
| | 1,683 |
| | 1,524 |
|
Net sales | 2,153 |
| | 2,085 |
| | 6,257 |
| | 5,903 |
|
Costs of product sales | 682 |
| | 679 |
| | 2,052 |
| | 1,949 |
|
Costs of service sales | 384 |
| | 351 |
| | 1,085 |
| | 968 |
|
Costs of sales | 1,066 |
| | 1,030 |
| | 3,137 |
| | 2,917 |
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Gross margin | 1,087 |
| | 1,055 |
| | 3,120 |
| | 2,986 |
|
Selling, general and administrative expenses | 485 |
| | 471 |
| | 1,454 |
| | 1,414 |
|
Research and development expenditures | 262 |
| | 270 |
| | 785 |
| | 769 |
|
Other charges | 16 |
| | 60 |
| | 48 |
| | 221 |
|
Operating earnings | 324 |
| | 254 |
| | 833 |
| | 582 |
|
Other income (expense): | | | | |
| |
|
Interest expense, net | (16 | ) | | (18 | ) | | (46 | ) | | (59 | ) |
Gain on sales of investments and businesses, net | 19 |
| | 2 |
| | 39 |
| | 21 |
|
Other | (3 | ) | | — |
| | (18 | ) | | (73 | ) |
Total other expense | — |
| | (16 | ) | | (25 | ) | | (111 | ) |
Earnings from continuing operations before income taxes | 324 |
| | 238 |
| | 808 |
| | 471 |
|
Income tax expense (benefit) | 118 |
| | 83 |
| | 266 |
| | (93 | ) |
Earnings from continuing operations | 206 |
| | 155 |
| | 542 |
| | 564 |
|
Earnings (loss) from discontinued operations, net of tax | — |
| | (25 | ) | | 3 |
| | 404 |
|
Net earnings | 206 |
| | 130 |
| | 545 |
| | 968 |
|
Less: Earnings (loss) attributable to noncontrolling interests | — |
| | 2 |
| | — |
| | (6 | ) |
Net earnings attributable to Motorola Solutions, Inc. | 206 |
| | 128 |
| | 545 |
| | 974 |
|
Amounts attributable to Motorola Solutions, Inc. common stockholders: | | | | | | | |
Earnings from continuing operations, net of tax | $ | 206 |
| | $ | 153 |
| | $ | 542 |
| | $ | 570 |
|
Earnings (loss) from discontinued operations, net of tax | — |
| | (25 | ) | | 3 |
| | 404 |
|
Net earnings | $ | 206 |
| | $ | 128 |
| | $ | 545 |
| | $ | 974 |
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Earnings (loss) per common share: | | | | | | | |
Basic: | | | | | | | |
Continuing operations | $ | 0.73 |
| | $ | 0.46 |
| | $ | 1.83 |
| | $ | 1.69 |
|
Discontinued operations | — |
| | (0.08 | ) | | 0.01 |
| | 1.20 |
|
| $ | 0.73 |
| | $ | 0.38 |
| | $ | 1.84 |
| | $ | 2.89 |
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Diluted: | | | | | | | |
Continuing operations | $ | 0.72 |
| | $ | 0.45 |
| | $ | 1.80 |
| | $ | 1.66 |
|
Discontinued operations | — |
| | (0.07 | ) | | 0.01 |
| | 1.18 |
|
| $ | 0.72 |
| | $ | 0.38 |
| | $ | 1.81 |
| | $ | 2.84 |
|
Weighted average common shares outstanding: | | | | | | | |
Basic | 283.1 |
| | 335.4 |
| | 296.1 |
| | 337.3 |
|
Diluted | 287.4 |
| | 339.5 |
| | 301.5 |
| | 343.4 |
|
Dividends declared per share | $ | 0.26 |
| | — |
| | $ | 0.70 |
| | — |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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| | | | | | | |
| Three Months Ended |
(In millions) | September 29, 2012 | | October 1, 2011 |
Net earnings | $ | 206 |
| | $ | 130 |
|
Other comprehensive income (loss): | | | |
Amortization of retirement benefit adjustments, net of tax of $14 and $19 | 53 |
| | 34 |
|
Remeasurement of Postretirement Health Care Plan, net of tax of $52 and $0 | 87 |
| | — |
|
Foreign currency translation adjustment, net of tax of $21 and $3 | 4 |
| | (34 | ) |
Net gain (loss) on derivative hedging instruments, net of tax of $0 and $(1) | 2 |
| | (5 | ) |
Net unrealized loss on securities, net of tax of $(5) and $(6) | (6 | ) | | (9 | ) |
Total other comprehensive income (loss) | 140 |
| | (14 | ) |
Comprehensive income | 346 |
| | 116 |
|
Less: Earnings attributable to noncontrolling interest | — |
| | 2 |
|
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders | $ | 346 |
| | $ | 114 |
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| | | | | | | |
| Nine Months Ended |
(In millions) | September 29, 2012 | | October 1, 2011 |
Net earnings | $ | 545 |
| | $ | 968 |
|
Other comprehensive income (loss): | | | |
Amortization of retirement benefit adjustments, net of tax of $65 and $55 | 148 |
| | 99 |
|
Remeasurement of retirement benefits, net of tax of $52 and $9 | 87 |
| | (77 | ) |
Foreign currency translation adjustment, net of tax of $11 and $(2) | (18 | ) | | 49 |
|
Net gain (loss) on derivative hedging instruments, net of tax of $0 and $(1) | 4 |
| | (3 | ) |
Net unrealized gain on securities, net of tax of $1 and $0 | 2 |
| | — |
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Total other comprehensive income | 223 |
| | 68 |
|
Comprehensive income | 768 |
| | 1,036 |
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Less: Loss attributable to noncontrolling interest | — |
| | (6 | ) |
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders | $ | 768 |
| | $ | 1,042 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
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| | | | | | | |
(In millions, except par value amounts) | September 29, 2012 | | December 31, 2011 |
ASSETS |
Cash and cash equivalents | $ | 1,779 |
| | $ | 1,881 |
|
Sigma Fund and short-term investments | 1,760 |
| | 3,210 |
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Accounts receivable, net | 1,704 |
| | 1,866 |
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Inventories, net | 538 |
| | 512 |
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Deferred income taxes | 662 |
| | 613 |
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Other current assets | 828 |
| | 686 |
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Total current assets | 7,271 |
| | 8,768 |
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Property, plant and equipment, net | 860 |
| | 896 |
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Investments | 162 |
| | 166 |
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Deferred income taxes | 2,017 |
| | 2,375 |
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Goodwill | 1,430 |
