Edgar Filing: Motorola Solutions, Inc.

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer

Smaller reporting company ¨

(Do not check if a smaller reporting company)

MSI-6.30.2012-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

Form 10-Q

____________________________________________

(Mark One)



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

For the period ended June 30, 2012



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

For the transition period from to

Commission file number: 1-7221

____________________________________________

MOTOROLA SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

____________________________________________



DELAWARE (State of Incorporation)		36-1115800 (I.R.S. Employer Identification No.)
1303 E. Algonquin Road, Schaumburg, Illinois (Address of principal executive offices)		60196 (Zip Code)

Registrant’s telephone number, including area code:

(847) 576-5000

____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on June 30, 2012:



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



	Page
PART I FINANCIAL INFORMATION	1
Item 1 Financial Statements
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2012 and July 2, 2011	1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2012 and July 2, 2011	2
Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2012 and December 31, 2011	3
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2012	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2012 and July 2, 2011	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3 Quantitative and Qualitative Disclosures About Market Risk	36
Item 4 Controls and Procedures	37
PART II OTHER INFORMATION	38
Item 1 Legal Proceedings	38
Item 1A Risk Factors	38
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3 Defaults Upon Senior Securities	39
Item 4 Mine Safety Disclosures	39
Item 5 Other Information	39
Item 6 Exhibits	40

Part I—Financial Information

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended						Six Months Ended
(In millions, except per share amounts)	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Net sales from products	$	1,563		$	1,453		$	3,007		$	2,827
Net sales from services	585			531			1,097			991
Net sales	2,148			1,984			4,104			3,818
Costs of product sales	712			645			1,370			1,269
Costs of services sales	376			332			701			618
Costs of sales	1,088			977			2,071			1,887
Gross margin	1,060			1,007			2,033			1,931
Selling, general and administrative expenses	496			482			968			943
Research and development expenditures	269			260			523			499
Other charges	17			106			32			161
Operating earnings	278			159			510			328
Other income (expense):
Interest expense, net	(16		)	(21		)	(30		)	(41		)
Gain on sales of investments and businesses, net	3			1			20			19
Other	(25		)	(78		)	(16		)	(73		)
Total other expense	(38		)	(98		)	(26		)	(95		)
Earnings from continuing operations before income taxes	240			61			484			233
Income tax expense (benefit)	63			13			148			(176		)
Earnings from continuing operations	177			48			336			409
Earnings from discontinued operations, net of tax	5			299			3			429
Net earnings	182			347			339			838
Less: Loss attributable to noncontrolling interests	—			(2		)	—			(8		)
Net earnings attributable to Motorola Solutions, Inc.	182			349			339			846
Amounts attributable to Motorola Solutions, Inc. common stockholders:
Earnings from continuing operations, net of tax	$	177		$	50		$	336		$	417
Earnings from discontinued operations, net of tax	5			299			3			429
Net earnings	$	182		$	349		$	339		$	846
Earnings per common share:
Basic:
Continuing operations	$	0.61		$	0.15		$	1.11		$	1.23
Discontinued operations	0.02			0.87			0.01			1.26
	$	0.63		$	1.02		$	1.12		$	2.49
Diluted:
Continuing operations	$	0.60		$	0.14		$	1.09		$	1.20
Discontinued operations	0.01			0.86			0.01			1.24
	$	0.61		$	1.00		$	1.10		$	2.44
Weighted average common shares outstanding:
Basic	290.6			341.2			302.1			339.3
Diluted	296.1			348.5			308.1			346.3
Dividends paid per share	$	0.22		—			$	0.44		—

See accompanying notes to condensed consolidated financial statements (unaudited).

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended
(In millions)	June 30, 2012			July 2, 2011
Net earnings	$	182		$	347
Other comprehensive income (loss):
Amortization of retirement benefit adjustments, net of tax of $25 and $18	46			33
Remeasurement of retirement benefits, net of tax of $0 and $9	—			(77		)
Foreign currency translation adjustment, net of tax of $(6) and $(2)	(18		)	33
Net gain (loss) on derivative hedging instruments, net of tax of $0 and $(2)	(2		)	2
Net unrealized gain on securities, net of tax of $6 and $6	8			9
Total other comprehensive income	34			—
Comprehensive income	216			347
Less: Loss attributable to noncontrolling interest	—			(2		)
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	216		$	349



