Edgar Filing: Motorola Solutions, Inc.

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Accelerated filer ¨

Non-accelerated filer

Smaller reporting company ¨

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Document

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 October 1, 2016



	¨	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.)
500 W. Monroe Street, Chicago, Illinois (Address of principal executive offices)		60661 (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 October 1, 2016:



Class		Number of Shares
Common Stock; $.01 Par Value		165,963,465



	Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements	1
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended October 1, 2016 and October 3, 2015	1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended October 1, 2016 and October 3, 2015	2
Condensed Consolidated Balance Sheets as of October 1, 2016 (Unaudited) and December 31, 2015	3
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Nine Months Ended October 1, 2016	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended October 1, 2016 and October 3, 2015	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3 Quantitative and Qualitative Disclosures About Market Risk	38
Item 4 Controls and Procedures	39
PART II OTHER INFORMATION
Item 1 Legal Proceedings	40
Item 1A Risk Factors	40
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3 Defaults Upon Senior Securities	41
Item 4 Mine Safety Disclosures	41
Item 5 Other Information	41
Item 6 Exhibits	42

Part I—Financial Information

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended						Nine Months Ended
(In millions, except per share amounts)	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Net sales from products	$	920		$	925		$	2,423		$	2,550
Net sales from services	612			497			1,732			1,463
Net sales	1,532			1,422			4,155			4,013
Costs of products sales	398			395			1,124			1,139
Costs of services sales	372			342			1,090			993
Costs of sales	770			737			2,214			2,132
Gross margin	762			685			1,941			1,881
Selling, general and administrative expenses	247			259			722			769
Research and development expenditures	137			153			411			468
Other charges	37			42			144			39
Operating earnings	341			231			664			605
Other income (expense):
Interest expense, net	(54		)	(43		)	(157		)	(122		)
Gains (losses) on sales of investments and businesses, net	7			10			(13		)	60
Other	(1		)	(1		)	(12		)	(3		)
Total other expense	(48		)	(34		)	(182		)	(65		)
Earnings from continuing operations before income taxes	293			197			482			540
Income tax expense	100			71			164			175
Earnings from continuing operations	193			126			318			365
Loss from discontinued operations, net of tax	—			(11		)	—			(32		)
Net earnings	193			115			318			333
Less: Earnings attributable to noncontrolling interests	1			—			1			2
Net earnings attributable to Motorola Solutions, Inc.	$	192		$	115		$	317		$	331
Amounts attributable to Motorola Solutions, Inc. common stockholders:
Earnings from continuing operations, net of tax	$	192		$	126		$	317		$	363
Loss from discontinued operations, net of tax	—			(11		)	—			(32		)
Net earnings attributable to Motorola Solutions, Inc.	$	192		$	115		$	317		$	331
Earnings (loss) per common share:
Basic:
Continuing operations	$	1.15		$	0.63		$	1.85		$	1.75
Discontinued operations	—			(0.05		)	—			(0.15		)
	$	1.15		$	0.58		$	1.85		$	1.60
Diluted:
Continuing operations	$	1.13		$	0.63		$	1.82		$	1.74
Discontinued operations	—			(0.06		)	—			(0.16		)
	$	1.13		$	0.57		$	1.82		$	1.58
Weighted average common shares outstanding:
Basic	166.3			199.2			171.0			207.2
Diluted	169.6			201.3			174.0			209.2
Dividends declared per share	$	0.41		$	0.34		$	1.23		$	1.02

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

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended
(In millions)	October 1, 2016			October 3, 2015
Net earnings	$	193		$	115
Other comprehensive income (loss), net of tax (Note 3):
Foreign currency translation adjustments	(49		)	(16		)
Marketable securities	1			(5		)
Defined benefit plans	5			—
Total other comprehensive loss, net of tax	(43		)	(21		)
Comprehensive income	150			94
Less: Earnings attributable to noncontrolling interest	1			—
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	149		$	94



	Nine Months Ended
(In millions)	October 1, 2016			October 3, 2015
Net earnings	$	318		$	333
Other comprehensive income (loss), net of tax (Note 3):
Foreign currency translation adjustments	(134		)	(35		)
Marketable securities	4			(34		)
Defined benefit plans	65			(82		)
Total other comprehensive loss, net of tax	(65		)	(151		)
Comprehensive income	253			182
Less: Earnings attributable to noncontrolling interest	1			2
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	252		$	180