| | 1,428 |
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Other assets | 280 |
| | 296 |
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Total assets | $ | 12,020 |
| | $ | 13,929 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current portion of long-term debt | $ | 4 |
| | $ | 405 |
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Accounts payable | 646 |
| | 677 |
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Accrued liabilities | 2,475 |
| | 2,733 |
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Total current liabilities | 3,125 |
| | 3,815 |
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Long-term debt | 1,860 |
| | 1,130 |
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Other liabilities | 3,138 |
| | 3,710 |
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Stockholders’ Equity | | | |
Preferred stock, $100 par value | — |
| | — |
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Common stock, $.01 par value: | 3 |
| | 3 |
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Authorized shares: 600.0 | | | |
Issued shares: 9/29/12—282.3; 12/31/11—320.0 | | | |
Outstanding shares: 9/29/12—280.5; 12/31/11—318.8 | | | |
Additional paid-in capital | 5,161 |
| | 7,071 |
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Retained earnings | 1,361 |
| | 1,016 |
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Accumulated other comprehensive loss | (2,653 | ) | | (2,876 | ) |
Total Motorola Solutions, Inc. stockholders’ equity | 3,872 |
| | 5,214 |
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Noncontrolling interests | 25 |
| | 60 |
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Total stockholders’ equity | 3,897 |
| | 5,274 |
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Total liabilities and stockholders’ equity | $ | 12,020 |
| | $ | 13,929 |
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See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
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| | | | | | | | | | | | | | | | | | |
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(In millions) | Shares | | Common Stock and Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss), Net of Tax | | Retained Earnings | | Noncontrolling Interests |
Balance at December 31, 2011 | 320.0 |
| | $ | 7,074 |
| | $ | (2,876 | ) | | $ | 1,016 |
| | $ | 60 |
|
Net earnings | | | | | | | 545 |
| | — |
|
Net unrealized gain on securities, net of tax of $1 | | | | | 2 |
| | | | |
Foreign currency translation adjustments, net of tax of $11 | | | | | (18 | ) | | | | |
Amortization of retirement benefit adjustments, net of tax of $65 | | | | | 148 |
| | | | |
Remeasurement of retirement benefits, net of tax of $52 | | | | | 87 |
| | | | |
Issuance of common stock and stock options exercised | 5.8 |
| | 26 |
| | | | | | |
Share repurchase program | (43.5 | ) | | (2,112 | ) | | | | | | |
Excess tax benefit from share-based compensation | | | 17 |
| | | | | | |
Share-based compensation expense | | | 139 |
| | | | | | |
Net gain on derivative hedging instruments, net of tax of $0 | | | | | 4 |
| | | | |
Acquisition of noncontrolling interest from Japanese subsidiary | | | 20 |
| | | | | | (35 | ) |
Dividends declared | | | | | | | (200 | ) | | |
Balance at September 29, 2012 | 282.3 |
| | $ | 5,164 |
| | $ | (2,653 | ) | | $ | 1,361 |
| | $ | 25 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited) |
| | | | | | | |
| Nine Months Ended |
(In millions) | September 29, 2012 | | October 1, 2011 |
Operating | | | |
Net earnings attributable to Motorola Solutions, Inc. | $ | 545 |
| | $ | 974 |
|
Loss attributable to noncontrolling interests | — |
| | (6 | ) |
Net earnings | 545 |
| | 968 |
|
Earnings from discontinued operations, net of tax | 3 |
| | 404 |
|
Earnings from continuing operations | 542 |
| | 564 |
|
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities: | | | |
Depreciation and amortization | 151 |
| | 273 |
|
Non-cash other expense | 12 |
| | 39 |
|
Share-based compensation expense | 139 |
| | 123 |
|
Gain on sales of investments and businesses, net | (39 | ) | | (21 | ) |
Loss from the extinguishment of long-term debt | 6 |
| | 81 |
|
Deferred income taxes | 203 |
| | 30 |
|
Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | |
Accounts receivable | 189 |
| | 82 |
|
Inventories | (51 | ) | | (38 | ) |
Other current assets | (147 | ) | | (6 | ) |
Accounts payable and accrued liabilities | (283 | ) | | (230 | ) |
Other assets and liabilities | (218 | ) | | (93 | ) |
Net cash provided by operating activities from continuing operations | 504 |
| | 804 |
|
Investing | | | |
Acquisitions and investments, net | 61 |
| | (26 | ) |
Proceeds from (used for) sales of investments and businesses, net | (38 | ) | | 1,064 |
|
Capital expenditures | (140 | ) | | (103 | ) |
Proceeds from sales of property, plant and equipment | 9 |
| | 6 |
|
Proceeds from sales of Sigma Fund investments, net | 1,450 |
| | 225 |
|
Proceeds from sales of short-term investments, net | — |
| | 6 |
|
Net cash provided by investing activities from continuing operations | 1,342 |
| | 1,172 |
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Financing | | | |
Repayment of debt | (412 | ) | | (617 | ) |
Net proceeds from issuance of debt | 747 |
| | — |
|
Contributions to Motorola Mobility | (73 | ) | | (3,275 | ) |
Issuance of common stock | 79 |
| | 148 |
|
Purchase of common stock | (2,112 | ) | | (744 | ) |
Excess tax benefits from share-based compensation | 17 |
| | 39 |
|
Payments of dividends | (197 | ) | | — |
|
Distribution from (to) discontinued operations | (11 | ) | | 102 |
|
Net cash used for financing activities from continuing operations | (1,962 | ) | | (4,347 | ) |
Discontinued Operations | | | |
Net cash provided by operating activities from discontinued operations | 2 |
| | 65 |
|
Net cash used for investing activities from discontinued operations | — |
| | (8 | ) |