	Six Months Ended
(In millions)	June 30, 2012			July 2, 2011
Net earnings	$	339		$	838
Other comprehensive income (loss):
Amortization of retirement benefit adjustments, net of tax of $51 and $36	95			65
Remeasurement of retirement benefits, net of tax of $0 and $9	—			(77		)
Foreign currency translation adjustment, net of tax of $(10) and $(5)	(22		)	83
Net gain on derivative hedging instruments, net of tax of $0 and $0	2			2
Net unrealized gain on securities, net of tax of $6 and $6	8			9
Total other comprehensive income	83			82
Comprehensive income	422			920
Less: Loss attributable to noncontrolling interest	—			(8		)
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	422		$	928

See accompanying notes to condensed consolidated financial statements (unaudited).

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



(In millions, except par value amounts)	June 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	1,772		$	1,881
Sigma Fund and short-term investments	1,933			3,210
Accounts receivable, net	1,590			1,866
Inventories, net	488			512
Deferred income taxes	679			613
Other current assets	761			686
Total current assets	7,223			8,768
Property, plant and equipment, net	857			896
Investments	200			166
Deferred income taxes	2,190			2,375
Goodwill	1,430			1,428
Other assets	293			296
Total assets	$	12,193		$	13,929
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	4		$	405
Accounts payable	637			677
Accrued liabilities	2,349			2,733
Total current liabilities	2,990			3,815
Long-term debt	1,861			1,130
Other liabilities	3,469			3,710
Stockholders’ Equity
Preferred stock, $100 par value	—			—
Common stock, $.01 par value:	3			3
Authorized shares: 600.0
Issued shares: 6/30/12—288.0; 12/31/11—320.0
Outstanding shares: 6/30/12—286.3; 12/31/11—318.8
Additional paid-in capital	5,410			7,071
Retained earnings	1,228			1,016
Accumulated other comprehensive loss	(2,793		)	(2,876		)
Total Motorola Solutions, Inc. stockholders’ equity	3,848			5,214
Noncontrolling interests	25			60
Total stockholders’ equity	3,873			5,274
Total liabilities and stockholders’ equity	$	12,193		$	13,929

See accompanying notes to condensed consolidated financial statements (unaudited).

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)




(In millions)	Shares		Common Stock and Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss), Net of Tax			Retained Earnings			Noncontrolling Interests
Balance at December 31, 2011	320.0		$	7,074		$	(2,876	)	$	1,016		$	60
Net earnings									339			—
Net unrealized gain on securities, net of tax of $6						8
Foreign currency translation adjustments, net of tax of $(10)						(22		)
Amortization of retirement benefit adjustments, net of tax of $51						95
Issuance of common stock and stock options exercised	5.1		11
Share repurchase program	(37.1	)	(1,804		)
Excess tax benefit from share-based compensation			17
Share-based compensation expense			95
Net gain on derivative hedging instruments, net of tax of $0						2
Acquisition of noncontrolling interest from Japanese subsidiary			20									(35		)
Dividends declared ($0.22 per share)									(127		)
Balance at June 30, 2012	288.0		$	5,413		$	(2,793	)	$	1,228		$	25

See accompanying notes to condensed consolidated financial statements (unaudited).

