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 09-27-14 Q3-10Q

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 September 27, 2014



	¨	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 September 27, 2014:



Class		Number of Shares
Common Stock; $.01 Par Value		240,722,357



	Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements	1
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 27, 2014 and September 28, 2013	1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 27, 2014 and September 28, 2013	2
Condensed Consolidated Balance Sheets (Unaudited) as of September 27, 2014 and December 31, 2013	3
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Nine Months Ended September 27, 2014	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 27, 2014 and September 28, 2013	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3 Quantitative and Qualitative Disclosures About Market Risk	37
Item 4 Controls and Procedures	38
PART II OTHER INFORMATION
Item 1 Legal Proceedings	39
Item 1A Risk Factors	39
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3 Defaults Upon Senior Securities	40
Item 4 Mine Safety Disclosures	40
Item 5 Other Information	40
Item 6 Exhibits	41

Part I—Financial Information

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended						Nine Months Ended
(In millions, except per share amounts)	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Net sales from products	$	921		$	998		$	2,561		$	2,897
Net sales from services	515			519			1,497			1,513
Net sales	1,436			1,517			4,058			4,410
Costs of product sales	414			423			1,165			1,262
Costs of services sales	337			329			974			940
Costs of sales	751			752			2,139			2,202
Gross margin	685			765			1,919			2,208
Selling, general and administrative expenses	287			320			902			984
Research and development expenditures	166			183			516			565
Other charges	25			16			49			37
Operating earnings	207			246			452			622
Other income (expense):
Interest expense, net	(31		)	(29		)	(85		)	(85		)
Gains on sales of investments and businesses, net	1			26			4			34
Other	(26		)	8			(34		)	3
Total other income (expense)	(56		)	5			(115		)	(48		)
Earnings before income taxes	151			251			337			574
Income tax expense (benefit)	84			(11		)	107			(72		)
Earnings from continuing operations	67			262			230			646
Earnings from discontinued operations, net of tax	81			46			869			116
Net earnings	148			308			1,099			762
Less: Earnings attributable to noncontrolling interests	1			1			1			5
Net earnings attributable to Motorola Solutions, Inc.	$	147		$	307		$	1,098		$	757
Amounts attributable to Motorola Solutions, Inc. common stockholders:
Earnings from continuing operations, net of tax	$	66		$	261		$	229		$	641
Earnings from discontinued operations, net of tax	81			46			869			116
Net earnings	$	147		$	307		$	1,098		$	757
Earnings per common share:
Basic:
Continuing operations	$	0.27		$	1.00		$	0.91		$	2.39
Discontinued operations	0.33			0.17			3.46			0.43
	$	0.60		$	1.17		$	4.37		$	2.82
Diluted:
Continuing operations	$	0.27		$	0.98		$	0.90		$	2.34
Discontinued operations	0.32			0.18			3.42			0.43
	$	0.59		$	1.16		$	4.32		$	2.77
Weighted average common shares outstanding:
Basic	246.3			262.2			251.1			268.7
Diluted	248.2			265.3			254.0			273.5
Dividends declared per share	$	0.34		0.31			$	0.96		0.83

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)	September 27, 2014			September 28, 2013
Net earnings	$	148		$	308
Other comprehensive income (loss):
Amortization of retirement benefit adjustments, net of tax of $4 and $9	8			17
Remeasurement of Postretirement Health Care Benefit Plan, net of tax of $27	45			—
Remeasurement of U.S. Pension Benefit Plans, net of tax of $(321)	(398		)	—
Foreign currency translation adjustment, net of tax of $(1) and $2	(34		)	20
Reclassification of net gain on derivative instruments	—			(1		)
Net unrealized gain on securities	—			1
Total other comprehensive income (loss)	(379		)	37
Comprehensive income (loss)	(231		)	345
Less: Earnings attributable to noncontrolling interest	1			1
Comprehensive income (loss) attributable to Motorola Solutions, Inc. common shareholders	$	(232	)	$	344



	Nine Months Ended
(In millions)	September 27, 2014			September 28, 2013
Net earnings	$	1,099		$	762
Other comprehensive income (loss):
Amortization of retirement benefit adjustments, net of tax of $14 and $28	31			52
Remeasurement of Postretirement Health Care Benefit Plan, net of tax of $27	45			—
Remeasurement of U.S. Pension Benefit Plans, net of tax of $(321)	(398		)	—
Foreign currency translation adjustment, net of tax of $(5) and $(4)	(19		)	(22		)
Reclassification of net loss (gain) on derivative instruments	1			(2		)
Net unrealized gains on securities, net of tax of $(2) and $–	2			—
Total other comprehensive income (loss)	(338		)	28
Comprehensive income	761			790
Less: Earnings attributable to noncontrolling interest	1			5
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	760		$	785