Net cash provided by (used for) financing activities from discontinued operations | 11 |
| | (102 | ) |
Effect of exchange rate changes on cash and cash equivalents from discontinued operations | (13 | ) | | 45 |
|
Net cash provided by (used for) discontinued operations | — |
| | — |
|
Effect of exchange rate changes on cash and cash equivalents from continuing operations | 14 |
| | (52 | ) |
Net decrease in cash and cash equivalents | (102 | ) | | (2,423 | ) |
Cash and cash equivalents, beginning of period | 1,881 |
| | 4,208 |
|
Cash and cash equivalents, end of period | $ | 1,779 |
| | $ | 1,785 |
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Cash Flow Information | | | |
Cash paid during the period for: | | | |
Interest, net | $ | 61 |
| | $ | 110 |
|
Income and withholding taxes, net of refunds
| 104 |
| | 57 |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Motorola Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except as noted)
(Unaudited)
The condensed consolidated financial statements as of September 29, 2012 and for the three and nine months ended September 29, 2012 and October 1, 2011, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, statement of stockholder's equity, and statements of cash flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2011. The results of operations for the three and nine months ended September 29, 2012 are not necessarily indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-12, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements, as required by ASU 2011-05. The Company adopted all other requirements of ASU 2011-05 effective January 1, 2012.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11 “Disclosures about Offsetting
Assets and Liabilities.” The standard requires additional disclosure to enhance the comparability of U.S. GAAP and International Financial Reporting Standards ("IFRS") financial statements. The new standard is effective for annual and interim periods beginning January 1, 2013. Retrospective application is required. The guidance concerns disclosure only and will not have an impact on the Company's consolidated financial position or results of operations.
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2. | Discontinued Operations |
On January 1, 2012, the Company completed a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. The operating results of the amateur, marine and airband radio businesses, formerly included as part of the Government segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
On October 28, 2011, the Company completed the sale of its Wireless Broadband businesses. The operating results of the Wireless Broadband businesses, formerly included as part of the Enterprise segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
On April 29, 2011 the Company completed the sale of certain assets and liabilities of its Networks business to Nokia Siemens Networks ("NSN"). The results of operations of the portions of the Networks business sold to NSN are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.
The following table displays summarized activity in the Company's condensed consolidated statements of operations for discontinued operations during the three and nine months ended September 29, 2012 and October 1, 2011.
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Net sales | $ | — |
| | $ | 81 |
| | $ | — |
| | $ | 1,309 |
|
Operating earnings | — |
| | 10 |
| | 11 |
| | 213 |
|
Gains (losses) on sales of investments and businesses, net | — |
| | (52 | ) | | (7 | ) | | 436 |
|
Earnings (loss) before income taxes | — |
| | (37 | ) | | 8 |
| | 642 |
|
Income tax expense (benefit) | — |
| | (12 | ) | | 5 |
| | 238 |
|
Earnings (loss) from discontinued operations, net of tax | — |
| | (25 | ) | | 3 |
| | 404 |
|
Statement of Operations Information
Other Charges
Other charges included in Operating earnings consist of the following:
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Other charges (income): | | | | | | | |
Amortization of intangible assets | $ | 6 |
| | $ | 50 |
| | $ | 18 |
| | $ | 150 |
|
Legal matters and intellectual property reserve adjustments, net | — |
| | — |
| | — |
| | 48 |
|
Pension plan adjustments | — |
| | — |
| | — |
| | (9 | ) |
Reorganization of business charges | 10 |
| | 10 |
| | 30 |
| | 32 |
|
| $ | 16 |
| | $ | 60 |
| | $ | 48 |
| | $ | 221 |
|
Other Income (Expense)
Interest expense, net, and Other, both included in Other income (expense), consist of the following:
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Interest income (expense), net: | | | | | | | |
Interest expense | $ | (29 | ) | | $ | (31 | ) | | $ | (79 | ) | | $ | (105 | ) |
Interest income | 13 |
| | 13 |
| | 33 |
| | 46 |
|
| $ | (16 | ) | | $ | (18 | ) | | $ | (46 | ) | | $ | (59 | ) |
Other: | | | | | | | |
Losses from the extinguishment of long-term debt | $ | — |
| | $ | — |
| | $ | (6 | ) | | $ | (81 | ) |
Investment impairments | (6 | ) | | — |
| | (8 | ) | | (3 | ) |
Foreign currency gain (loss) | — |
| | (6 | ) | | (11 | ) | | 5 |
|
Loss on Sigma Fund investments | — |
| | (2 | ) | | — |
| | (2 | ) |
Other | 3 |
| | 8 |
| | 7 |
| | 8 |
|
| $ | (3 | ) | | $ | — |
| | $ | (18 | ) | | $ | (73 | ) |
Earnings Per Common Share
The computation of basic and diluted earnings per common share attributable to Motorola Solutions, Inc. common stockholders is as follows:
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| | | | | | | | | | | | | | | |
| Amounts attributable to Motorola Solutions, Inc. common stockholders |
| Earnings from continuing operations | | Net Earnings |
Three Months Ended | September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Basic earnings per common share: | | | | | | | |
Earnings | $ | 206 |
| | $ | 153 |
| | $ | 206 |
| | $ | 128 |
|
Weighted average common shares outstanding | 283.1 |
| | 335.4 |
| | 283.1 |
| | 335.4 |
|
Per share amount | $ | 0.73 |
| | $ | 0.46 |