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended
(In millions)	June 30, 2012			July 2, 2011
Operating
Net earnings attributable to Motorola Solutions, Inc.	$	339		$	846
Loss attributable to noncontrolling interests	—			(8		)
Net earnings	339			838
Earnings from discontinued operations, net of tax	3			429
Earnings from continuing operations	336			409
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
Depreciation and amortization	106			181
Non-cash other expense (income)	(1		)	45
Share-based compensation expense	95			78
Gain on sales of investments and businesses, net	(20		)	(19		)
Loss from the extinguishment of long-term debt	6			81
Deferred income taxes	93			(10		)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	262			88
Inventories	(8		)	(12		)
Other current assets	(77		)	9
Accounts payable and accrued liabilities	(383		)	(338		)
Other assets and liabilities	(87		)	(185		)
Net cash provided by operating activities from continuing operations	322			327
Investing
Acquisitions and investments, net	68			(2		)
Proceeds from (used for) sales of investments and businesses, net	(67		)	1,078
Capital expenditures	(101		)	(60		)
Proceeds from sales of property, plant and equipment	9			4
Proceeds from sales of Sigma Fund investments, net	1,277			266
Proceeds from sales of short-term investments, net	—			6
Net cash provided by investing activities from continuing operations	1,186			1,292
Financing
Repayment of debt	(411		)	(616		)
Net proceeds from issuance of debt	747			—
Contributions to Motorola Mobility	(73		)	(3,200		)
Issuance of common stock	63			128
Purchase of common stock	(1,804		)	—
Excess tax benefits from share-based compensation	17			—
Payments of dividends	(134		)	—
Distribution from (to) discontinued operations	(11		)	81
Net cash used for financing activities from continuing operations	(1,606		)	(3,607		)
Discontinued Operations
Net cash provided by operating activities from discontinued operations	2			44
Net cash used for investing activities from discontinued operations	—			(8		)
Net cash provided by (used for) financing activities from discontinued operations	11			(81		)
Effect of exchange rate changes on cash and cash equivalents from discontinued operations	(13		)	45
Net cash provided by (used for) discontinued operations	—			—
Effect of exchange rate changes on cash and cash equivalents from continuing operations	(11		)	(17		)
Net decrease in cash and cash equivalents	(109		)	(2,005		)
Cash and cash equivalents, beginning of period	1,881			4,208
Cash and cash equivalents, end of period	$	1,772		$	2,203
Cash Flow Information
Cash paid during the period for:
Interest, net	$	54		$	105
Income and withholding taxes, net of refunds	91			39

See accompanying notes to condensed consolidated financial statements (unaudited).

Motorola Solutions, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in millions, except as noted)

(Unaudited)


1.	Basis of Presentation

The condensed consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and July 2, 2011, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the condensed consolidated balance sheets, statements of operations, statements of comprehensive income, and statements of cash flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2011. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the operating results to be expected for the full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-12, which deferred the guidance on whether to require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements, as required by ASU 2011-05. The Company adopted all other requirements of ASU 2011-05 effective January 1, 2012.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11 “Disclosures about Offsetting

Assets and Liabilities.” The standard requires additional disclosure to enhance the comparability of U.S. GAAP and International Financial Reporting Standards ("IFRS") financial statements. The new standard is effective for annual and interim periods beginning January 1, 2013. Retrospective application is required. The guidance concerns disclosure only and will not have an impact on the Company's consolidated financial position or results of operations.


2.	Discontinued Operations

On January 1, 2012, the Company completed a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. The operating results of the amateur, marine and airband radio businesses, formerly included as part of the Government segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.

On October 28, 2011, the Company completed the previously announced sale of its Wireless Broadband businesses to Vector Capital. The operating results of the Wireless Broadband businesses, formerly included as part of the Enterprise segment, are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.

On April 29, 2011 the Company completed the sale of certain assets and liabilities of its Networks business to Nokia Siemens Networks ("NSN"). The results of operations of the portions of the Networks business are reported as discontinued operations in the condensed consolidated statements of operations for all periods presented.

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



	Three Months Ended					Six Months Ended
	June 30, 2012		July 2, 2011			June 30, 2012			July 2, 2011
Net sales	$	—	$	330		$	—		$	1,228
Operating earnings (loss)	10		(1		)	11			203
Gains (losses) on sales of investments and businesses, net	—		488			(7		)	488
Earnings before income taxes	10		480			8			679
Income tax expense	5		181			5			250
Earnings from discontinued operations, net of tax	$	5	$	299		$	3		$	429


3.	Other Financial Data

Statement of Operations Information

Other Charges

Other charges included in Operating earnings consist of the following:



	Three Months Ended					Six Months Ended
	June 30, 2012		July 2, 2011			June 30, 2012		July 2, 2011
Other charges (income):
Amortization of intangible assets	$	6	$	50		$	12	$	100
Legal matters and intellectual property reserve adjustments, net	—		48			—		48
Pension plan adjustments	—		(9		)	—		(9		)
Reorganization of business charges	11		17			20		22
	$	17	$	106		$	32	$	161

Other Income (Expense)

Interest expense, net, and Other, both included in Other income (expense), consist of the following:



	Three Months Ended						Six Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Interest income (expense), net:
Interest expense	$	(25	)	$	(40	)	$	(50	)	$	(74	)
Interest income	9			19			20			33
	$	(16	)	$	(21	)	$	(30	)	$	(41	)
Other:
Loss from the extinguishment of long-term debt	$	(6	)	$	(81	)	$	(6	)	$	(81	)
Investment impairments	—			—			(2		)	(3		)
Foreign currency gain (loss)	(21		)	6			(11		)	11
Other	2			(3		)	3			—
	$	(25	)	$	(78	)	$	(16	)	$	(73	)