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

Motorola Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



(In millions, except par value)	September 27, 2014			December 31, 2013
ASSETS
Cash and cash equivalents	$	2,845		$	3,225
Accounts receivable, net	1,162			1,369
Inventories, net	331			347
Deferred income taxes	1,192			451
Other current assets	604			635
Current assets held for disposition	1,034			993
Total current assets	7,168			7,020
Property, plant and equipment, net	664			695
Investments	240			232
Deferred income taxes	2,141			1,990
Goodwill	383			361
Other assets	138			89
Non-current assets held for disposition	1,461			1,464
Total assets	$	12,195		$	11,851
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	4		$	4
Accounts payable	501			583
Accrued liabilities	1,673			1,763
Current liabilities held for disposition	846			870
Total current liabilities	3,024			3,220
Long-term debt	3,401			2,457
Other liabilities	2,364			2,314
Non-current liabilities held for disposition	164			171
Stockholders’ Equity
Preferred stock, $100 par value	—			—
Common stock, $.01 par value:	2			3
Authorized shares: 600.0
Issued shares: 9/27/14—241.9; 12/31/13—255.5
Outstanding shares: 9/27/14—240.7; 12/31/13—254.5
Additional paid-in capital	2,550			3,518
Retained earnings	3,284			2,425
Accumulated other comprehensive loss	(2,625		)	(2,287		)
Total Motorola Solutions, Inc. stockholders’ equity	3,211			3,659
Noncontrolling interests	31			30
Total stockholders’ equity	3,242			3,689
Total liabilities and stockholders’ equity	$	12,195		$	11,851

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)			Retained Earnings			Noncontrolling Interests
Balance as of December 31, 2013	255.5		$	3,521		$	(2,287	)	$	2,425		$	30
Net earnings									1,098			1
Net unrealized gains on securities, net of tax of $(2)						2
Foreign currency translation adjustments, net of tax of $(5)						(19		)
Remeasurement of Postretirement Health Care Benefit Plan, net of tax of $27						45
Amortization of retirement benefit adjustments, net of tax of $14						31
Remeasurement of U.S. Pension Benefit Plans, net of tax of $(321)						(398		)
Issuance of common stock and stock options exercised	3.8		51
Share repurchase program	(17.4	)	(1,123		)
Excess tax benefit from share-based compensation			11
Share-based compensation expense			92
Net loss on derivative hedging instruments						1
Dividends declared									(239		)
Balance as of September 27, 2014	241.9		$	2,552		$	(2,625	)	$	3,284		$	31

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 27, 2014			September 28, 2013
Operating
Net earnings attributable to Motorola Solutions, Inc.	$	1,098		$	757
Earnings attributable to noncontrolling interests	1			5
Net earnings	1,099			762
Earnings from discontinued operations, net of tax	869			116
Earnings from continuing operations, net of tax	230			646
Adjustments to reconcile Earnings from continuing operations to Net cash provided by (used for) operating activities from continuing operations
Depreciation and amortization	131			116
Gain on sale of building and land	(21		)	—
Non-cash other income	(2		)	(11		)
Share-based compensation expense	74			91
Gains on sales of investments and businesses, net	(4		)	(34		)
Loss from the extinguishment of long term debt	37			—
Deferred income taxes	69			(309		)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable	202			19
Inventories	12			(9		)
Other current assets	(9		)	11
Accounts payable and accrued liabilities	(170		)	(501		)
Other assets and liabilities	(534		)	(44		)
Net cash provided by (used for) operating activities from continuing operations	15			(25		)
Investing
Acquisitions and investments, net	(21		)	(20		)
Proceeds from sales of investments and businesses, net	23			48
Capital expenditures	(130		)	(110		)
Proceeds from sales of property, plant and equipment	30			15
Proceeds from sales of Sigma Fund investments, net	—			966
Net cash provided by (used for) investing activities from continuing operations	(98		)	899
Financing
Repayment of debt	(461		)	(3		)
Net proceeds from issuance of debt	1,375			593
Issuance of common stock	94			108
Purchase of common stock	(1,123		)	(1,332		)
Excess tax benefit from share-based compensation	11			20
Payment of dividends	(236		)	(212		)
Distributions from discontinued operations	66			214
Net cash used for financing activities from continuing operations	(274		)	(612		)
Discontinued Operations
Net cash provided by operating activities from discontinued operations	63			228
Net cash provided by (used for) investing activities from discontinued operations	5			(16		)
Net cash used for financing activities from discontinued operations	(66		)	(214		)
Effect of exchange rate changes on cash and cash equivalents from discontinued operations	(2		)	2
Net cash provided by discontinued operations	—			—
Effect of exchange rate changes on cash and cash equivalents from continuing operations	(23		)	(9		)
Net increase (decrease) in cash and cash equivalents	(380		)	253
Cash and cash equivalents, beginning of period	3,225			1,468
Cash and cash equivalents, end of period	$	2,845		$	1,721
Supplemental Cash Flow Information
Cash paid during the period for:
Interest, net	$	92		$	74
Income and withholding taxes, net of refunds	36			231