| | $ | 0.73 |
| | $ | 0.38 |
|
Diluted earnings per common share: | | | | | | | |
Earnings | $ | 206 |
| | $ | 153 |
| | $ | 206 |
| | $ | 128 |
|
Weighted average common shares outstanding | 283.1 |
| | 335.4 |
| | 283.1 |
| | 335.4 |
|
Add effect of dilutive securities: | | | | | | | |
Share-based awards | 4.3 |
| | 4.1 |
| | 4.3 |
| | 4.1 |
|
Diluted weighted average common shares outstanding | 287.4 |
| | 339.5 |
| | 287.4 |
| | 339.5 |
|
Per share amount | $ | 0.72 |
| | $ | 0.45 |
| | $ | 0.72 |
| | $ | 0.38 |
|
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| | | | | | | | | | | | | | | |
| Amounts attributable to Motorola Solutions, Inc. common stockholders |
| Earnings from Continuing Operations | | Net Earnings |
Nine Months Ended | September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Basic earnings per common share: | | | | | | | |
Earnings | $ | 542 |
| | $ | 570 |
| | $ | 545 |
| | $ | 974 |
|
Weighted average common shares outstanding | 296.1 |
| | 337.3 |
| | 296.1 |
| | 337.3 |
|
Per share amount | $ | 1.83 |
| | $ | 1.69 |
| | $ | 1.84 |
| | $ | 2.89 |
|
Diluted earnings per common share: | | | | | | | |
Earnings | $ | 542 |
| | $ | 570 |
| | $ | 545 |
| | $ | 974 |
|
Weighted average common shares outstanding | 296.1 |
| | 337.3 |
| | 296.1 |
| | 337.3 |
|
Add effect of dilutive securities: | | | | | | | |
Share-based awards | 5.4 |
| | 6.1 |
| | 5.4 |
| | 6.1 |
|
Diluted weighted average common shares outstanding | 301.5 |
| | 343.4 |
| | 301.5 |
| | 343.4 |
|
Per share amount | $ | 1.80 |
| | $ | 1.66 |
| | $ | 1.81 |
| | $ | 2.84 |
|
In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the three and nine months ended September 29, 2012, the assumed exercise of 6.1 million and 6.0 million stock options, respectively, were excluded because their inclusion would have been antidilutive. In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the three and nine months ended October 1, 2011, the assumed exercise of 8.9 million and 8.8 million stock options, respectively, and the assumed vesting of 0.3 million and 0.2 million restricted stock units, respectively, were excluded because their inclusion would have been antidilutive.
Balance Sheet Information
Cash and Cash Equivalents
The Company’s cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) were $1.8 billion and $1.9 billion at September 29, 2012 and December 31, 2011, respectively. Of these amounts, $63 million at both September 29, 2012 and December 31, 2011, was restricted.
Sigma Fund
The Sigma Fund consists of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Cash | $ | — |
| | $ | 264 |
|
Securities: | | | |
U.S. government, agency, and government-sponsored enterprise obligations | 1,758 |
| | 2,944 |
|
| $ | 1,758 |
| | $ | 3,208 |
|
Investments
Investments consist of the following: |
| | | | | | | | | | | | | | | | | | | |
| Recorded Value | | Less | | |
September 29, 2012 | Short-term Investments | | Investments | | Unrealized Gains | | Unrealized Loss | | Cost Basis |
Available-for-sale securities: | | | | | | | | | |
U.S. government, agency and government-sponsored enterprise obligations | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | — |
| | $ | 15 |
|
Corporate bonds | 2 |
| | 11 |
| | — |
| | — |
| | 13 |
|
Mortgage-backed securities | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Common stock and equivalents | — |
| | 30 |
| | 4 |
| | — |
| | 26 |
|
| 2 |
| | 58 |
| | 4 |
| | — |
| | 56 |
|
Other securities, at cost | — |
| | 90 |
| | — |
| | — |
| | 90 |
|
Equity method investments | — |
| | 14 |
| | — |
| | — |
| | 14 |
|
| $ | 2 |
| | $ | 162 |
| | $ | 4 |
| | $ | — |
| | $ | 160 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Recorded Value | | Less | | |
December 31, 2011 | Short-term Investments | | Investments | | Unrealized Gains | | Unrealized Loss | | Cost Basis |
Available-for-sale securities: | | | | | | | | | |
U.S. government, agency and government-sponsored enterprise obligations | $ | — |
| | $ | 16 |
| | $ | — |
| | $ | — |
| | $ | 16 |
|
Corporate bonds | 2 |
| | 10 |
| | — |
| | — |
| | 12 |
|
Mortgage-backed securities | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Common stock and equivalents | — |
| | 11 |
| | 2 |
| | (1 | ) | | 10 |
|
| 2 |
| | 39 |
| | 2 |
| | (1 | ) | | 40 |
|
Other securities, at cost | — |
| | 106 |
| | — |
| | — |
| | 106 |
|
Equity method investments | — |
| | 21 |
| | — |
| | — |
| | 21 |
|
| $ | 2 |
| | $ | 166 |
| | $ | 2 |
| | $ | (1 | ) | | $ | 167 |
|
Accounts Receivable, Net
Accounts receivable, net, consists of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Accounts receivable | $ | 1,754 |
| | $ | 1,911 |
|
Less allowance for doubtful accounts | (50 | ) | | (45 | ) |
| $ | 1,704 |
| | $ | 1,866 |
|
Inventories, Net
Inventories, net, consist of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Finished goods | $ | 323 |
| | $ | 319 |
|
Work-in-process and production materials | 378 |
| | 363 |
|
| 701 |
| | 682 |
|
Less inventory reserves | (163 | ) | | (170 | ) |
| $ | 538 |
| | $ | 512 |
|
Other Current Assets
Other current assets consist of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Costs and earnings in excess of billings | $ | 445 |
| | $ | 302 |
|
Contract-related deferred costs | 150 |
| | 142 |
|
Tax-related refunds receivable | 83 |
| | 85 |
|
Other | 150 |
| | 157 |
|
| $ | 828 |
| | $ | 686 |
|
Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Land | $ | 56 |
| | $ | 69 |
|
Building | 760 |
| | 774 |
|
Machinery and equipment | 1,917 |
| | 2,052 |
|
| 2,733 |
| | 2,895 |
|
Less accumulated depreciation | (1,873 | ) | | (1,999 | ) |
| $ | 860 |
| | $ | 896 |
|
Depreciation expense for the three months ended September 29, 2012 and October 1, 2011 was $39 million and $42 million, respectively. Depreciation expense for the nine months ended September 29, 2012 and October 1, 2011 was $133 million and $123 million, respectively.