Earnings Per Common Share

The computation of basic and diluted earnings per common share attributable to Motorola Solutions, Inc. common stockholders is as follows:



	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Earnings from continuing operations				Net Earnings
Three Months Ended	June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Basic earnings per common share:
Earnings	$	177	$	50	$	182	$	349
Weighted average common shares outstanding	290.6		341.2		290.6		341.2
Per share amount	$	0.61	$	0.15	$	0.63	$	1.02
Diluted earnings per common share:
Earnings	$	177	$	50	$	182	$	349
Weighted average common shares outstanding	290.6		341.2		290.6		341.2
Add effect of dilutive securities:
Share-based awards and other	5.5		7.3		5.5		7.3
Diluted weighted average common shares outstanding	296.1		348.5		296.1		348.5
Per share amount	$	0.60	$	0.14	$	0.61	$	1.00



	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Earnings from Continuing Operations				Net Earnings
Six Months Ended	June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Basic earnings per common share:
Earnings	$	336	$	417	$	339	$	846
Weighted average common shares outstanding	302.1		339.3		302.1		339.3
Per share amount	$	1.11	$	1.23	$	1.12	$	2.49
Diluted earnings per common share:
Earnings	$	336	$	417	$	339	$	846
Weighted average common shares outstanding	302.1		339.3		302.1		339.3
Add effect of dilutive securities:
Share-based awards and other	6.0		7.0		6.0		7.0
Diluted weighted average common shares outstanding	308.1		346.3		308.1		346.3
Per share amount	$	1.09	$	1.20	$	1.10	$	2.44

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

Balance Sheet Information

Cash and Cash Equivalents

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

Sigma Fund

The Sigma Fund consists of the following:



	June 30, 2012		December 31, 2011
Cash	$	15	$	264
Securities:
U.S. government, agency, and government-sponsored enterprise obligations	1,916		2,944
	$	1,931	$	3,208

Investments

Investments consist of the following:



	Recorded Value				Less
June 30, 2012	Short-term Investments		Investments		Unrealized Gains		Unrealized Loss			Cost Basis
Available-for-sale securities:
U.S. government, agency and government-sponsored enterprise obligations	$	—	$	16	$	—	$	—		$	16
Corporate bonds	2		10		—		—			12
Mortgage-backed securities	—		2		—		—			2
Common stock and equivalents	—		48		16		(2		)	34
	2		76		16		(2		)	64
Other securities, at cost	—		102		—		—			102
Equity method investments	—		22		—		—			22
	$	2	$	200	$	16	$	(2	)	$	188



	Recorded Value				Less
December 31, 2011	Short-term Investments		Investments		Unrealized Gains		Unrealized Loss			Cost Basis
Available-for-sale securities:
U.S. government, agency and government-sponsored enterprise obligations	$	—	$	16	$	—	$	—		$	16
Corporate bonds	2		10		—		—			12
Mortgage-backed securities	—		2		—		—			2
Common stock and equivalents	—		11		2		(1		)	10
	2		39		2		(1		)	40
Other securities, at cost	—		106		—		—			106
Equity method investments	—		21		—		—			21
	$	2	$	166	$	2	$	(1	)	$	167

Accounts Receivable, Net

Accounts receivable, net, consists of the following:



	June 30, 2012			December 31, 2011
Accounts receivable	$	1,639		$	1,911
Less allowance for doubtful accounts	(49		)	(45		)
	$	1,590		$	1,866

Inventories, Net

Inventories, net, consist of the following:



	June 30, 2012			December 31, 2011
Finished goods	$	315		$	319
Work-in-process and production materials	346			363
	661			682
Less inventory reserves	(173		)	(170		)
	$	488		$	512

Other Current Assets

Other current assets consist of the following:



	June 30, 2012		December 31, 2011
Costs and earnings in excess of billings	$	346	$	302
Contract-related deferred costs	142		142
Tax-related refunds receivable	82		85
Other	191		157
	$	761	$	686

Property, Plant and Equipment, Net

Property, plant and equipment, net, consists of the following:



	June 30, 2012			December 31, 2011
Land	$	55		$	69
Building	754			774
Machinery and equipment	2,140			2,052
	2,949			2,895
Less accumulated depreciation	(2,092		)	(1,999		)
	$	857		$	896

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

Other Assets

Other assets consist of the following:



	June 30, 2012		December 31, 2011
Intangible assets	$	36	$	48
Long-term receivables	50		37
Other	207		211
	$	293	$	296

Accrued Liabilities

Accrued liabilities consist of the following:



	June 30, 2012		December 31, 2011
Deferred revenue	$	788	$	774
Billings in excess of costs and earnings	395		250
Compensation	290		471
Tax liabilities	93		126
Customer reserves	105		125
Dividend payable	63		70
Networks purchase price adjustment	—		96
Other	615		821
	$	2,349	$	2,733

Other Liabilities

Other liabilities consist of the following:



	June 30, 2012		December 31, 2011
Defined benefit plans, including split dollar life insurance policies	$	2,487	$	2,675
Postretirement health care benefit plan	301		295
Deferred revenue	260		275
Unrecognized tax benefits	91		112
Other	330		353
	$	3,469	$	3,710

Stockholders’ Equity

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

On July 25, 2012, the Company announced that its Board of Directors authorized up to $2.0 billion in additional funds for share repurchase, bringing the aggregate amount of the share repurchase program to $5.0 billion, and extended the entire share repurchase program indefinitely with no expiration date. As of June 30, 2012, the Company has used approximately $2.9 billion, including transaction costs, to repurchase shares, leaving approximately $2.1 billion available for repurchases.

Payment of Dividends: During the three and six months ended June 30, 2012, the Company paid $64 million and $134 million, respectively, in cash dividends to holders of its common stock.

On July 25, 2012, the Company announced that its Board of Directors approved an increase of the quarterly cash dividend from $0.22 per share to $0.26 per share of common stock. The next quarterly cash dividend will be payable on October 15, 2012 to shareholders of record as of the close of business on September 14, 2012.

Noncontrolling Interest: On January 1, 2012, the Company entered into a series of transactions which resulted in exiting the amateur, marine and airband radio businesses. One of those transactions was acquiring the remaining 20% of the land mobile radio business previously owned by our Japanese joint venture. The acquisition of the remaining 20% of this land mobile radio business, in which the Company already had a controlling interest, resulted in a decrease of $35 million to the Company's noncontrolling interest, and an increase of $20 million to the Company's additional paid in capital, which primarily represents the increase in deferred tax assets from the acquisition of the 20% of the land mobile radio business assets.


4.	Debt and Credit Facilities

In May 2012, the Company issued an aggregate face principle amount of $750 million of 3.750% Senior Notes due May 15, 2022 (the “2022 Senior Notes”). Also in May 2012, the Company called for the redemption of the $400 million aggregate principal amount outstanding of its 5.375% Senior Notes due November 2012 (the “2012 Senior Notes”). All of the 2012 Senior Notes were redeemed in June 2012 for an aggregate purchase price of approximately $408 million. After accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately $6 million related to this redemption within Other income (expense) in the condensed consolidated statements of operations. This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.

As of June 30, 2012, the Company had a $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to mature on June 30, 2014. The 2011 Motorola Solutions Credit Agreement includes a provision pursuant to which the Company can increase the aggregate credit facility size up to a maximum of $2.0 billion by adding lenders or having existing lenders increase their commitments. The Company must comply with certain customary covenants, including maximum leverage and minimum interest coverage ratios as defined in the 2011 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of June 30, 2012. The Company did not borrow under the 2011 Motorola Solutions Credit Agreement during the three and six months ended June 30, 2012.


5.	Risk Management

Derivative Financial Instruments

Foreign Currency Risk

At June 30, 2012, the Company had outstanding foreign exchange contracts with notional amounts totaling $360 million, compared to $524 million outstanding at December 31, 2011. The decrease in outstanding contracts is primarily related to the reduction of foreign assets due to repatriation activities. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.

The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of June 30, 2012 and the corresponding positions as of December 31, 2011:



	Notional Amount
Net Buy (Sell) by Currency	June 30, 2012			December 31, 2011
Chinese Renminbi	$	(144	)	$	(283	)
Euro	50			8
Israeli Shekel	(41		)	8
Japanese Yen	32			46
Australian Dollar	(16		)	(6		)

Interest Rate Risk

At June 30, 2012, the Company had $1.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.