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

Condensed Consolidated Balance Sheets



(In millions, except par value)	October 1, 2016			December 31, 2015
	(Unaudited)
ASSETS
Cash and cash equivalents	$	1,687		$	1,980
Accounts receivable, net	1,164			1,362
Inventories, net	283			296
Other current assets	670			954
Current assets held for disposition	—			27
Total current assets	3,804			4,619
Property, plant and equipment, net	780			487
Investments	238			231
Deferred income taxes	2,187			2,278
Goodwill	597			420
Other assets	1,013			271
Non-current assets held for disposition	—			40
Total assets	$	8,619		$	8,346
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	5		$	4
Accounts payable	406			518
Accrued liabilities	1,750			1,671
Total current liabilities	2,161			2,193
Long-term debt	5,044			4,345
Other liabilities	2,062			1,904
Stockholders’ Equity
Preferred stock, $100 par value	—			—
Common stock, $.01 par value:	2			2
Authorized shares: 600.0
Issued shares: 10/1/16—166.3; 12/31/15—174.5
Outstanding shares: 10/1/16—166.0; 12/31/15—174.3
Additional paid-in capital	174			42
Retained earnings	1,096			1,716
Accumulated other comprehensive loss	(1,931		)	(1,866		)
Total Motorola Solutions, Inc. stockholders’ equity (deficit)	(659		)	(106		)
Noncontrolling interests	11			10
Total stockholders’ equity (deficit)	(648		)	(96		)
Total liabilities and stockholders’ equity	$	8,619		$	8,346

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

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, 2015	174.5		$	44	$	(1,866	)	$	1,716		$	10
Net earnings								317			1
Other comprehensive loss					(65		)
Issuance of common stock and stock options exercised	2.3		80
Share repurchase program	(10.5	)						(728		)
Share-based compensation expense			52
Dividends declared								(209		)
Balance as of October 1, 2016	166.3		$	176	$	(1,931	)	$	1,096		$	11

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

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended
(In millions)	October 1, 2016			October 3, 2015
Operating
Net earnings attributable to Motorola Solutions, Inc.	$	317		$	331
Earnings attributable to noncontrolling interests	1			2
Net earnings	318			333
Loss from discontinued operations, net of tax	—			(32		)
Earnings from continuing operations, net of tax	318			365
Adjustments to reconcile Earnings from continuing operations to Net cash provided by operating activities:
Depreciation and amortization	220			113
Non-cash other charges	43			43
Non-U.S. pension curtailment gain	—			(32		)
Share-based compensation expense	52			58
Losses (gains) on sales of investments and businesses, net	13			(60		)
Deferred income taxes	143			127
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable	245			167
Inventories	—			(21		)
Other current assets	(102		)	38
Accounts payable and accrued liabilities	(224		)	(152		)
Other assets and liabilities	(56		)	(39		)
Net cash provided by operating activities	652			607
Investing
Acquisitions and investments, net	(1,215		)	(150		)
Proceeds from sales of investments and businesses, net	637			150
Capital expenditures	(211		)	(131		)
Proceeds from sales of property, plant and equipment	68			2
Net cash used for investing activities	(721		)	(129		)
Financing
Repayment of debt	(3		)	(3		)
Net proceeds from issuance of debt	673			976
Issuance of common stock	80			69
Purchase of common stock	(728		)	(2,996		)
Excess tax benefit from share-based compensation	—			1
Payment of dividends	(213		)	(218		)
Net cash used for financing activities	(191		)	(2,171		)
Effect of exchange rate changes on cash and cash equivalents	(33		)	(61		)
Net decrease in cash and cash equivalents	(293		)	(1,754		)
Cash and cash equivalents, beginning of period	1,980			3,954
Cash and cash equivalents, end of period	$	1,687		$	2,200
Supplemental Cash Flow Information
Cash paid during the period for:
Interest, net	$	152		$	130
Income and withholding taxes, net of refunds	62			86

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

Notes to Condensed Consolidated Financial Statements

(Dollars in millions, except as noted)

(Unaudited)


1.	Basis of Presentation

The condensed consolidated financial statements as of October 1, 2016 and for the three and nine months ended October 1, 2016 and October 3, 2015 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, 2015. The results of operations for the three and nine months ended October 1, 2016 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 Developments

On February 19, 2016, the Company completed the acquisition of Guardian Digital Communications Limited ("GDCL"), a holding company of Airwave Solutions Limited ("Airwave"), the largest private operator of a public safety network in the world. All of the outstanding equity of GDCL was acquired for the sum of £1, after which the Company invested into GDCL £698 million, net of cash acquired, or approximately $1.0 billion, to settle all third party debt. The Company will make a deferred cash payment of £64 million on November 15, 2018. The Company funded the investment with a $675 million term loan (the “Term Loan”) and approximately $400 million of international cash on hand. The acquisition has been reported within our Services segment, enabling the Company to geographically diversify its global Managed & Support services offerings, while offering a proven service delivery platform to build on for providing innovative, leading, mission-critical communications solutions and services to customers. See discussion in Note 14.

During the three months ended October 1, 2016, Motorola Solutions relocated its global headquarters from Schaumburg, IL to Chicago, IL. The move provides the Company with access to key talent and allows the Company to optimize the Schaumburg campus for current space requirements.