Other Assets
Other assets consist of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Intangible assets | $ | 30 |
| | $ | 48 |
|
Long-term receivables | 43 |
| | 37 |
|
Other | 207 |
| | 211 |
|
| $ | 280 |
| | $ | 296 |
|
Accrued Liabilities
Accrued liabilities consist of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Deferred revenue | $ | 799 |
| | $ | 774 |
|
Billings in excess of costs and earnings | 389 |
| | 250 |
|
Compensation | 352 |
| | 471 |
|
Tax liabilities | 70 |
| | 126 |
|
Customer reserves | 126 |
| | 125 |
|
Dividend payable | 73 |
| | 70 |
|
Networks purchase price adjustment | — |
| | 96 |
|
Other | 666 |
| | 821 |
|
| $ | 2,475 |
| | $ | 2,733 |
|
Other Liabilities
Other liabilities consist of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Defined benefit plans, including split dollar life insurance policies | $ | 2,268 |
| | $ | 2,675 |
|
Postretirement health care benefit plan | 164 |
| | 295 |
|
Deferred revenue | 278 |
| | 275 |
|
Unrecognized tax benefits | 97 |
| | 112 |
|
Other | 331 |
| | 353 |
|
| $ | 3,138 |
| | $ | 3,710 |
|
Stockholders’ Equity
Share Repurchase Program: On July 28, 2011, the Company announced that its Board of Directors approved a share repurchase program that allows the Company to purchase up to $2.0 billion of its outstanding common stock through December 31, 2012. On January 30, 2012, the Company announced that its Board of Directors authorized up to $1.0 billion in additional funds for use under the existing share repurchase program through the end of 2012. On February 26, 2012, the Company entered into a stock purchase agreement with Carl C. Icahn and certain of his affiliates to purchase 23,739,362 shares of its common stock. On July 25, 2012, the Company announced that its Board of Directors authorized up to $2.0 billion in additional funds for share repurchase, bringing the aggregate amount of the share repurchase program to $5.0 billion, and extended the entire share repurchase program indefinitely with no expiration date. The Company paid an aggregate of $308 million during the third quarter of 2012, including transactions costs, to repurchase 6.5 million shares at an average price of $47.47 per share. During the first nine months of 2012, the Company paid an aggregate of $2.1 billion, including transaction costs, to repurchase 43.5 million shares at an average price of $48.50 per share. As of September 29, 2012, the Company has used approximately $3.2 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving approximately $1.8 billion of authority available for repurchases. All repurchased shares have been retired.
Payment of Dividends: During the three and nine months ended September 29, 2012, the Company paid $63 million and $197 million, respectively, in cash dividends to holders of its common stock.
Noncontrolling Interest: On January 1, 2012, the Company entered into a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. One of those transactions was acquiring the remaining 20% of the land mobile radio business previously owned by our Japanese joint venture. The acquisition of the remaining 20% of this land mobile radio business, in which the Company already had a controlling interest, resulted in a decrease of $35 million to the Company's noncontrolling interest, and an increase of $20 million to the Company's additional paid in capital, which primarily represents the increase in deferred tax assets from the acquisition of the 20% of the land mobile radio business assets.
| |
4. | Debt and Credit Facilities |
During the second quarter of 2012, the Company issued an aggregate face principle amount of $750 million of 3.750% Senior Notes due May 15, 2022 (the “2022 Senior Notes”). Also during the second quarter of 2012, the Company called for the redemption of the $400 million aggregate principal amount outstanding of its 5.375% Senior Notes due November 2012 (the “2012 Senior Notes”). All of the 2012 Senior Notes were redeemed in the second quarter of 2012 for an aggregate purchase price of approximately $408 million. During the second quarter of 2012, after accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately $6 million related to this redemption within Other income (expense) in the condensed consolidated statements of operations. This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
As of September 29, 2012, the Company had a $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to mature on June 30, 2014. The 2011 Motorola Solutions Credit Agreement includes a provision pursuant to which the Company can increase the aggregate credit facility size up to a maximum of $2.0 billion by adding lenders or having existing lenders increase their commitments. The Company must comply with certain customary covenants, including maximum leverage and minimum interest coverage ratios as defined in the 2011 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of September 29, 2012. The Company did not borrow under the 2011 Motorola Solutions Credit Agreement during the three and nine months ended September 29, 2012.
Foreign Currency Risk
At September 29, 2012, the Company had outstanding foreign exchange contracts with notional amounts totaling $558 million, compared to $524 million outstanding at December 31, 2011. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of September 29, 2012 and the corresponding positions as of December 31, 2011:
|
| | | | | | | |
| Notional Amount |
Net Buy (Sell) by Currency | September 29, 2012 | | December 31, 2011 |
Chinese Renminbi | $ | (266 | ) | | $ | (283 | ) |
Euro | (64 | ) | | 8 |
|
British Pound | 63 |
| | 55 |
|
Malaysian Ringgit | 34 |
| | 37 |
|
Israeli Shekel
| (32 | ) | | 8 |
|
Interest Rate Risk
At September 29, 2012, the Company had $1.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
As part of its liability management program, one of the Company’s European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company’s condensed consolidated statements of operations. As of September 29, 2012, the fair value of the Interest Agreements was in a liability position of $4 million, compared to a liability position of $3 million at December 31, 2011.
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of September 29, 2012, all of the counterparties have investment grade credit ratings. The Company is not exposed to material net credit risk with any single counterparty. As of September 29, 2012, the Company was exposed to an aggregate net credit risk of approximately $4 million with all counterparties.