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

Counterparty Risk

The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. As of June 30, 2012, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of June 30, 2012, the Company was exposed to an aggregate net credit risk of approximately $1 million with all counterparties.

The following tables summarize the fair values and location in the condensed consolidated balance sheets of all derivative financial instruments held by the Company, including amounts held for disposition, at June 30, 2012 and December 31, 2011:



	Fair Values of Derivative Instruments
	Assets			Liabilities
June 30, 2012	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	Other assets	$	1	Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts	1		Other assets	2		Other liabilities
Interest agreement contracts	—		Other assets	4		Other liabilities
Total derivatives not designated as hedging instruments	1			6
Total derivatives	$	1		$	7



	Fair Values of Derivative Instruments
	Assets			Liabilities
December 31, 2011	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	Other assets	$	2	Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts	1		Other assets	3		Other liabilities
Interest agreement contracts	—		Other assets	3		Other liabilities
Total derivatives not designated as hedging instruments	1			6
Total derivatives	$	1		$	8

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



	Three Months Ended						Statement of Operations Location
Gain (loss) on Derivative Instruments	June 30, 2012			July 2, 2011			Statement of Operations Location
Derivatives not designated as hedging instruments:
Interest rate contracts	$	(4	)	$	(3	)	Other income (expense)
Foreign exchange contracts	1			(8		)	Other income (expense)
Total derivatives not designated as hedging instruments	$	(3	)	$	(11	)



	Six Months Ended						Statement of Operations Location
Gain (loss) on Derivative Instruments	June 30, 2012			July 2, 2011			Statement of Operations Location
Derivatives not designated as hedging instruments:
Interest rate contracts	$	(8	)	$	(5	)	Other income (expense)
Foreign exchange contracts	(3		)	(15		)	Other income (expense)
Total derivatives not designated as hedging instruments	$	(11	)	$	(20	)

The following tables summarize the gains and losses recognized in the condensed consolidated financial statements, including amounts related to discontinued operations, for the three and six months ended June 30, 2012 and July 2, 2011:



	Three Months Ended					Financial Statement Location
Foreign Exchange Contracts	June 30, 2012			July 2, 2011		Financial Statement Location
Derivatives in cash flow hedging relationships:
Loss recognized in Accumulated other comprehensive loss	$	(2	)	$	—	Accumulated other comprehensive loss
Gain reclassified from Accumulated other comprehensive loss into Net earnings	—			2		Cost of sales



	Six Months Ended					Financial Statement Location
Foreign Exchange Contracts	June 30, 2012			July 2, 2011		Financial Statement Location
Derivatives in cash flow hedging relationships:
Gain recognized in Accumulated other comprehensive loss	$	1		$	3	Accumulated other comprehensive loss
Gain (loss) reclassified from Accumulated other comprehensive loss into Net earnings	(1		)	2		Cost of sales


6.	Income Taxes

At June 30, 2012 and December 31, 2011, the Company had valuation allowances of $364 million and $366 million, respectively, including $335 million and $336 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. During the three months ended April 2, 2011, the Company reassessed its valuation allowance requirements taking into consideration the Distribution of Motorola Mobility. The Company evaluated all available evidence in its analysis, including the historical and projected pre-tax profits generated by the Motorola Solutions U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. As a result, in the three months ended April 2, 2011, the Company recorded a $244 million tax benefit related to the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets.

The U.S. valuation allowance as of June 30, 2012 relates primarily to state tax carryforwards. The valuation allowance relating to deferred tax assets of non-U.S. subsidiaries was reduced for tax attributes of a non-controlling interest disposed of during the first quarter, partially offset by an increase for current year activity and exchange rate variances. The Company believes the remaining deferred tax assets are more-likely-than-not to be realized based on estimates of future taxable income and the implementation of tax planning strategies.

The Company had unrecognized tax benefits of $159 million and $191 million at June 30, 2012 and December 31, 2011,

respectively, of which $117 million and $150 million, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances. During the six months ended June 30, 2012, the Company reduced its unrecognized tax benefits primarily for settlements with tax authorities in the amount of $31 million, of which $13 million was recognized as a tax benefit and the remainder reduced tax carryforwards and prepaid tax assets.

Based on the potential outcome of the Company’s global tax examinations or the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next 12 months. The associated net tax impact on the effective tax rate, exclusive of valuation allowance changes, is estimated to be in the range of a $50 million tax charge to a $50 million tax benefit, with cash payments in the range of $0 to $25 million.