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 September 27, 2014 and for the three and nine months ended September 27, 2014 and September 28, 2013, 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 stockholders' 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, 2013 and Form 8-K filed on August 7, 2014. The results of operations for the three and nine months ended September 27, 2014 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 January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-05, “Service Concession Arrangements.” The ASU clarifies that an operating entity should not account for a services concession arrangement with a public-sector grantor as a lease if: (i) the grantor controls or has the ability to modify or approve the services the operating entity must provide, to whom it must provide them, and at what price and (ii) the grantor controls any residual interest in the infrastructure at the end of the arrangement. In addition, the infrastructure used in a service concession arrangement would not be recognized as property, plant and equipment of the operating entity. The ASU is to be applied on a modified retrospective basis to service concession arrangements outstanding upon adoption and will be effective for the Company beginning January 1, 2015. The Company does not believe this ASU will have a material impact to its consolidated its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount it expects to receive for those goods and services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates and changes in those estimates. The ASU will be effective for the Company beginning January 1, 2017, and allows for both retrospective and modified-retrospective methods of adoption. The Company is in the process of determining the method of adoption it will elect and is currently assessing the impact of this ASU on its consolidated financial statements and footnote disclosures.


2.	Discontinued Operations

On October 27, 2014, the Company closed on the sale of its Enterprise business with Zebra Technologies Corporation for $3.45 billion in cash. Certain assets of the Enterprise business were excluded from the transaction and retained by the Company, including the Company’s iDEN business, and other assets and certain liabilities as specified in the Master Acquisition Agreement. The historical financial results of the Enterprise business, excluding those assets and liabilities retained in the transaction, are reflected in the Company's condensed consolidated financial statements and footnotes as discontinued 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 27, 2014 and September 28, 2013:



	Three Months Ended					Nine Months Ended
	September 27, 2014			September 28, 2013		September 27, 2014			September 28, 2013
Net sales	$	605		$	595	$	1,737		$	1,782
Operating earnings	78			74		195			180
Earnings before income taxes	68			74		181			180
Income tax expense (benefit)	(13		)	28		(688		)	64
Earnings from discontinued operations, net of tax	$	81		$	46	$	869		$	116

During the nine months ended September 27, 2014, the Company recorded a $748 million tax benefit to establish a deferred tax asset associated with an outside basis difference which we now expect to realize in the foreseeable future. The tax benefit represents the excess of the tax basis of our investment in the Enterprise subsidiaries over the financial statement carrying value (the deductible outside basis difference).

The following table displays a summary of the assets and liabilities held for sale as of September 27, 2014 and December 31, 2013:



	September 27, 2014		December 31, 2013
Assets:
Accounts receivable, net	$	514	$	551
Inventories, net	223		175
Deferred income taxes	232		219
Other current assets	158		134
Property, plant and equipment, net	99		115
Investments	19		19
Goodwill	1,148		1,149
Other assets	102		95
	$	2,495	$	2,457
Liabilities:
Accounts payable	$	194	$	231
Accrued liabilities	652		639
Other liabilities	164		171
	$	1,010	$	1,041


3.	Other Financial Data

Statement of Operations Information

Other Charges

Other charges included in Operating earnings consist of the following:



	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014			September 28, 2013
Other charges (income):
Intangibles amortization	$	1	$	—	$	3		$	1
Reorganization of businesses	13		16		48			36
Legal settlement	—		—		8			—
Pension-related transaction fees	11		—		11			—
Gain on sale of building and land	—		—		(21		)	—
	$	25	$	16	$	49		$	37

During the nine months ended September 27, 2014, the Company completed the sale of a building and parcel of land on its Schaumburg, IL campus with a net book value of $3 million for net cash proceeds of $24 million resulting in a gain on sale of $21 million.

During the three months ended September 27, 2014, the Company incurred transaction fees, primarily consisting of fees incurred by outside advisors, related to certain transactions announced with respect to our U.S. Pension Benefit Plans (see footnote 7).

Other Income (Expense)

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



	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Interest income (expense), net:
Interest expense	$	(38	)	$	(33	)	$	(102	)	$	(100	)
Interest income	7			4			17			15
	$	(31	)	$	(29	)	$	(85	)	$	(85	)
Other:
Loss from the extinguishment of long-term debt	$	(37	)	$	—		$	(37	)	$	—
Investment impairments	—			(1		)	—			(3		)
Foreign currency gain (loss)	4			(1		)	$	(6	)	$	(8	)
Gains on equity method investments	11			8			13			7
Other	(4		)	2			(4		)	7
	$	(26	)	$	8		$	(34	)	$	3

Earnings Per Common Share

The computation of basic and diluted earnings per common share is as follows:



	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Earnings from Continuing Operations				Net Earnings
Three Months Ended	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Basic earnings per common share:
Earnings	$	66	$	261	$	147	$	307
Weighted average common shares outstanding	246.3		262.2		246.3		262.2
Per share amount	$	0.27	$	1.00	$	0.60	$	1.17
Diluted earnings per common share:
Earnings	$	66	$	261	$	147	$	307
Weighted average common shares outstanding	246.3		262.2		246.3		262.2
Add effect of dilutive securities:
Share-based awards	1.9		3.1		1.9		3.1
Diluted weighted average common shares outstanding	248.2		265.3		248.2		265.3
Per share amount	$	0.27	$	0.98	$	0.59	$	1.16



	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Earnings from Continuing Operations				Net Earnings
Nine Months Ended	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Basic earnings per common share:
Earnings	$	229	$	641	$	1,098	$	757
Weighted average common shares outstanding	251.1		268.7		251.1		268.7
Per share amount	$	0.91	$	2.39	$	4.37	$	2.82
Diluted earnings per common share:
Earnings	$	229	$	641	$	1,098	$	757
Weighted average common shares outstanding	251.1		268.7		251.1		268.7
Add effect of dilutive securities:
Share-based awards	2.9		4.8		2.9		4.8
Diluted weighted average common shares outstanding	254.0		273.5		254.0		273.5
Per share amount	$	0.90	$	2.34	$	4.32	$	2.77

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 27, 2014, the assumed exercise of 4.9 million and 4.8 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 September 28, 2013, the assumed exercise of 5.6 million and 4.8 million stock options, 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 $2.8 billion at September 27, 2014 and $3.2 billion at December 31, 2013. Of these amounts, $63 million was restricted at both September 27, 2014 and December 31, 2013.

Investments

Investments consist of the following:



	September 27, 2014		December 31, 2013
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	$	15	$	15
Corporate bonds	7		7
Mutual funds	11		11
Common stock and equivalents	—		2
	33		35
Other investments, at cost	188		182
Equity method investments	19		15
	$	240	$	232

Accounts Receivable, Net

Accounts receivable, net, consists of the following:



	September 27, 2014			December 31, 2013
Accounts receivable	$	1,189		$	1,422
Less allowance for doubtful accounts	(27		)	(53		)
	$	1,162		$	1,369

Inventories, Net

Inventories, net, consist of the following:



	September 27, 2014			December 31, 2013
Finished goods	$	147		$	157
Work-in-process and production materials	313			315
	460			472
Less inventory reserves	(129		)	(125		)
	$	331		$	347

Other Current Assets

Other current assets consist of the following:



	September 27, 2014		December 31, 2013
Costs and earnings in excess of billings	$	456	$	405
Tax-related deposits and refunds receivable	57		107
Other	91		123
	$	604	$	635

Property, Plant and Equipment, Net

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



	September 27, 2014			December 31, 2013
Land	$	20		$	22
Building	558			582
Machinery and equipment	1,833			1,760
	2,411			2,364
Less accumulated depreciation	(1,747		)	(1,669		)
	$	664		$	695

Depreciation expense for the three months ended September 27, 2014 and September 28, 2013 was $44 million and $39 million, respectively. Depreciation expense for the nine months ended September 27, 2014 and September 28, 2013 was $128 million and $115 million, respectively.

Other Assets

Other assets consist of the following:



	September 27, 2014		December 31, 2013
Intangible assets, net	$	24	$	6
Long-term receivables	21		1
Other	93		82
	$	138	$	89

Accrued Liabilities

Accrued liabilities consist of the following:



	September 27, 2014		December 31, 2013
Deferred revenue	$	341	$	359
Compensation	236		315
Billings in excess of costs and earnings	365		295
Tax liabilities	74		85
Customer reserves	53		52
Dividend payable	82		79
Other	522		578
	$	1,673	$	1,763

Other Liabilities

Other liabilities consist of the following:



	September 27, 2014		December 31, 2013
Defined benefit plans	$	1,942	$	1,751
Postretirement Health Care Benefit Plan	47		118
Deferred revenue	148		162
Unrecognized tax benefits	56		99
Other	171		184
	$	2,364	$	2,314

Stockholders’ Equity

Share Repurchase Program: Through actions taken on July 28, 2011, January 30, 2012, July 25, 2012, July 22, 2013, and November 3, 2014, the Board of Directors has authorized the Company to repurchase an aggregate amount of up to $12.0 billion of its outstanding shares of common stock (the “share repurchase program”). The share repurchase program does not have an expiration date.

The Company paid an aggregate of $650 million during the third quarter of 2014, including transaction costs, to repurchase approximately 10.4 million shares at an average price of $62.63 per share. The Company paid an aggregate of $1.1 billion during the first nine months of 2014, including transaction costs, to repurchase approximately 17.4 million shares at an average price of $64.36 per share. As of September 27, 2014, the Company had used approximately $6.4 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving $5.6 billion of authority available for future repurchases.

Payment of Dividends: During the three months ended September 27, 2014 and September 28, 2013, the Company paid $78 million and $69 million, respectively, in cash dividends to holders of its common stock. During the nine months ended September 27, 2014 and September 28, 2013, the Company paid $236 million and $212 million, respectively, in cash dividends to holders of its common stock.

Accumulated Other Comprehensive Loss

The following table displays the changes in Accumulated other comprehensive loss, net of tax, by component from January 1, 2014 to September 27, 2014:



	Gains and Losses on Cash Flow Hedges			Unrealized Gains and Losses on Available-for-Sale Securities			Retirement Benefit Items			Foreign Currency Translation Adjustments			Total
Balance as of January 1, 2014	$	(1	)	$	(2	)	$	(2,188	)	$	(96	)	$	(2,287	)
Other comprehensive gain (loss) before reclassifications	—			2			(353		)	(19		)	(370		)
Amounts reclassified from accumulated other comprehensive loss	1			—			31			—			32
Current period change in Other comprehensive income	1			2			(322		)	(19		)	(338		)
Balance as of September 27, 2014	$	—		$	—		$	(2,510	)	$	(115	)	$	(2,625	)

The following table displays the amounts reclassified from Accumulated other comprehensive loss and the affected line items in the condensed consolidated statements of operations during the three and nine months ended September 27, 2014 and September 28, 2013:



	Three Months Ended						Nine Months Ended
	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Loss (gain) on cash flow hedges:
Foreign exchange contracts	$	—		$	—		$	1		$	(2	)	Cost of sales
	—			—			1			(2		)	Net of tax
Amortization of retirement benefit items:
Prior service costs	$	(15	)	(13		)	$	(39	)	$	(38	)	Selling, general, and administrative expenses
Actuarial net losses	27			39			84			118			Selling, general, and administrative expenses
	12			26			45			80			Total before tax
	(4		)	(9		)	(14		)	(28		)	Tax benefit
	$	8		$	17		$	31		$	52		Net of tax

Total reclassifications for the period, net of tax	$	8		$	17		$	32		$	50


4.	Debt and Credit Facilities

During the third quarter of 2014, the Company redeemed $400 million aggregate principal amount outstanding of its 6.000% Senior Notes due November 2017 for an aggregate purchase price of approximately $456 million. After accelerating the amortization of debt issuance costs, debt discounts, and hedge adjustments, the Company recognized a loss of $37 million related to the redemption within Other income (expense) in the condensed consolidated statement of operations. The Company issued an aggregate face principal amount of $1.4 billion including: (i) $600 million of 4.000% Senior notes due 2024, of which, after debt issuance costs and debt discounts, the Company recognized net proceeds of $583 million, (ii) $400 million of 3.500% Senior notes due 2021, of which, after debt issuance costs and debt discounts, the Company recognized net proceeds of $393 million, and (iii) $400 million of 5.500% Senior notes due 2044, of which, after debt issuance costs and debt discounts, the Company recognized net proceeds of $394 million.

As of September 27, 2014, the Company had a $2.0 billion unsecured syndicated revolving credit facility (the “2014 Motorola Solutions Credit Agreement”) scheduled to mature on May 29, 2019. Effective May 29, 2014, this facility replaced the previous $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) which was scheduled to mature on June 30, 2014. The Company must comply with certain customary covenants, including maximum leverage ratio as defined in the 2014 Motorola Solutions Credit Agreement. The Company is no longer subject to a minimum interest coverage covenant under the new facility. The Company was in compliance with its financial covenants as of September 27, 2014. The Company did not borrow under the 2011 Motorola Solutions Credit Agreement or the 2014 Motorola Solutions Credit Agreement during the three and nine months ended September 27, 2014.

As of September 27, 2014, the Company had a letter of credit sub-limit of $450 million under the 2014 Motorola Solutions Credit Agreement. No letters of credit were issued under the revolving credit facility as of September 27, 2014.

During the first quarter of 2013, the Company issued an aggregate face principal amount of $600 million of 3.500% Senior Notes due 2023, of which, after debt issuance costs and debt discounts, the Company recognized net proceeds from issuance of this debt of $588 million.


5.	Risk Management

Foreign Currency Risk

At September 27, 2014, the Company had outstanding foreign exchange contracts with notional amounts totaling $931 million, compared to $837 million outstanding at December 31, 2013. The Company does not believe these financial instruments should subject it to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions, 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 27, 2014, and the corresponding positions as of December 31, 2013:



	Notional Amount
Net Buy (Sell) by Currency	September 27, 2014			December 31, 2013
British Pound	$	331		$	257
Chinese Renminbi	(203		)	(181		)
Euro	126			(132		)
Norwegian Krone	(116		)	(95		)
Brazilian Real	(53		)	(44		)

Interest Rate Risk

At September 27, 2014, the Company had $3.4 billion of long-term debt, including the current portion, 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. The fair value of the Interest Agreements was in a liability position of $3 million at September 27, 2014 and December 31, 2013.

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 27, 2014, all of the counterparties have investment grade credit ratings. As of September 27, 2014, the Company had $3 million of exposure to aggregate net credit risk 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 27, 2014 and December 31, 2013:



	Fair Values of Derivative Instruments
	Assets			Liabilities
September 27, 2014	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	5	Other assets	$	9	Other liabilities
Interest agreements	—		Other assets	3		Other liabilities
Total derivatives	$	5		$	12



	Fair Values of Derivative Instruments
	Assets			Liabilities
December 31, 2013	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	4		Other assets	1		Other liabilities
Interest agreements	—		Other assets	3		Other liabilities
Total derivatives not designated as hedging instruments	4			4
Total derivatives	$	4		$	5

The following table summarizes the effect of derivative instruments in the Company's condensed consolidated statements of operations for the three and nine months ended September 27, 2014 and September 28, 2013:

Three Months Ended

Nine Months Ended

Statements of

Operations Location

Gain (loss) on Derivative Instruments

September 27,
2014

September 28,
2013

September 27,
2014

September 28,
2013

Derivatives not designated as hedging instruments:

Foreign exchange contracts

)

Other income (expense)

The following table summarizes the gains and losses reclassified from Accumulated other comprehensive loss into Net earnings during the three and nine months ended September 27, 2014 and September 28, 2013:



	Three Months Ended				Nine Months Ended					Financial Statement Location
Foreign Exchange Contracts	September 27, 2014		September 28, 2013		September 27, 2014			September 28, 2013		Financial Statement Location
Derivatives in cash flow hedging relationships:
Gains (losses) reclassified from Accumulated other comprehensive loss into Net earnings	$	—	$	—	$	(1	)	$	1	Costs of sales


6.	Income Taxes

During the nine months ended September 27, 2014, the Company increased current deferred tax assets by $748 million related to an outside basis difference. The outside basis difference represents the excess of the tax basis of our investment in the

Enterprise subsidiaries over the financial statement carrying value (the deductible outside basis difference).

At September 27, 2014 and December 31, 2013, the Company had valuation allowances of $247 million and $200 million, respectively, including $214 million and $178 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are required by considering available evidence, including historical and projected taxable income and tax planning strategies that are both prudent and feasible. During the three months ended September 27, 2014, the Company recorded a $55 million tax charge to establish a valuation allowance against certain foreign deferred tax assets management believes are no longer more-likely-than-not realizable in future years. The Company believes the remaining deferred tax assets are more-likely-than-not to be realizable based on estimates of future taxable income and the implementation of tax planning strategies.

Undistributed earnings the Company intends to reinvest indefinitely, and for which no income taxes have been provided, aggregate to $1.6 billion at September 27, 2014 and $1.4 billion at December 31, 2013. The Company currently has no plans to repatriate the foreign earnings permanently reinvested and therefore, the time and manner of repatriation is uncertain. If circumstances change and it becomes apparent that some or all of the permanently reinvested earnings will be remitted to the U.S. in the foreseeable future, an additional income tax charge may be necessary.

The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period and, except for certain earnings the Company intends to reinvest indefinitely, accrues for the U.S. federal and foreign tax applicable to the earnings. During the first quarter of 2013, the Company reassessed its unremitted earnings position and concluded that certain of its non-U.S. subsidiaries' earnings were permanently reinvested overseas. The Company intends to utilize the offshore earnings to fund foreign investments, such as potential acquisitions and capital expenditures. In the first quarter of 2013, the Company recorded a net tax benefit of $25 million related to reversals of deferred tax liabilities for undistributed foreign earnings due to the change in permanent reinvestment assertion.

As of September 27, 2014, the Company has approximately $700 million of foreign earnings not considered permanently reinvested and which may be repatriated without an additional tax charge, given the U.S. federal and foreign tax accrued on undistributed earnings and the utilization of available foreign tax credits.

The Company had unrecognized tax benefits of $114 million and $147 million at September 27, 2014 and December 31, 2013, respectively, of which $93 million and $125 million, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances. During the nine months ended September 27, 2014, the Company adjusted its unrecognized tax benefits for prior year tax positions for facts that now indicate the extent to which certain tax positions are more-likely-than-not of being sustained. As a result, the Company recorded a gross increase of $21 million and a gross decrease of $53 million to unrecognized tax benefits for prior year tax positions resulting in a net tax benefit of $32 million.

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 twelve 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 not to exceed $25 million.

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 consolidated financial position, liquidity or results of operations in the periods in which the matters are ultimately resolved.


7.	Retirement and Other Employee Benefits

Pension and Postretirement Health Care Benefits Plans

The net periodic costs (benefits) for Pension and Postretirement Health Care Benefits Plans were as follows:



	U.S. Pension Benefit Plans						Non U.S. Pension Benefit Plans						Postretirement Health Care Benefits Plan
Three Months Ended	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Service cost	$	—		$	—		$	4		$	2		$	—		$	1
Interest cost	93			88			20			19			2			3
Expected return on plan assets	(97		)	(91		)	(23		)	(21		)	(3		)	(2		)
Amortization of:
Unrecognized net loss	23			31			3			5			1			5
Unrecognized prior service benefit	—			—			(2		)	(1		)	(13		)	(11		)
Net periodic pension cost (benefit)	$	19		$	28		$	2		$	4		$	(13	)	$	(4	)



	U.S. Pension Benefit Plans						Non U.S. Pension Benefit Plans						Postretirement Health Care Benefits Plan
Nine Months Ended	September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Service cost	$	—		$	—		$	11		$	8		$	1		$	2
Interest cost	278			264			61			52			8			9
Expected return on plan assets	(294		)	(273		)	(69		)	(58		)	(7		)	(7		)
Amortization of:
Unrecognized net loss	68			95			9			11			7			12
Unrecognized prior service benefit	—			—			(5		)	(5		)	(35		)	(33		)
Net periodic pension cost (benefit)	$	52		$	86		$	7		$	8		$	(26	)	$	(17	)

During the three months ended September 27, 2014 and September 28, 2013, contributions of $397 million and $72 million were made to the Company’s U.S. Pension Benefit Plans, respectively. During both the three months ended September 27, 2014 and September 28, 2013, contributions of $7 million were made to the Company’s Non U.S. Pension Benefit Plans.

During the nine months ended September 27, 2014 and September 28, 2013, contributions of $463 million and $122 million were made to the Company’s U.S. Pension Benefit Plans, respectively. During the nine months ended September 27, 2014 and September 28, 2013, contributions of $27 million and $24 million were made to the Company’s Non U.S. Pension Benefit Plans, respectively.

On September 22, 2014, the Company entered into a Definitive Purchase Agreement (the “Agreement”) by and among the Company, The Prudential Insurance Company of America (“PICA”), Prudential Financial, Inc., and State Street Bank and Trust Company, as Independent Fiduciary of the Company's U.S. noncontributory pension plan (the "Regular Pension Plan"), pursuant to which the Regular Pension Plan will purchase from PICA a group annuity contract that requires PICA to pay and administer certain future annuity payments to certain of the Company’s retirees. Upon issuance of the group annuity contract by PICA, PICA will irrevocably assume the obligation to make future annuity payments to approximately 30,000 Company retirees who have been receiving pension payments from the Regular Pension Plan. During the three months ended September 27, 2014, in connection with the proposed transaction, the Company has established a new pension plan with substantially the same terms as the Regular Pension Plan (the “New Plan,” together with the Regular Pension Plan, “the Plans”), and it is expected that the Regular Pension Plan will ultimately be terminated.

As a result of establishing the New Plan, the Company remeasured the Plans using a weighted average discount rate and expected long-term rates of return on assets of 4.53% and 5.80%, respectively, resulting in an aggregate funded status of $(1.5) billion, with unrecognized losses in Accumulated other comprehensive losses within the Company’s condensed consolidated balance sheet of $3.4 billion.

On September 25, 2014, the Company announced that the New Plan is offering lump-sum distributions to certain New Plan participants who have accrued a pension benefit, have left the Company prior to June 30, 2014, and have not yet started receiving pension benefit payments. The maximum dollar amount of all lump-sum distributions to be paid under the offer is $1.0 billion, and lump-sum payments will be made to those who accept the lump-sum offer starting with the smallest amount of lump sums first and continuing in ascending order until the $1.0 billion threshold is met.

During the three months ended September 27, 2014, the Company made an amendment to the Postretirement Health Care Benefits Plan (the “New Amendment”). As a result of the New Amendment, beginning March 1, 2015, all eligible retirees under the age of 65 will be able to use the annual subsidy they receive through their retiree health reimbursement account toward the purchase of their own health care coverage from private insurance companies and for the reimbursement of eligible health care expenses. Additionally, the New Amendment eliminated dental benefits under the plan.

The New Amendment to the Postretirement Health Care Benefits Plan required a remeasurement of the plan, resulting in a $45 million decrease in Accumulated other comprehensive loss, net of taxes. A substantial portion of the decrease is related to a prior service credit and will be recognized as a credit to the condensed consolidated statements of operations over almost three years, or the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.

The Company made no contributions to its Postretirement Health Care Benefits Plan during the three and nine months ended September 27, 2014 and September 28, 2013.


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 27, 2014			September 28, 2013			September 27, 2014			September 28, 2013
Share-based compensation expense included in:
Costs of sales	$	2		$	4		$	9		$	12
Selling, general and administrative expenses	14			18			47			56
Research and development expenditures	4			7			18			23
Share-based compensation expense included in Operating earnings	20			29			74			91
Tax benefit	6			9			23			28
Share-based compensation expense, net of tax	$	14		$	20		$	51		$	63
Decrease in basic earnings per share	$	(0.06	)	$	(0.08	)	$	(0.20	)	$	(0.23	)
Decrease in diluted earnings per share	$	(0.06	)	$	(0.08	)	$	(0.20	)	$	(0.23	)
Share-based compensation expense in discontinued operations	$	5		$	8		$	18		$	25

For the nine months ended September 27, 2014, the Company granted 1.2 million RSUs and 1.3 million stock options. The total aggregate compensation expense, net of estimated forfeitures, for these RSUs and stock options, including those awards granted to employees of the Enterprise business, was $64 million and $14 million, respectively, which will be recognized over a weighted average vesting period of three years.


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 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 27, 2014 and December 31, 2013 were as follows:



September 27, 2014	Level 2
Assets:
Foreign exchange derivative contracts	$	5
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	15
Corporate bonds	7
Mutual funds	11
Liabilities:
Foreign exchange derivative contracts	$	9
Interest agreement derivative contracts	3



December 31, 2013	Level 1		Level 2		Total
Assets:
Foreign exchange derivative contracts	$	—	$	4	$	4
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	—		15		15
Corporate bonds	—		7		7
Mutual funds	—		11		11
Common stock and equivalents	2		—		2
Liabilities:
Foreign exchange derivative contracts	$	—	$	2	$	2
Interest agreement derivative contracts	—		3		3

The Company had no Level 3 holdings as of September 27, 2014 or December 31, 2013.

At September 27, 2014 and December 31, 2013, the Company had $1.9 billion and $2.1 billion, respectively, of investments in money market mutual funds (Level 2) classified as Cash and cash equivalents in its condensed consolidated balance sheets. The money market funds had quoted market prices that are equivalent to par.

Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at September 27, 2014 was $3.5 billion (Level 2). 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 from the instruments’ fair values.


10.	Long-term Customer Financing and Sales of Receivables

Long-term Customer Financing

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



	September 27, 2014			December 31, 2013
Long-term receivables	$	40		$	27
Less current portion	(19		)	(26		)
Non-current long-term receivables, net	$	21		$	1

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. The Company had outstanding commitments to provide long-term financing to third parties totaling $128 million at September 27, 2014, compared to $50 million at December 31, 2013.

Sales of Receivables

The following table summarizes the proceeds received from sales of accounts receivable and long-term receivables for the three and nine months ended September 27, 2014 and September 28, 2013:



	Three Months Ended				Nine Months Ended
	September 27, 2014		September 28, 2013		September 27, 2014		September 28, 2013
Cumulative annual proceeds received from sales:
Accounts receivable sales proceeds	$	6	$	4	$	39	$	6
Long-term receivables sales proceeds	37		37		91		90
Total proceeds from receivable sales	$	43	$	41	$	130	$	96

At September 27, 2014, the Company had retained servicing obligations for $473 million of long-term receivables, compared to $434 million of long-term receivables at December 31, 2013. Servicing obligations are limited to collection activities related to the sales of accounts receivables and long-term receivables.

Credit Quality of Customer Financing Receivables and Allowance for Credit Losses

An aging analysis of financing receivables at September 27, 2014 and December 31, 2013 is as follows:



September 27, 2014	Total Long-term Receivable		Current Billed Due		Past Due Under 90 Days		Past Due Over 90 Days
Municipal leases secured tax exempt	$	5	$	—	$	1	$	—
Commercial loans and leases secured	35		1		—		13
Total gross long-term receivables, including current portion	$	40	$	1	$	1	$	13



December 31, 2013	Total Long-term Receivable		Current Billed Due		Past Due Under 90 Days		Past Due Over 90 Days
Municipal leases secured tax exempt	$	1	$	—	$	—	$	—
Commercial loans and leases secured	26		10		2		10
Total gross long-term receivables, including current portion	$	27	$	10	$	2	$	10

The Company had a total of $13 million of financing receivables past due over 90 days as of September 27, 2014 in relation to two loans. The Company has not accrued interest on these loans, which are adequately reserved, during the three and nine months ended September 27, 2014.


11.	Commitments and Contingencies

Legal Matters

The Company is a defendant in various suits, claims and investigations that arise in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution could have a material adverse effect on the Company’s results of operations in the periods in which the matters are ultimately resolved.

Other Indemnifications

The Company is a party to a variety of agreements pursuant to which it is obligated to indemnify the other party with respect to certain matters. In indemnification cases, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claims. In some instances, the Company may have recourse against third parties for certain payments made by the Company.

Some of these obligations arise as a result of divestitures of the Company's assets or businesses and require the Company to indemnify the other party against losses arising from breaches of representations and warranties and covenants and, in some cases, the settlement of pending obligations. The Company's obligations under divestiture agreements for indemnification based on breaches of representations and warranties are generally limited in terms of duration, and for amounts for breaches of such representation and warranties in connection with prior divestitures not in excess of a percentage of the contract value. The Company had no accruals for any such obligations at September 27, 2014.