The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company, at September 29, 2012 and December 31, 2011:
|
| | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| Assets | | Liabilities |
September 29, 2012 | Fair Value | | Balance Sheet Location | | Fair Value | | Balance Sheet Location |
Derivatives designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | $ | 1 |
| | Other assets | | $ | — |
| | Other liabilities |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | 4 |
| | Other assets | | 1 |
| | Other liabilities |
Interest agreement contracts | — |
| | Other assets | | 4 |
| | Other liabilities |
Total derivatives not designated as hedging instruments | 4 |
| | | | 5 |
| | |
Total derivatives | $ | 5 |
| | | | $ | 5 |
| | |
|
| | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| Assets | | Liabilities |
December 31, 2011 | Fair Value | | Balance Sheet Location | | Fair Value | | Balance Sheet Location |
Derivatives designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | $ | — |
| | Other assets | | $ | 2 |
| | Other liabilities |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | 1 |
| | Other assets | | 3 |
| | Other liabilities |
Interest agreement contracts | — |
| | Other assets | | 3 |
| | Other liabilities |
Total derivatives not designated as hedging instruments | 1 |
| | | | 6 |
| | |
Total derivatives | $ | 1 |
| | | | $ | 8 |
| | |
The following tables summarize the effect of derivative instruments in our condensed consolidated statements of operations, including amounts related to discontinued operations, for the three and nine months ended September 29, 2012 and October 1, 2011:
|
| | | | | | | | | |
| Three Months Ended | | Statement of Operations Location |
Gain (loss) on Derivative Instruments | September 29, 2012 | | October 1, 2011 | |
Derivatives not designated as hedging instruments: | | | | | |
Interest rate contracts | $ | (4 | ) | | $ | (3 | ) | | Other income (expense) |
Foreign exchange contracts | (1 | ) | | 8 |
| | Other income (expense) |
Total derivatives not designated as hedging instruments | $ | (5 | ) | | $ | 5 |
| | |
|
| | | | | | | | | |
| Nine Months Ended | | Statement of Operations Location |
Loss on Derivative Instruments | September 29, 2012 | | October 1, 2011 | |
Derivatives not designated as hedging instruments: | | | | | |
Interest rate contracts | $ | (12 | ) | | $ | (8 | ) | | Other income (expense) |
Foreign exchange contracts | (5 | ) | | (7 | ) | | Other income (expense) |
Total derivatives not designated as hedging instruments | $ | (17 | ) | | $ | (15 | ) | | |
The following tables summarize the gains and losses recognized in the condensed consolidated financial statements, including amounts related to discontinued operations, for the three and nine months ended September 29, 2012 and October 1, 2011:
|
| | | | | | | | | |
| Three Months Ended | | Financial Statement Location |
Foreign Exchange Contracts | September 29, 2012 | | October 1, 2011 | |
Derivatives in cash flow hedging relationships: | | | | | |
Gain (loss) recognized in Accumulated other comprehensive loss | $ | 1 |
| | $ | (4 | ) | | Accumulated other comprehensive loss |
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings | (1 | ) | | 1 |
| | Cost of sales |
|
| | | | | | | | | |
| Nine Months Ended | | Financial Statement Location |
Foreign Exchange Contracts | September 29, 2012 | | October 1, 2011 | |
Derivatives in cash flow hedging relationships: | | | | | |
Gain (loss) recognized in Accumulated other comprehensive loss | $ | 2 |
| | $ | (1 | ) | | Accumulated other comprehensive loss |
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings | (2 | ) | | 4 |
| | Cost of sales |
At September 29, 2012 and December 31, 2011, the Company had valuation allowances of $352 million and $366 million, respectively, including $323 million and $336 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. During the three months ended April 2, 2011, the Company reassessed its valuation allowance requirements taking into consideration the distribution of the shares of Motorola Mobility Holdings, Inc. ("Motorola Mobility"). The Company evaluated all available evidence in its analysis, including the historical and projected pre-tax profits generated by the Motorola Solutions U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. As a result, in the three months ended April 2, 2011, the Company recorded a $244 million tax benefit related to the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets.
The U.S. valuation allowance as of September 29, 2012 relates primarily to state tax carryforwards. The valuation allowance relating to deferred tax assets of non-U.S. subsidiaries was reduced for tax attributes of a non-controlling interest disposed of during the first quarter, partially offset by increases for current year activity and exchange rate variances. The Company believes the remaining deferred tax assets are more-likely-than-not to be realized based on estimates of future taxable income and the implementation of tax planning strategies.
The Company had unrecognized tax benefits of $160 million and $191 million at September 29, 2012 and December 31, 2011, respectively, of which $118 million and $150 million, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances. During the nine months ended September 29, 2012, the Company reduced its unrecognized tax benefits primarily for settlements with tax authorities in the amount of $34 million, of which $13 million was recognized as a tax benefit and the remainder reduced tax carryforwards and prepaid tax assets. The decrease in the unrecognized tax benefits due to settlements with tax authorities is partially offset by an increase in unrecognized tax benefits related to current and prior year tax positions.
Based on the potential outcome of the Company’s global tax examinations or the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the effective tax rate, exclusive of valuation allowance changes, is estimated to be in the range of a $50 million tax charge to a $50 million tax benefit, with cash payments in the range of $0 to $25 million.
During the nine months ended September 29, 2012, the Internal Revenue Service (“IRS”) concluded its audit of Motorola Solutions, Inc.'s 2008 and 2009 tax years. The IRS is currently examining the Company's 2010 and 2011 tax years. The Company has audits pending in several tax jurisdictions. Although the final resolution of the Company's global tax disputes is uncertain, based on current information, in the opinion of the Company's management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company's global tax disputes could have a material adverse effect on the Company's results of operations in the periods in which the matters are ultimately resolved.