During the three months ended June 30, 2012, the Internal Revenue Service (“IRS”) concluded its audit of Motorola Solutions, Inc.'s 2008 and 2009 tax years. The Company has audits pending in several tax jurisdictions. Although the final resolution of the Company's global tax disputes is uncertain, based on current information, in the opinion of the Company's management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company's global tax disputes could have a material adverse effect on the Company's results of operations in the periods in which the matters are ultimately resolved.


7.	Retirement Benefits

Pension Benefit Plans

The net periodic pension costs for the U.S. and Non-U.S. plans were as follows:



	June 30, 2012						July 2, 2011
Three Months Ended	U.S.			Non U.S.			U.S.			Non U.S.
Service cost	$	—		$	3		$	—		$	8
Interest cost	87			18			83			31
Expected return on plan assets	(105		)	(19		)	(96		)	(35		)
Amortization of:
Unrecognized net loss	62			6			47			5
Unrecognized prior service credit	—			(1		)	—			(5		)
Settlement/curtailment loss (gain)	—			—			3			(9		)
Net periodic pension expense (benefit)	$	44		$	7		$	37		$	(5	)



	June 30, 2012						July 2, 2011
Six Months Ended	U.S.			Non U.S.			U.S.			Non U.S.
Service cost	$	—		$	6		$	—		$	14
Interest cost	175			36			171			49
Expected return on plan assets	(211		)	(38		)	(194		)	(55		)
Amortization of:
Unrecognized net loss	130			11			95			8
Unrecognized prior service cost	—			(2		)	—			(7		)
Settlement/curtailment loss (gain)	—			—			4			(9		)
Net periodic pension cost	$	94		$	13		$	76		$	—

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

Postretirement Health Care Benefit Plans

Net postretirement health care expenses consist of the following:



	Three Months Ended						Six Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Service cost	$	1		$	1		$	2		$	2
Interest cost	5			6			10			12
Expected return on plan assets	(3		)	(4		)	(6		)	(8		)
Amortization of:
Unrecognized net loss	3			3			6			6
Net postretirement health care expense	$	6		$	6		$	12		$	12

The Company made no contributions to its postretirement healthcare fund during the six months ended June 30, 2012.

Defined Contribution Plans

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


8.	Share-Based Compensation Plans

Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plans, restricted stock and restricted stock units (“RSUs”) was as follows:



	Three Months Ended						Six Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Share-based compensation expense included in:
Costs of sales	$	7		$	5		$	13		$	8
Selling, general and administrative expenses	31			25			57			54
Research and development expenditures	14			9			25			16
Share-based compensation expense included in Operating earnings	52			39			95			78
Tax benefit	21			13			34			25
Share-based compensation expense, net of tax	$	31		$	26		$	61		$	53
Decrease in basic earnings per share	$	(0.11	)	$	(0.08	)	$	(0.20	)	$	(0.16	)
Decrease in diluted earnings per share	$	(0.10	)	$	(0.08	)	$	(0.20	)	$	(0.15	)
Share-based compensation expense in discontinued operations	$	—		$	5		$	—		$	13

For the three months ended June 30, 2012, the Company granted 1.5 million and 1.2 million RSUs and stock options, respectively. The total compensation expense, net of estimated forfeitures, for these RSUs and stock options was $62 million and $11 million, respectively. For the six months ended June 30, 2012, the Company granted 1.5 million RSUs and 1.2 million stock options. The total compensation expense, net of estimated forfeitures, for these RSUs and stock options was $63 million and $11 million, respectively. The expense will be recognized over a weighted average vesting period of 3 years.

Employee Stock Purchase Plans

The employee stock purchase plans allow eligible participants to purchase shares of the Company's common stock through payroll deductions of eligible compensation on an after-tax basis. Effective April 1, 2012, the Company increased the maximum purchase from 10% to 20% of eligible compensation. Plan participants cannot purchase more than $25,000 of stock in any calendar year.


9.	Fair Value Measurements

The Company holds certain fixed income securities, equity securities and derivatives, which are recognized and disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation methodologies as defined in the authoritative literature. This guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions about current market conditions. The prescribed fair value hierarchy and related valuation methodologies are as follows:

Level 1—Quoted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

Level 3—Valuations derived from valuation techniques, in which one or more significant inputs are unobservable.