On September 23, 2016, the Company entered into a stock purchase agreement with Spillman Technologies, a provider of comprehensive law enforcement and public safety software solutions. The acquisition, which is expected to close in the fourth quarter of 2016, will expand the Company's smart public safety portfolio and will enable the Company to offer a full suite of command center solutions to a broader customer base.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. This ASU requires additional disclosures 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. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date" that delayed the effective date of ASU 2014-09 by one year to January 1, 2018, as the Company’s annual reporting period begins after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)" which clarifies the implementation guidance on principal versus agent considerations and includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. In April of 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing,” which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients,” which amends the guidance on transition, collectability, non-cash consideration, and the presentation of sales and other similar taxes. ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. The standard 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.

In February 2016, the FASB issued ASU No. 2016-02, "Leases," which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. The ASU is effective for the Company January 1, 2019 and interim periods within that reporting period. The ASU requires a modified retrospective method upon adoption. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements and footnote disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which clarifies eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statement of cash flows. This ASU is effective for the Company January 1, 2018 with early adoption permitted. Upon adoption, the ASU requires a retrospective application unless it is determined that it is impractical to do so for which it must be retrospectively applied at the earliest date practical. Upon adoption, the Company does not anticipate significant changes to the Company's existing accounting policies or presentation of the Statement of Cash Flows.

In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory,” as part of the Board’s simplification initiative aimed at reducing complexity in accounting standards. This ASU eliminates the current application of deferring the income tax effect of intra-entity asset transfers, other than inventory, until the transferred asset is sold to a third party or otherwise recovered through use and will require entities to recognize tax expense when the transfer occurs. The guidance will be effective for the Company on January 1, 2018 and interim periods within that reporting period; early adoption permitted. The ASU requires a modified retrospective application with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. The Company is currently assessing the impact of this ASU on its consolidated financial statements and footnote disclosures.

The Company elected to adopt ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” as of January 1, 2016. ASU 2016-09, which was issued by the FASB in March 2016, simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The impact of the prospective adoption of the provisions related to the recognition of excess tax benefits in income tax expense was a $5 million income tax benefit during the nine months ended October 1, 2016. Additionally, as a result of the adoption of this accounting standard, excess tax benefits on share-based compensation have been reported as a component of operating cash rather than within financing cash flows as previously presented, while the payment of withholding taxes on the settlement of share-based awards has been reported as a component of financing cash flows rather than within operating cash flows as previously presented. The change in presentation of withholding taxes within the condensed consolidated statements of cash flows has been adopted retrospectively, thereby increasing operating cash flows and reducing financing cash flows by $16 million for both the nine months ended October 1, 2016 and October 3, 2015. The presentation of excess tax benefits on share-based compensation has been adjusted prospectively within the condensed consolidated statement of cash flows, increasing operating cash flow and decreasing financing cash flow by $5 million for the nine months ended October 1, 2016.

The Company adopted ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," effective January 1, 2016. Under this guidance, debt issuance costs related to a recognized debt liability are required to be presented in the balance sheet as a direct reduction from the carrying amount of such debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this guidance. We have retrospectively adopted ASU 2015-03 effective January 1, 2016. As a result, debt issuance costs which were previously capitalized in other assets in the condensed consolidated balance sheet have been presented as a reduction to long-term debt. As of October 1, 2016 and December 31, 2015, $31 million and $41 million, respectively, have been presented as a component of long-term debt.


2.	Discontinued Operations

On October 27, 2014, the Company completed the sale of its Enterprise business to 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. 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.

During the three and nine months ended October 1, 2016, the Company had no earnings from discontinued operations in the condensed consolidated statements of operations. During the three and nine months ended October 3, 2015, the Company recorded losses from discontinued operations of $11 million and $32 million, respectively.


3.	Other Financial Data

Statements of Operations Information

Other Charges (Income)

Other charges (income) included in Operating earnings consist of the following:



	Three Months Ended				Nine Months Ended
	October 1, 2016		October 3, 2015		October 1, 2016		October 3, 2015
Other charges:
Intangibles amortization	$	31	$	2	$	83	$	6
Reorganization of business	6		8		28		33
Building impairment	—		6		17		6
Non-U.S. pension curtailment gain	—		—		—		(32		)
Impairment of corporate aircraft	—		26		3		26
Acquisition-related transaction fees	—		—		13		—
	$	37	$	42	$	144	$	39

Other Income (Expense)

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



	Three Months Ended						Nine Months Ended
	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Interest income (expense), net:
Interest expense	$	(58	)	$	(47	)	$	(169	)	$	(132	)
Interest income	4			4			12			10
	$	(54	)	$	(43	)	$	(157	)	$	(122	)
Other:
Investment impairments	(2		)	—			(2		)	(3		)
Foreign currency gain (loss)	7			(29		)	$	34		$	(23	)
Gain (loss) on derivative instruments	(11		)	25			(41		)	13
Gains on equity method investments	—			2			2			6
Realized foreign currency loss on acquisition	—			—			(10		)	—
Other	5			1			5			4
	$	(1	)	$	(1	)	$	(12	)	$	(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 of tax				Net Earnings
Three Months Ended	October 1, 2016		October 3, 2015		October 1, 2016		October 3, 2015
Basic earnings per common share:
Earnings	$	192	$	126	$	192	$	115
Weighted average common shares outstanding	166.3		199.2		166.3		199.2
Per share amount	$	1.15	$	0.63	$	1.15	$	0.58
Diluted earnings per common share:
Earnings	$	192	$	126	$	192	$	115
Weighted average common shares outstanding	166.3		199.2		166.3		199.2
Add effect of dilutive securities:
Share-based awards	2.4		2.1		2.4		2.1
Senior Convertible Notes	0.9		—		0.9		—
Diluted weighted average common shares outstanding	169.6		201.3		169.6		201.3
Per share amount	$	1.13	$	0.63	$	1.13	$	0.57



	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Earnings from Continuing Operations, net of tax				Net Earnings
Nine Months Ended	October 1, 2016		October 3, 2015		October 1, 2016		October 3, 2015
Basic earnings per common share:
Earnings	$	317	$	363	$	317	$	331
Weighted average common shares outstanding	171.0		207.2		171.0		207.2
Per share amount	$	1.85	$	1.75	$	1.85	$	1.60
Diluted earnings per common share:
Earnings	$	317	$	363	$	317	$	331
Weighted average common shares outstanding	171.0		207.2		171.0		207.2
Add effect of dilutive securities:
Share-based awards	2.5		2.0		2.5		2.0
Senior Convertible Notes	0.5		—		0.5		—
Diluted weighted average common shares outstanding	174.0		209.2		174.0		209.2
Per share amount	$	1.82	$	1.74	$	1.82	$	1.58

In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the three months ended October 1, 2016, the assumed exercise of 2.5 million options were excluded because their inclusion would have been antidilutive. For the nine months ended October 1, 2016, the assumed exercise of 2.9 million options and the assumed vesting of 0.4 million restricted stock units ("RSUs") were excluded because their inclusion would have been antidilutive.

For the three months ended October 3, 2015, the assumed exercise of 3.9 million stock options were excluded because their inclusion would have been antidilutive. For the nine months ended October 3, 2015, the assumed exercise of 2.6 million options and the assumed vesting of 0.4 million RSUs were excluded because their inclusion would have been antidilutive.

On August 25, 2015, the Company issued $1.0 billion of 2% Senior Convertible Notes which mature in September 2020 (the "Senior Convertible Notes"). The notes are convertible based on a conversion rate of 14.5985 per $1,000 principal amount (which is equal to an initial conversion price of $68.50 per share). In the event of conversion, the Company intends to settle the principal amount of the Senior Convertible Notes in cash.

Because of the Company’s intention to settle the par value of the Senior Convertible Notes in cash upon conversion, Motorola Solutions does not reflect any shares underlying the Senior Convertible Notes in its diluted weighted average shares outstanding until the average stock price per share for the period exceeds the conversion price. In this case, only the number of shares that would be issuable (under the treasury stock method of accounting for share dilution) will be included, which is based upon the amount by which the average stock price exceeds the conversion price of $68.50. For the three and nine months ended October 1, 2016, the dilutive impact of the Senior Convertible Notes was 0.9 million shares and 0.5 million shares, respectively.

Balance Sheet Information

Cash and Cash Equivalents

The Company’s cash and cash equivalents were $1.7 billion at October 1, 2016 and $2.0 billion at December 31, 2015. Of these amounts, $63 million was restricted at both October 1, 2016 and December 31, 2015.

Accounts Receivable, Net

Accounts receivable, net, consists of the following:



	October 1, 2016			December 31, 2015
Accounts receivable	$	1,207		$	1,390
Less allowance for doubtful accounts	(43		)	(28		)
	$	1,164		$	1,362

Inventories, Net

Inventories, net, consist of the following:



	October 1, 2016			December 31, 2015
Finished goods	$	154		$	151
Work-in-process and production materials	265			287
	419			438
Less inventory reserves	(136		)	(142		)
	$	283		$	296

Other Current Assets

Other current assets consist of the following:



	October 1, 2016		December 31, 2015
Available-for-sale securities	$	45	$	438
Costs and earnings in excess of billings	413		374
Tax-related refunds receivable	100		44
Other	112		98
	$	670	$	954

Property, Plant and Equipment, Net

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



	October 1, 2016			December 31, 2015
Land	$	14		$	17
Building	293			523
Machinery and equipment	1,920			1,585
	2,227			2,125
Less accumulated depreciation	(1,447		)	(1,638		)
	$	780		$	487

Depreciation expense for the three months ended October 1, 2016 and October 3, 2015 was $45 million and $30 million, respectively. Depreciation expense for the nine months ended October 1, 2016 and October 3, 2015 was $137 million and $107 million, respectively.

On February 1, 2016, the Company completed the sale of its Penang, Malaysia manufacturing operations, including the land, building, equipment, and inventory, as well as the transfer of employees to a contract manufacturer. During the nine months ended October 1, 2016, the Company incurred a loss of $7 million on the sale of its Penang, Malaysia facility and manufacturing operations, which is included within Gains (losses) on sales of investments and businesses, net.

The Company acquired property, plant and equipment, including network-related assets, with a fair value of $245 million in the acquisition of GDCL on February 19, 2016. See discussion in Note 14.

During the nine months ended October 1, 2016, the Company sold all remaining parcels of its Schaumburg, IL headquarters campus. A building impairment loss of $17 million has been recognized in Other charges during the nine months ended October 1, 2016 related to the excess carrying value of the long-lived assets in relation to the selling price.

Investments

Investments consist of the following:



October 1, 2016	Cost Basis		Unrealized Gains		Unrealized Losses		Investments
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	$	50	$	—	$	—	$	50
Corporate bonds	5		—		—		5
Common stock	—		1		—		1
	55		1		—		56
Other investments, at cost	217		—		—		217
Equity method investments	10		—		—		10
	$	282	$	1	$	—	$	283
Less: current portion of available-for-sale securities							45
							$	238



December 31, 2015	Cost Basis		Unrealized Gains		Unrealized Losses			Investments
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	$	455	$	—	$	(11	)	$	444
Corporate bonds	7		—		—			7
Common stock	—		6		—			6
	462		6		(11		)	457
Other investments, at cost	203		—		—			203
Equity method investments	9		—		—			9
	$	674	$	6	$	(11	)	$	669
Less: current portion of available-for-sale securities								438
								$	231

In December 2015, the Company invested $401 million in United Kingdom treasury securities in order to partially offset the risk associated with fluctuations in the British Pound Sterling in the period before the closing of the purchase of GDCL. The investments were recorded within Other current assets in the Company's consolidated balance sheets. The Company liquidated these investments in February 2016 to partially fund the acquisition of GDCL. During the nine months ended October 1, 2016, the Company realized a loss of $19 million associated with the sale of the treasury securities, of which, $11 million was unrealized as of December 31, 2015.

Other Assets

Other assets consist of the following:



	October 1, 2016		December 31, 2015
Intangible assets, net (Note 14)	$	769	$	49
Non-current long-term receivables, net	43		47
Defined benefit plan assets	163		128
Other	38		47
	$	1,013	$	271

Accrued Liabilities

Accrued liabilities consist of the following:



	October 1, 2016		December 31, 2015
Deferred revenue	$	404	$	390
Compensation	196		241
Billings in excess of costs and earnings	329		337
Tax liabilities	72		48
Dividend payable	68		71
Trade liabilities	159		135
Other	522		449
	$	1,750	$	1,671

Other Liabilities

Other liabilities consist of the following:



	October 1, 2016		December 31, 2015
Defined benefit plans	$	1,486	$	1,512
Postretirement Health Care Benefit Plan	—		49
Deferred revenue	126		113
Unrecognized tax benefits	42		50
Deferred income taxes	119		—
Deferred consideration (Note 14)	76		—
Other	213		180
	$	2,062	$	1,904

Stockholders’ Equity

Share Repurchase Program: Through actions taken on July 28, 2011, January 30, 2012, July 25, 2012, July 22, 2013, November 3, 2014, and August 3, 2016, the Board of Directors has authorized the Company to repurchase in the aggregate up to $14.0 billion of its outstanding shares of common stock (the “share repurchase program”). The share repurchase program does not have an expiration date.

During the nine months ended October 1, 2016, the Company paid an aggregate of $728 million, including transaction costs, to repurchase approximately 10.5 million shares at an average price of $69.31 per share. As of October 1, 2016, the

Company had used approximately $11.7 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving $2.3 billion of authority available for future repurchases.

Payment of Dividends: On November 3, 2016, the Company announced that its Board of Directors approved an increase in the quarterly cash dividend from $0.41 per share to $0.47 per share of common stock. During both the three months ended October 1, 2016 and October 3, 2015, the Company paid $70 million in cash dividends to holders of its common stock. During the nine months ended October 1, 2016 and October 3, 2015, the Company paid $213 million and $218 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, including amounts reclassified into income, and the affected line items in the condensed consolidated statements of operations during the three and nine months ended October 1, 2016 and October 3, 2015:



	Three Months Ended						Nine Months Ended
	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Foreign Currency Translation Adjustments:
Balance at beginning of period	$	(351	)	$	(223	)	$	(266	)	$	(204	)
Other comprehensive loss before reclassification adjustment	(47		)	(17		)	(131		)	(35		)
Tax (expense) benefit	(2		)	1			(3		)	—
Other comprehensive loss, net of tax	(49		)	(16		)	(134		)	(35		)
Balance at end of period	$	(400	)	$	(239	)	$	(400	)	$	(239	)
Available-for-Sale Securities:
Balance at beginning of period	$	—		$	15		$	(3	)	$	44
Other comprehensive income (loss) before reclassification adjustment	1			—			(1		)	(2		)
Tax benefit	—			—			1			1
Other comprehensive income (loss) before reclassification adjustment, net of tax	1			—			—			(1		)
Reclassification adjustment into Gains (losses) on sales of investments and businesses, net	—			(8		)	6			(54		)
Tax expense (benefit)	—			3			(2		)	21
Reclassification adjustment into Gains (losses) on sales of investments and businesses, net of tax	—			(5		)	4			(33		)
Other comprehensive income (loss), net of tax	1			(5		)	4			(34		)
Balance at end of period	$	1		$	10		$	1		$	10
Defined Benefit Plans:
Balance at beginning of period	(1,537		)	(1,777		)	$	(1,597	)	$	(1,695	)
Other comprehensive income (loss) before reclassification adjustment	—			—			53			(53		)
Tax expense	—			—			(16		)	—
Other comprehensive income (loss) before reclassification adjustment, net of tax	—			—			37			(53		)
Reclassification adjustment - Actuarial net losses into Selling, general, and administrative expenses	13			20			40			56
Reclassification adjustment - Prior service benefits into Selling, general, and administrative expenses	(7		)	(20		)	(20		)	(52		)
Reclassification adjustment - Non-U.S. pension curtailment gain into Other charges	—			—			—			(32		)
Tax expense (benefit)	(1		)	—			8			(1		)
Reclassification adjustment into Selling, general, and administrative expenses, net of tax	5			—			28			(29		)
Other comprehensive income (loss), net of tax	5			—			65			(82		)
Balance at end of period	$	(1,532	)	$	(1,777	)	$	(1,532	)	$	(1,777	)

Total Accumulated other comprehensive loss	$	(1,931	)	$	(2,006	)	$	(1,931	)	$	(2,006	)


4.	Debt and Credit Facilities

As of October 1, 2016, the Company had a $2.1 billion unsecured syndicated revolving credit facility, which includes a $450 million letter of credit sub-limit, (the “2014 Motorola Solutions Credit Agreement”) scheduled to mature on May 29, 2019. The Company must comply with certain customary covenants, including a maximum leverage ratio as defined in the 2014 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of October 1, 2016. The Company did not borrow or issue any letters of credit under the 2014 Motorola Solutions Credit Agreement during the nine months ended October 1, 2016.

In connection with the completion of the acquisition of GDCL, the Company entered into a new term loan credit agreement (the “Term Loan Agreement”), under which the Company borrowed a term loan with an initial principal amount of $675 million and a maturity date of February 18, 2019 (the "Term Loan"). Interest on the Term Loan is variable and indexed to LIBOR. Interest expense on the Term Loan is payable quarterly in February, May, August, and November. No additional borrowings are permitted under the Term Loan Agreement and amounts borrowed and repaid or prepaid may not be re-borrowed.

Effective January 1, 2016, the Company retrospectively adopted ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." Under this guidance, the Company has revised the presentation of debt issuance costs which were previously capitalized in other assets in the consolidated balance sheet to be presented as a reduction to long-term debt. As of October 1, 2016 and December 31, 2015, $31 million and $41 million, respectively, have been reclassified to be presented as a component of long-term debt.


5.	Risk Management

Foreign Currency Risk

As of October 1, 2016, the Company had outstanding foreign exchange contracts with notional amounts totaling $744 million, compared to $494 million outstanding at December 31, 2015. The Company does not believe these financial instruments should subject it to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions.

The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of October 1, 2016, and the corresponding positions as of December 31, 2015:



	Notional Amount
Net Buy (Sell) by Currency	October 1, 2016			December 31, 2015
Euro	$	211		$	99
British Pound	192			62
Chinese Renminbi	(98		)	(114		)
Australian Dollar	(61		)	(60		)
Brazilian Real	(59		)	(44		)

Interest Rate Risk

One of the Company’s European subsidiaries has Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Company has interest rate swap agreements in place which change the characteristics of interest rate payments from variable to maximum fixed-rate payments. The interest rate swaps are not designated as a hedge. As such, changes in the fair value of the interest rate swaps are included in Other income (expense) in the Company’s condensed consolidated statements of operations. The fair value of the interest rate swap was in a liability position of $1 million at both October 1, 2016 and December 31, 2015.

The Company is exposed to interest rate risk on its Term Loan which has a variable interest rate that is indexed to LIBOR.

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 October 1, 2016, all of the counterparties have investment grade credit ratings. As of October 1, 2016, the aggregate net credit risk with all counterparties was de minimus.

The following tables summarize the fair values and locations in the condensed consolidated balance sheets of all derivative financial instruments held by the Company as of October 1, 2016 and December 31, 2015:



	Fair Values of Derivative Instruments
	Assets			Liabilities
October 1, 2016	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	—	Other current assets	$	18	Accrued liabilities
Interest rate swap	—		Other current assets	1		Accrued liabilities
Total derivatives	$	—		$	19



	Fair Values of Derivative Instruments
	Assets			Liabilities
December 31, 2015	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	6	Other current assets	$	2	Accrued liabilities
Interest rate swap	—		Other current assets	1		Accrued liabilities
Total derivatives	$	6		$	3

The following table summarizes the effect of derivatives not designated as hedging instruments on the Company's condensed consolidated statements of operations for the three and nine months ended October 1, 2016 and October 3, 2015:



	Three Months Ended					Nine Months Ended					Statements of Operations Location
Gain (loss) on Derivative Instruments	October 1, 2016			October 3, 2015		October 1, 2016			October 3, 2015		Statements of Operations Location
Interest rate swap	$	—		$	—	$	—		$	1	Other income (expense)
Foreign exchange contracts	(11		)	25		(41		)	12		Other income (expense)
Total derivatives	$	(11	)	$	25	$	(41	)	$	13

The Company had no instruments designated as hedging instruments for the three and nine months ended October 1, 2016 and October 3, 2015.


6.	Income Taxes

At the end of each interim reporting period, the Company makes an estimate of its annual effective income tax rate. Tax expense in interim periods is calculated at the estimated annual effective tax rate plus or minus the tax effects of items of income and expense that are discrete to the period. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods.

The following table provides details of income taxes:



	Three Months Ended						Nine Months Ended
	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Earnings from continuing operations before income taxes	$	293		$	197		$	482		$	540
Income tax expense	100			71			164			175
Effective tax rate	34		%	36		%	34		%	32		%

The Company recorded $100 million of net tax expense in the third quarter of 2016 resulting in an effective tax rate of 34%, compared to $71 million of net tax expense in the third quarter of 2015 resulting in an effective tax rate of 36%. The effective tax rate in the third quarter of 2016 was lower than the U.S. statutory tax rate of 35% partly due to favorable discrete adjustments to deferred tax assets of foreign subsidiaries. The effective tax rate in the third quarter of 2015 was higher than the U.S. statutory tax rate of 35% primarily due to higher income in the U.S. relative to foreign operations.

The Company recorded $164 million of net tax expense in the first nine months of 2016 resulting in an effective tax rate of 34%, compared to $175 million of net tax expense resulting in an effective tax rate of 32% in the first nine months of 2015. The effective tax rate for the first nine months of 2016 was lower than the U.S. statutory tax rate of 35% partly due to the recognition of excess tax benefits on share-based compensation. The effective tax rate in the first nine months of 2015 was lower than the U.S. statutory tax rate of 35% primarily due to the rate differential for foreign affiliates and the U.S. domestic production tax deduction.


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	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Service cost	$	—		$	—		$	2		$	3		$	—		$	—
Interest cost	46			48			13			14			1			2
Expected return on plan assets	(55		)	(53		)	(23		)	(23		)	(2		)	(2		)
Amortization of:
Unrecognized net loss	9			12			3			5			1			3
Unrecognized prior service benefit	—			—			—			(1		)	(7		)	(15		)
Net periodic pension cost (benefit)	$	—		$	7		$	(5	)	$	(2	)	$	(7	)	$	(12	)

The Company made no contributions to its U.S. Pension Benefit Plans during both the three months ended October 1, 2016 and October 3, 2015. The Company made $2 million of contributions to its Non U.S. Pension Benefit Plans during both the three months ended October 1, 2016 and October 3, 2015.



	U.S. Pension Benefit Plans						Non U.S. Pension Benefit Plans						Postretirement Health Care Benefits Plan
Nine Months Ended	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Service cost	$	—		$	—		$	6		$	10		$	—		$	1
Interest cost	138			144			41			49			3			6
Expected return on plan assets	(165		)	(159		)	(71		)	(79		)	(7		)	(7		)
Amortization of:
Unrecognized net loss	27			35			9			13			4			8
Unrecognized prior service benefit	—			—			—			(3		)	(20		)	(45		)
Curtailment gain	—			—			—			(32		)	—			—
Net periodic cost (benefit)	$	—		$	20		$	(15	)	$	(42	)	$	(20	)	$	(37	)

The Company made $2 million of contributions to its U.S. Pension Benefit Plans during the nine months ended October 1, 2016 and no contributions to its U.S. Pension Benefit Plans during the nine months ended October 3, 2015. During the nine months ended October 1, 2016 and October 3, 2015, the Company made $7 million and $8 million of contributions to its Non U.S. Pension Benefit Plans, respectively.

During the nine months ended October 1, 2016, the Company made an amendment to the Postretirement Health Care Benefits Plan (the “Amendment”). As a result of the Amendment, all eligible retirees under the age of 65 will be provided an annual subsidy per household, versus per individual, toward the purchase of their own health care coverage from private insurance companies and for the reimbursement of eligible health care expenses.

The Amendment to the Postretirement Health Care Benefits Plan required a remeasurement of the plan, resulting in a $53 million reduction in the accumulated Postretirement Benefit Obligation. 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 approximately five years, or the period in which the remaining employees eligible for the plan will qualify for benefits under the plan.

During the nine months ended October 3, 2015, the Company amended its Non U.S. defined benefit plan within the United Kingdom by closing future benefit accruals to all participants effective December 31, 2015. As a result, the Company recorded a curtailment gain of $32 million to Other charges in the Company’s condensed consolidated statements of operations.

Effective January 1, 2016, the Company changed the method used to estimate the interest and service cost components of net periodic cost for defined benefit pension and other post-retirement benefit plans. Historically, the interest and service cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company has elected to use a full yield curve approach in the estimation of these components of net periodic cost by applying the specific spot rates along the yield curve used in the determination of the projected benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of interest and service costs. This change does not affect the measurement of total benefit obligations as the change in interest and service cost is completely offset in the actuarial loss reported in the period. The Company has concluded that this change is a change in estimate and, therefore, has accounted for it prospectively beginning January 1, 2016. Based on the change in estimate, the Company experienced no reduction in service costs and a $21 million reduction in interest costs for the nine months ended October 1, 2016 compared to the prior approach. The overall reduction in the interest cost for the nine months ended October 1, 2016 is comprised of $14 million related to the U.S. Pension Benefit Plans, $3 million related to the Postretirement Health Care Benefit Plans, and $4 million related to the Non U.S. Pension Benefits Plan.


8.	Share-Based Compensation Plans

Compensation expense for the Company’s share-based compensation plans was as follows:



	Three Months Ended						Nine Months Ended
	October 1, 2016			October 3, 2015			October 1, 2016			October 3, 2015
Share-based compensation expense included in:
Costs of sales	$	2		$	2		$	7		$	7
Selling, general and administrative expenses	12			13			35			38
Research and development expenditures	3			3			10			13
Share-based compensation expense included in Operating earnings	17			18			52			58
Tax benefit	5			6			16			19
Share-based compensation expense, net of tax	$	12		$	12		$	36		$	39
Decrease in basic earnings per share	$	(0.07	)	$	(0.06	)	$	(0.21	)	$	(0.19	)
Decrease in diluted earnings per share	$	(0.07	)	$	(0.06	)	$	(0.21	)	$	(0.19	)

During the nine months ended October 1, 2016, the Company granted 0.7 million RSUs and market stock units ("MSUs") and 0.7 million stock options and performance options ("POs"). The total aggregate compensation expense, net of estimated forfeitures, for these RSUs and MSUs was $42 million and stock options and POs was $10 million, respectively, which will generally be recognized over the 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 October 1, 2016 and December 31, 2015 were as follows:



October 1, 2016	Level 1		Level 2		Total
Assets:
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	$	—	$	50	$	50
Corporate bonds	—		5		5
Common stock	1		—		1
Liabilities:
Foreign exchange derivative contracts	$	—	$	18	$	18
Interest rate swap	—		1		1



December 31, 2015	Level 1		Level 2		Total
Assets:
Foreign exchange derivative contracts	$	—	$	6	$	6
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	—		444		444
Corporate bonds	—		7		7
Common stock	6		—		6
Liabilities:
Foreign exchange derivative contracts	$	—	$	2	$	2
Interest rate swap	—		1		1

The Company had no Level 3 holdings as of October 1, 2016 or December 31, 2015.

At October 1, 2016 and December 31, 2015, the Company had $1.1 billion and $1.3 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 October 1, 2016 and December 31, 2015 was $5.2 billion and $4.1 billion (Level 2), respectively.

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


10.	Long-term Financing and Sales of Receivables

Long-term Financing

Long-term receivables consist of 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:



	October 1, 2016			December 31, 2015
Long-term receivables, net	54			60
Less current portion	(11		)	(13		)
Non-current long-term receivables, net	$	43		$	47

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 $214 million at October 1, 2016, compared to $112 million at December 31, 2015.

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 October 1, 2016 and October 3, 2015:



	Three Months Ended				Nine Months Ended
	October 1, 2016		October 3, 2015		October 1, 2016		October 3, 2015
Accounts receivable sales proceeds	$	8	$	5	$	15	$	16
Long-term receivables sales proceeds	39		24		173		132
Total proceeds from receivable sales	$	47	$	29	$	188	$	148

At October 1, 2016, the Company had retained servicing obligations for $685 million of long-term receivables, compared to $668 million of long-term receivables at December 31, 2015. Servicing obligations are limited to collection activities related to the sales of accounts receivables and long-term receivables.

Credit Quality of Financing Receivables and Allowance for Credit Losses

An aging analysis of financing receivables at October 1, 2016 and December 31, 2015 is as follows:



October 1, 2016	Total Long-term Receivable		Current Billed Due		Past Due Under 90 Days		Past Due Over 90 Days
Municipal leases secured tax exempt	$	12	$	—	$	—	$	—
Commercial loans and leases secured	42		—		1		1
Total gross long-term receivables, including current portion	$	54	$	—	$	1	$	1



December 31, 2015	Total Long-term Receivable		Current Billed Due		Past Due Under 90 Days		Past Due Over 90 Days
Municipal leases secured tax exempt	$	35	$	—	$	—	$	—
Commercial loans and leases secured	25		1		1		1
Total gross long-term receivables, including current portion	$