Pension Benefit Plans
The net periodic pension costs for the U.S. and Non-U.S. plans were as follows:
|
| | | | | | | | | | | | | | | |
| September 29, 2012 | | October 1, 2011 |
Three Months Ended | U.S. | | Non U.S. | | U.S. | | Non U.S. |
Service cost | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 4 |
|
Interest cost | 87 |
| | 18 |
| | 85 |
| | 19 |
|
Expected return on plan assets | (105 | ) | | (19 | ) | | (97 | ) | | (21 | ) |
Amortization of: | | | | | | | |
Unrecognized net loss | 65 |
| | 6 |
| | 48 |
| | 4 |
|
Unrecognized prior service credit | — |
| | (1 | ) | | — |
| | (2 | ) |
Settlement/curtailment loss | — |
| | — |
| | 4 |
| | — |
|
Net periodic pension expense | $ | 47 |
| | $ | 7 |
| | $ | 40 |
| | $ | 4 |
|
|
| | | | | | | | | | | | | | | |
| September 29, 2012 | | October 1, 2011 |
Nine Months Ended | U.S. | | Non U.S. | | U.S. | | Non U.S. |
Service cost | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | 18 |
|
Interest cost | 262 |
| | 55 |
| | 256 |
| | 68 |
|
Expected return on plan assets | (316 | ) | | (58 | ) | | (291 | ) | | (75 | ) |
Amortization of: | | | | | | | |
Unrecognized net loss | 195 |
| | 16 |
| | 143 |
| | 12 |
|
Unrecognized prior service cost | — |
| | (2 | ) | | — |
| | (10 | ) |
Settlement/curtailment loss (gain) | — |
| | — |
| | 8 |
| | (9 | ) |
Net periodic pension cost | $ | 141 |
| | $ | 19 |
| | $ | 116 |
| | $ | 4 |
|
During the nine months ended September 29, 2012, payments of $340 million were made to the Company’s U.S. plans, meeting the projected contributions for 2012, and $24 million to the Company’s Non-U.S. plans.
In January 2011, the Pension Benefit Guaranty Corporation (“PBGC”) announced an agreement with Motorola Solutions under which we would contribute $100 million above and beyond our legal requirement to one of our U.S. pension plans over the next five years. The Company and the PBGC entered into the agreement as the Company was in the process of separating Motorola Mobility and pursuing the sale of certain assets of the Networks business. The Company made an additional $250 million of pension contributions to one of its U.S. pension plans over the amounts required in the fourth quarter 2011, of which $100 million fulfilled the PBGC obligation. As a result, the Company has no further obligations under this agreement with the PBGC.
During the nine months ended October 1, 2011, the Company recognized a curtailment gain in its United Kingdom defined benefit plan, offset by a settlement loss in its Japan defined benefit plan, due to the Networks transaction. As a result, the Company recorded a net gain of $9 million to Other charges in the Company’s condensed consolidated statements of operations.
Postretirement Health Care Benefits Plan
Net postretirement health care expenses consist of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 3 |
|
Interest cost | 4 |
| | 5 |
| | 14 |
| | 17 |
|
Expected return on plan assets | (3 | ) | | (4 | ) | | (9 | ) | | (12 | ) |
Amortization of: | | | | | | | |
Unrecognized net loss | 3 |
| | 3 |
| | 9 |
| | 9 |
|
Unrecognized prior service cost | (5 | ) | | — |
| | (5 | ) | | — |
|
Net postretirement health care expense | $ | — |
| | $ | 5 |
| | $ | 12 |
| | $ | 17 |
|
The Company made no contributions to its postretirement health care fund during the nine months ended September 29, 2012.
During the three months ended September 29, 2012, the Company announced an amendment to the Postretirement Health Care Benefits Plan. Starting January 1, 2013, benefits under the plan to participants over age 65 will be paid to a retiree health reimbursement account instead of directly providing health insurance coverage to the participants. These retirees will be able to use the annual subsidy they receive through this account toward the purchase of their own health care coverage from private insurance companies and for reimbursement of eligible health care expenses. This change has resulted in a remeasurement of the plan where $139 million of the accumulated postretirement benefit obligation was reduced through a decrease in accumulated other comprehensive loss of $87 million, net of taxes. The majority of the reduced liability will be recognized over 3.5 years, which is the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.
Defined Contribution Plans
The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the employees' contributions. Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to eligible employees. For the nine months ended September 29, 2012, the Company has not made any discretionary matching contributions.
| |
8. | Share-Based Compensation Plans |
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plan, restricted stock and restricted stock units (“RSUs”) was as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Share-based compensation expense included in: | | | | | | | |
Costs of sales | $ | 6 |
| | $ | 6 |
| | $ | 19 |
| | $ | 14 |
|
Selling, general and administrative expenses | 27 |
| | 29 |
| | 84 |
| | 83 |
|
Research and development expenditures | 11 |
| | 10 |
| | 36 |
| | 26 |
|
Share-based compensation expense included in Operating earnings | 44 |
| | 45 |
| | 139 |
| | 123 |
|
Tax benefit | 14 |
| | 14 |
| | 47 |
| | 39 |
|
Share-based compensation expense, net of tax | $ | 30 |
| | $ | 31 |
| | $ | 92 |
| | $ | 84 |
|
Decrease in basic earnings per share | $ | (0.11 | ) | | $ | (0.09 | ) | | $ | (0.31 | ) | | $ | (0.25 | ) |
Decrease in diluted earnings per share | $ | (0.11 | ) | | $ | (0.09 | ) | | $ | (0.30 | ) | | $ | (0.24 | ) |
Share-based compensation expense in discontinued operations | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13 |
|
For the nine months ended September 29, 2012, the Company granted 1.5 million RSUs and 1.2 million stock options. The total compensation expense, net of estimated forfeitures, for these RSUs and stock options was $65 million and $11 million, respectively. The expense will be recognized over a weighted average vesting period of 3 years.
Employee Stock Purchase Plan
The employee stock purchase plan allows eligible participants to purchase shares of the Company's common stock through payroll deductions of eligible compensation on an after-tax basis. Effective April 1, 2012, the Company increased the maximum purchase from 10% to 20% of eligible compensation. Plan participants cannot purchase more than $25,000 of stock in any calendar year.
| |
9. | Fair Value Measurements |
The Company holds certain fixed income securities, equity securities and derivatives, which are recognized and disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation methodologies as defined in the authoritative literature. This guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions about current market conditions. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3—Valuations derived from valuation techniques, in which one or more significant inputs are unobservable.
The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of September 29, 2012 and December 31, 2011 were as follows:
|
| | | | | | | | | | | |
September 29, 2012 | Level 1 | | Level 2 | | Total |
Assets: | | | | | |
Sigma Fund securities: | | | | | |
U.S. government, agency and government-sponsored enterprise obligations | $ | — |
| | $ | 1,758 |
| | $ | 1,758 |
|
Foreign exchange derivative contracts | — |
| | 5 |
| | 5 |
|
Available-for-sale securities: | | | | | |
U.S. government, agency and government-sponsored enterprise obligations | — |
| | 15 |
| | 15 |
|
Corporate bonds | — |
| | 11 |
| | 11 |
|
Mortgage-backed securities | — |
| | 2 |
| | 2 |
|
Common stock and equivalents | 22 |
| | 8 |
| | 30 |
|
Liabilities: | | | | | |
Foreign exchange derivative contracts | $ | — |
| | $ | 1 |
| | $ | 1 |
|
Interest agreement derivative contracts | — |
| | 4 |
| | 4 |
|
|
| | | | | | | | | | | |
December 31, 2011 | Level 1 | | Level 2 | | Total |
Assets: | | | | | |
Sigma Fund securities: | | | | | |
U.S. government, agency and government-sponsored enterprise obligations | $ | — |
| | $ | 2,944 |
| | $ | 2,944 |
|
Foreign exchange derivative contracts | — |
| | 1 |
| | 1 |
|
Available-for-sale securities: | | | | | |
U.S. government, agency and government-sponsored enterprise obligations | — |
| | 16 |
| | 16 |
|
Corporate bonds | — |
| | 10 |
| | 10 |
|
Mortgage-backed securities | — |
| | 2 |
| | 2 |
|
Common stock and equivalents | 3 |
| | 8 |
| | 11 |
|
Liabilities: | | | | | |
Foreign exchange derivative contracts | $ | — |
| | $ | 5 |
| | $ | 5 |
|
Interest agreement derivative contracts | — |
| | 3 |
| | 3 |
|
The Company had no Level 3 holdings as of September 29, 2012 and December 31, 2011.
The following table summarizes the changes in fair value of our Level 3 assets:
|
| | | | | | | |
| Three Months Ended | Nine Months Ended |
| October 1, 2011 | | October 1, 2011 |
Beginning balance | $ | 21 |
| | $ | 15 |
|
Transfers to Level 3 | — |
| | 21 |
|
Payments received and securities sold | — |
| | (18 | ) |
Gain (loss) on Sigma Fund investments included in Other income (expense) | (2 | ) | | 1 |
|
Ending balance | $ | 19 |
| | $ | 19 |
|
At September 29, 2012, the Company had $452 million of investments in money market mutual funds classified as Cash and cash equivalents in its condensed consolidated balance sheet, compared to $437 million at December 31, 2011. The money market funds have quoted market prices that are equivalent to par.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at September 29, 2012 was $2.1 billion (Level 2), compared to a face value of $1.9 billion. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.
All other financial instruments are carried at cost, which is not materially different than the instruments’ fair values.
| |
10. | Long-term Customer Financing and Sales of Receivables |
Long-term Customer Financing
Long-term receivables consist of trade receivables with payment terms greater than twelve months, long-term loans and lease receivables under sales-type leases. Long-term receivables consist of the following:
|
| | | | | | | |
| September 29, 2012 | | December 31, 2011 |
Long-term receivables | $ | 114 |
| | $ | 177 |
|
Less allowance for losses | (1 | ) | | (10 | ) |
| 113 |
| | 167 |
|
Less current portion | (70 | ) | | (130 | ) |
Non-current long-term receivables, net | $ | 43 |
| | $ | 37 |
|
The current portion of long-term receivables is included in Accounts receivable, net and the non-current portion of long-term receivables is included in Other assets in the Company’s condensed consolidated balance sheets.
Certain purchasers of the Company’s products and services may request that the Company provide long-term financing (defined as financing with a term of greater than one year) in connection with the sale of products and services. These requests may include all or a portion of the purchase price of the products and services. The Company’s obligation to provide long-term financing may be conditioned on the issuance of a letter of credit in favor of the Company by a reputable bank to support the purchaser’s credit or a pre-existing commitment from a reputable bank to purchase the long-term receivables from the Company. The Company had outstanding commitments to provide long-term financing to third parties totaling $100 million at September 29, 2012, compared to $138 million at December 31, 2011. The majority of the outstanding commitments at September 29, 2012 are related to a variety of government and public safety customers.
The Company retained the funded portion of the financing arrangements related to the Networks business following the sale to NSN, which totaled a net amount of $51 million at September 29, 2012. These receivables have an allowance for uncollectable accounts of $9 million classified as current, and $1 million classified as non-current.
As of September 29, 2012, $43 million of net receivables are classified as long-term. The remainder of the long-term receivables are current and included in Accounts receivable, net.
Sales of Receivables
The Company had no committed facilities for the sale of accounts receivable or long-term receivables at September 29, 2012 or at December 31, 2011.
The following table summarizes the proceeds received from non-recourse sales of accounts receivable and long-term receivables for the three and nine months ended September 29, 2012 and October 1, 2011:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 29, 2012 | | October 1, 2011 | | September 29, 2012 | | October 1, 2011 |
Cumulative quarterly proceeds received from one-time sales: | | | | | | | |
Accounts receivable sales proceeds | $ | 5 |
| | $ | 3 |
| | $ | 12 |
| | $ | 4 |
|
Long-term receivable sales proceeds | 32 |
| |