The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of June 30, 2012 and December 31, 2011 were as follows:



June 30, 2012	Level 1		Level 2		Total
Assets:
Sigma Fund securities:
U.S. government, agency and government-sponsored enterprise obligations	$	—	$	1,916	$	1,916
Foreign exchange derivative contracts	—		1		1
Available-for-sale securities:
U.S. government, agency and government-sponsored enterprise obligations	—		16		16
Corporate bonds	—		10		10
Mortgage-backed securities	—		2		2
Common stock and equivalents	40		8		48
Liabilities:
Foreign exchange derivative contracts	$	—	$	3	$	3
Interest agreement derivative contracts	—		4		4



December 31, 2011	Level 1		Level 2		Total
Assets:
Sigma Fund securities:
U.S. government, agency and government-sponsored enterprise obligations	$	—	$	2,944	$	2,944
Foreign exchange derivative contracts	—		1		1
Available-for-sale securities:
U.S. government, agency and government-sponsored enterprise obligations	—		16		16
Corporate bonds	—		10		10
Mortgage-backed securities	—		2		2
Common stock and equivalents	3		8		11
Liabilities:
Foreign exchange derivative contracts	$	—	$	5	$	5
Interest agreement derivative contracts	—		3		3

The Company had no level 3 holdings as of June 30, 2012 and December 31, 2011.

The following table summarizes the changes in fair value of our Level 3 assets:



	Three Months Ended		Six Months Ended
	July 2, 2011			July 2, 2011
Beginning balance	$	21		$	15
Transfers to Level 3	—			21
Payments received and securities sold	—			(18		)
Gain on Sigma Fund investments included in Other income (expense)	—			3
Ending balance	$	21		$	21

At June 30, 2012, the Company had $504 million of investments in money market mutual funds classified as Cash and cash equivalents in its condensed consolidated balance sheet, compared to $437 million at December 31, 2011. The money market funds have quoted market prices that are equivalent to par.

Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at June 30, 2012 was $2.0 billion (Level 2), compared to a face value of $1.9 billion. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.

All other financial instruments are carried at cost, which is not materially different than the instruments’ fair values.


10.	Long-term Customer Financing and Sales of Receivables

Long-term Customer Financing

Long-term receivables consist of trade receivables with payment terms greater than twelve months, long-term loans and lease receivables under sales-type leases. Long-term receivables consist of the following:



	June 30, 2012			December 31, 2011
Long-term receivables	$	132		$	177
Less allowance for losses	(1		)	(10		)
	131			167
Less current portion	(81		)	(130		)
Non-current long-term receivables, net	$	50		$	37

The current portion of long-term receivables is included in Accounts receivable 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 $96 million at June 30, 2012, compared to $138 million at December 31, 2011. The majority of the outstanding commitments at June 30, 2012 are related to a variety of government and public safety customers.

The Company had retained the funded portion of the financing arrangements related to the Networks business following

the sale to NSN, which totaled a net amount of $63 million at June 30, 2012. These receivables have an allowance for uncollectable accounts of $9 million classified as current, and $1 million classified as non-current. As of June 30, 2012, $50 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 June 30, 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 six months ended June 30, 2012 and July 2, 2011:



	Three Months Ended				Six Months Ended
	June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Cumulative quarterly proceeds received from one-time sales:
Accounts receivable sales proceeds	$	2	$	—	$	7	$	1
Long-term receivables sales proceeds	62		17		129		23
Total proceeds from one-time sales of accounts receivable	$	64	$	17	$	136	$	24

At June 30, 2012, the Company had retained servicing obligations for $317 million of long-term receivables, compared to $263 million of long-term receivables at December 31, 2011. Servicing obligations are limited to collection activities related to the non-recourse sales of accounts receivables and long-term receivables.

At June 30, 2012, the Company was subject to a recourse obligation related to the sale of $189 million of accounts receivable sold during 2011 and the first half of 2012 generated by the Networks business and retained after the sale to NSN. This obligation is only triggered upon the insufficiency of a third party legally binding support letter backing the sold receivables. The conditions which must occur in order for the Company to be required to make a payment under this obligation are deemed remote and the fair value of this obligation at the outset of the arrangement and as of June 30, 2012, is zero.

Credit Quality of Customer Financing Receivables and Allowance for Credit Losses

An aging analysis of financing receivables at June 30, 2012 and December 31, 2011 is as follows: