Edgar Filing: Motorola Solutions, Inc.

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 September 30, 2017



	¨	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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨
	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on September 30, 2017:



Class		Number of Shares
Common Stock; $.01 Par Value		161,999,802



	Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements	1
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2017 and October 1, 2016	1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2017 and October 1, 2016	2
Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016	3
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2017	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2017 and October 1, 2016	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3 Quantitative and Qualitative Disclosures About Market Risk	36
Item 4 Controls and Procedures	37
PART II OTHER INFORMATION
Item 1 Legal Proceedings	38
Item 1A Risk Factors	38
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3 Defaults Upon Senior Securities	39
Item 4 Mine Safety Disclosures	39
Item 5 Other Information	39
Item 6 Exhibits	40

Part I—Financial Information

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended						Nine Months Ended
(In millions, except per share amounts)	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Net sales from products	$	989		$	920		$	2,540		$	2,423
Net sales from services	656			612			1,883			1,732
Net sales	1,645			1,532			4,423			4,155
Costs of products sales	428			398			1,167			1,124
Costs of services sales	423			372			1,202			1,090
Costs of sales	851			770			2,369			2,214
Gross margin	794			762			2,054			1,941
Selling, general and administrative expenses	248			247			725			722
Research and development expenditures	141			137			413			411
Other charges	67			37			146			144
Operating earnings	338			341			770			664
Other income (expense):
Interest expense, net	(52		)	(54		)	(154		)	(157		)
Gains (losses) on sales of investments and businesses, net	—			7			3			(13		)
Other	—			(1		)	(9		)	(12		)
Total other expense	(52		)	(48		)	(160		)	(182		)
Net earnings before income taxes	286			293			610			482
Income tax expense	73			100			188			164
Net earnings	213			193			422			318
Less: Earnings attributable to noncontrolling interests	1			1			2			1
Net earnings attributable to Motorola Solutions, Inc.	$	212		$	192		$	420		$	317
Earnings per common share:
Basic	$	1.30		$	1.15		$	2.57		$	1.85
Diluted	1.25			1.13			2.48			1.82

Weighted average common shares outstanding:
Basic	162.3			166.3			163.2			171.0
Diluted	169.0			169.6			169.3			174.0
Dividends declared per share	$	0.47		$	0.41		$	1.41		$	1.23

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

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended
(In millions)	September 30, 2017		October 1, 2016
Net earnings	$	213	$	193
Other comprehensive income (loss), net of tax (Note 2):
Foreign currency translation adjustments	46		(49		)
Marketable securities	1		1
Defined benefit plans	26		5
Total other comprehensive income (loss), net of tax	73		(43		)
Comprehensive income	286		150
Less: Earnings attributable to noncontrolling interest	1		1
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	285	$	149



	Nine Months Ended
(In millions)	September 30, 2017		October 1, 2016
Net earnings	$	422	$	318
Other comprehensive income (loss), net of tax (Note 2):
Foreign currency translation adjustments	127		(134		)
Marketable securities	5		4
Defined benefit plans	59		65
Total other comprehensive income (loss), net of tax	191		(65		)
Comprehensive income	613		253
Less: Earnings attributable to noncontrolling interest	2		1
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders	$	611	$	252

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

Condensed Consolidated Balance Sheets



(In millions, except par value)	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Cash and cash equivalents	$	653		$	967
Restricted cash	64			63
Total cash and cash equivalents	717			1,030
Accounts receivable, net	1,382			1,410
Inventories, net	364			273
Other current assets	873			755
Total current assets	3,336			3,468
Property, plant and equipment, net	889			789
Investments	249			238
Deferred income taxes	2,115			2,219
Goodwill	932			728
Intangible assets, net	896			821
Other assets	201			200
Total assets	$	8,618		$	8,463
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	47		$	4
Accounts payable	473			553
Accrued liabilities	2,043			2,111
Total current liabilities	2,563			2,668
Long-term debt	4,423			4,392
Other liabilities	2,450			2,355
Stockholders’ Equity
Preferred stock, $100 par value	—			—
Common stock, $.01 par value:	2			2
Authorized shares: 600.0
Issued shares: 9/30/17—162.4; 12/31/16—165.5
Outstanding shares: 9/30/17—162.0; 12/31/16—164.7
Additional paid-in capital	313			203
Retained earnings	981			1,148
Accumulated other comprehensive loss	(2,126		)	(2,317		)
Total Motorola Solutions, Inc. stockholders’ equity (deficit)	(830		)	(964		)
Noncontrolling interests	12			12
Total stockholders’ equity (deficit)	(818		)	(952		)
Total liabilities and stockholders’ equity	$	8,618		$	8,463

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, 2016	165.5		$	205	$	(2,317	)	$	1,148		$	12
Net earnings								420			2
Other comprehensive income					191
Issuance of common stock and stock options exercised	1.2		61
Share repurchase program	(4.3	)						(358		)
Share-based compensation expense			49
Dividends declared								(229		)	(2		)
Balance as of September 30, 2017	162.4		$	315	$	(2,126	)	$	981		$	12

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

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended
(In millions)	September 30, 2017			October 1, 2016
Operating
Net earnings attributable to Motorola Solutions, Inc.	$	420		$	317
Earnings attributable to noncontrolling interests	2			1
Net earnings	422			318
Adjustments to reconcile Net earnings to Net cash provided by operating activities:
Depreciation and amortization	254			220
Non-cash other charges	29			43
Non-U.S. pension settlement loss	46			—
Share-based compensation expense	49			52
Losses (gains) on sales of investments and businesses, net	(3		)	13
Deferred income taxes	99			143
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable	81			245
Inventories	(83		)	—
Other current assets	(142		)	(102		)
Accounts payable and accrued liabilities	(178		)	(224		)
Other assets and liabilities	11			(56		)
Net cash provided by operating activities	585			652
Investing
Acquisitions and investments, net	(383		)	(1,215		)
Proceeds from sales of investments and businesses, net	174			637
Capital expenditures	(206		)	(211		)
Proceeds from sales of property, plant and equipment	—			68
Net cash used for investing activities	(415		)	(721		)
Financing
Repayment of debt	(15		)	(3		)
Net proceeds from issuance of debt	—			673
Proceeds from financing through capital leases	7			—
Issuance of common stock	61			80
Purchase of common stock	(358		)	(728		)
Payment of dividends	(230		)	(213		)
Payment of dividend to non-controlling interest	(2		)	—
Net cash used for financing activities	(537		)	(191		)
Effect of exchange rate changes on cash and cash equivalents	54			(33		)
Net decrease in cash and cash equivalents	(313		)	(293		)
Cash and cash equivalents, beginning of period	1,030			1,980
Cash and cash equivalents, end of period	$	717		$	1,687
Supplemental Cash Flow Information
Cash paid during the period for:
Interest, net	$	146		$	152
Income and withholding taxes, net of refunds	83			62

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 September 30, 2017 and for the three and nine months ended September 30, 2017 and October 1, 2016 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, 2016. The results of operations for the three and nine months ended September 30, 2017 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 July 28, 2017, the Company announced its intention to purchase Plant Holdings, Inc., the parent company of Airbus DS Communications. This acquisition will expand the Company's software portfolio in the Command Center with additional solutions for Next Generation 9-1-1.

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 the existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is the recognition of revenue for the transfer of goods and services equal to the amount an entity 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 No. 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date" that delayed the effective date of ASU No. 2014-09 by one year to January 1, 2018, as the Company’s annual reporting period begins after December 15, 2017.

The Company has continued to analyze the impact of the new standard on its financial results based on an inventory of the Company's current contracts with customers. The Company has obtained an understanding of the new standard and currently believes that it will retain much of the same accounting treatment used to recognize revenue under current standards. Revenue on a significant portion of the Company's contracts is currently recognized under percentage of completion accounting applying a cost-to-cost method, including contracts for radio network deployments based on the ASTRO P25, TETRA, and LTE technologies, as well as certain offerings within its Smart Public Safety Solutions requiring significant integration (collectively "network integration contracts").

Under the new standard, the Company must identify the distinct promises to transfer goods and/or services within its contracts using certain factors. For network integration contracts, the Company has considered the factors used to determine whether promises made in the contract are distinct and determined that devices and accessories represent distinct goods. Accordingly, adoption of the new standard will impact the Company's network integration contracts that include devices and accessories, with the resulting impact being revenue recognized earlier as control of the devices and accessories transfers to the customer at a point in time rather than over time. For the remaining promised goods and services within the Company's network integration contracts, it will continue to recognize revenue on these contracts using a cost-to-cost method based on the continuous transfer of control to the customer over time. Transfer of control in the Company's contracts is demonstrated by creating a customized asset for customers, in conjunction with contract terms which provide the right to receive payment for goods and services.

In addition, the standard may generally cause issuers to accelerate revenue recognition in contracts which were previously limited by software revenue recognition rules. While the Company has contracts which fall under these rules in the current standard, it has not historically deferred significant amounts of revenue under these rules as many arrangements are single-element software arrangements or sales of software with a tangible product which falls out of the scope of the current software rules. Based on the contracts currently in place, the Company does not anticipate a significant acceleration of revenue upon applying the new standard to its current contracts under these fact patterns.

The new standard also requires the concept of transfer of control to determine whether an entity must present revenue from providing goods or services at the gross amount billed to a customer (as a principal) or at the net amount retained (as an agent). Therefore, an entity must assess whether it controls the goods or services provided to a customer before they are transferred. The new standard provides three indicators to assist entities in determining control. Under the current standard,

eight indicators (including the three indicators under the new standard) exist to evaluate whether an entity should present revenue gross as a principal or net as an agent. Historically, the Company presented transactions that involved a third-party sales representative on a net basis. After considering the control concept and remaining three indicators under the new standard, the Company has determined that it is the principal in contracts that involve a third-party sales representative. Thus, upon adoption of the new standard the Company will present associated revenues on a gross basis, with the affect being an equal increase to selling, general and administrative expenses.

Under current accounting standards, the Company expenses sales commissions as incurred. However, under ASU No. 2014-09, the Company will capitalize sales commissions as incremental costs to obtain a contract. Such costs will be classified as a contract asset and amortized over a period that approximates the timing of revenue recognition on the underlying contracts.

The Company continues to evaluate the impact of ASU No. 2014-09 on its financial results and prepare for the adoption of the standard on January 1, 2018, including readying its internal processes and control environment for new requirements, particularly around enhanced disclosures, under the new standard. The standard allows for both retrospective and modified retrospective methods of adoption. The Company expects to adopt this standard under the modified retrospective method of adoption, which recognizes the cumulative effect of transition as an adjustment to retained earnings for contracts that are not completed as of the adoption date, without restating prior period financial statements.

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 on January 1, 2019 and interim periods within that reporting period. The ASU prescribes the use of a modified retrospective method upon adoption, which requires all prior periods presented in the financial statements to be restated, with a cumulative adjustment to retained earnings as of the beginning of the earliest period presented. 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 No. 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 on January 1, 2018 with early adoption permitted. The Company intends to adopt this ASU on January 1, 2018. Upon adoption, the ASU requires a retrospective application unless it is determined that it is impractical to do so, in which case 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 No. 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 Company intends to adopt the ASU on January 1, 2018. 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 continues to assess the impact of this ASU but anticipates that the impact will be immaterial based on existing deferred taxes from intra-entity asset transfers other than inventory.

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires that the statement of cash flows explain the change during the period in total cash, which is inclusive of cash and cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. The ASU is effective for the Company on January 1, 2018 with early adoption permitted. The Company intends to adopt the ASU on January 1, 2018. Upon adoption, the ASU requires retrospective application. The Company does not anticipate significant changes to the Company's financial statements and related disclosures from adoption of the ASU.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this update require that an employer disaggregate the service cost component from the other components of net periodic cost (benefit) and report that component in the same line item as other compensation costs arising from services rendered by employees during the period. The other components of net periodic cost (benefit) are required to be presented in the statement of operations separately from the service cost component and outside of operating earnings. The amendment also allows for the service cost component of net periodic cost (benefit) to be eligible for capitalization when applicable. The guidance will be effective for the Company on January 1, 2018 and interim periods within that reporting period; early adoption is permitted. The guidance on the income statement presentation of the components of net periodic cost (benefit) must be applied retrospectively, while the guidance limiting the capitalization of net periodic cost (benefit) in assets to the service cost component must be applied prospectively. The Company intends to adopt this ASU on January 1, 2018. Upon adoption, the Company plans to update the presentation of net periodic cost (benefit) accordingly, noting all components of the Company's net periodic cost (benefit), with the exception of the service cost component, will be presented outside of operating earnings. The estimated impact of adoption of the ASU will be a reclassification of certain components of net periodic benefit from operating earnings to other income (expense) in the amount of approximately $15 million and $29 million for the years ended December 31, 2017 and December 31, 2016, respectively.

In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which is intended to simplify the application of hedge accounting and better portray the economic results of risk management strategies in the consolidated financial statements. The ASU expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The ASU is effective for the Company on January 1, 2019 with adoption permitted immediately in any interim or annual period (including the current period). The Company is currently assessing the impact of this ASU, including transition elections and required elections, on its consolidated financial statements and the timing of adoption.

2. Other Financial Data

Statements of Operations Information

Other Charges (Income)

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



	Three Months Ended				Nine Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017			October 1, 2016
Other charges:
Intangibles amortization (Note 13)	$	39	$	31	$	112		$	83
Reorganization of business (Note 12)	6		6		22			28
Building impairment	—		—		8			17
Non-U.S. pension settlement loss (Note 6)	21		—		46			—
Asset impairment	1		—		1			—
Gain on legal settlements	—		—		(44		)	—
Impairment of corporate aircraft	—		—		—			3
Acquisition-related transaction fees	—		—		1			13
	$	67	$	37	$	146		$	144

During the nine months ended September 30, 2017, the Company recognized a net gain of $44 million related to legal settlements. Of this amount, $42 million relates to the recovery, through legal procedures to seize and liquidate assets, of financial receivables owed to the Company by a former customer of its legacy Networks business. The net gain of $42 million was based on $52 million of proceeds received, net $10 million of fees owed to third parties for their involvement in the recovery.

During the nine months ended September 30, 2017 and October 1, 2016, the Company recognized $8 million and $17 million, respectively, of building impairments related to the sale of its Basingstoke building and Schaumburg campus, respectively.

During the nine months ended October 1, 2016, the Company expensed $13 million of transaction fees related to the acquisition of Airwave.

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 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Interest income (expense), net:
Interest expense	$	(55	)	$	(58	)	$	(164	)	$	(169	)
Interest income	3			4			10			12
	$	(52	)	$	(54	)	$	(154	)	$	(157	)
Other:
Investment impairments	—			(2		)	—			(2		)
Foreign currency gain (loss)	$	(7	)	$	7		$	(29	)	$	34
Gain (loss) on derivative instruments	3			(11		)	14			(41		)
Gains on equity method investments	1			—			1			2
Realized foreign currency loss on acquisition	—			—			—			(10		)
Other	3			5			5			5
	$	—		$	(1	)	$	(9	)	$	(12	)

During the three and nine months ended September 30, 2017, the Company recognized foreign currency losses of $7 million and $29 million, respectively, primarily driven by the British pound, partially offset by gains of $3 million and $14 million, respectively, on derivative instruments put in place to minimize the foreign exchange risk related to currency fluctuations.

During the three and nine months ended October 1, 2016, the Company recognized foreign currency gains of $7 million and $34 million, respectively, primarily driven by the British pound, partially offset by losses of $11 million and $41 million, respectively, on derivative instruments put in place to minimize the foreign exchange risk related to currency fluctuations.

During the nine months ended October 1, 2016, the Company realized a $10 million foreign currency loss on currency purchased and held in anticipation of the acquisition of Airwave.

Earnings Per Common Share

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



	Amounts attributable to Motorola Solutions, Inc. common stockholders
	Three Months Ended				Nine Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
Basic earnings per common share:
Earnings	$	212	$	192	$	420	$	317
Weighted average common shares outstanding	162.3		166.3		163.2		171.0
Per share amount	$	1.30	$	1.15	$	2.57	$	1.85
Diluted earnings per common share:
Earnings	$	212	$	192	$	420	$	317
Weighted average common shares outstanding	162.3		166.3		163.2		171.0
Add effect of dilutive securities:
Share-based awards	3.4		2.4		3.3		2.5
Senior Convertible Notes	3.3		0.9		2.8		0.5
Diluted weighted average common shares outstanding	169.0		169.6		169.3		174.0
Per share amount	$	1.25	$	1.13	$	2.48	$	1.82

In the computation of diluted earnings per common share for the three months ended September 30, 2017, the assumed exercise of 2.0 million options, including 1.7 million subject to market-based contingent stock agreements, were excluded because their inclusion would have been antidilutive. For the nine months ended September 30, 2017, the assumed exercise of 2.3 million options, including 1.9 million subject to market-based contingent stock agreements, were excluded because their inclusion would have been antidilutive.

For the three months ended October 1, 2016, the assumed exercise of 2.5 million options, including 1.8 million subject to market-based contingent stock agreements, 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 0.4 million RSUs, including 2.0 million subject to market-based contingent stock agreements, 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 became fully convertible as of August 25, 2017. 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, only the number of shares that would be issuable (under the treasury stock method of accounting for share dilution) are included in our computation of diluted earnings per share. The conversion price is adjusted for dividends declared through the date of settlement. Diluted earnings per share has been calculated based upon the amount by which the average stock price exceeds the conversion price.

For the three and nine months ended September 30, 2017, the dilutive impact of the Senior Convertible Notes was 3.3 million shares and 2.8 million shares, respectively. 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

Accounts Receivable, Net

Accounts receivable, net, consists of the following:



	September 30, 2017			December 31, 2016
Accounts receivable	$	1,420		$	1,454
Less allowance for doubtful accounts	(38		)	(44		)
	$	1,382		$	1,410

Inventories, Net

Inventories, net, consist of the following:



	September 30, 2017			December 31, 2016
Finished goods	$	178		$	151
Work-in-process and production materials	315			253
	493			404
Less inventory reserves	(129		)	(131		)
	$	364		$	273

As a result of our Enterprise Resource Planning ("ERP") system implementation in the second quarter of 2017, the Company maintained higher inventory levels to ensure it continued to meet customer demand over the implementation period.

Other Current Assets

Other current assets consist of the following:



	September 30, 2017		December 31, 2016
Available-for-sale securities	$	—	$	46
Costs and earnings in excess of billings	595		495
Tax-related refunds receivable	144		90
Other	134		124
	$	873	$	755

Property, Plant and Equipment, Net

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



	September 30, 2017			December 31, 2016
Land	$	11		$	12
Building	282			306
Machinery and equipment	2,153			1,921
	2,446			2,239
Less accumulated depreciation	(1,557		)	(1,450		)
	$	889		$	789

Depreciation expense for the three months ended September 30, 2017 and October 1, 2016 was $49 million and $45 million, respectively. Depreciation expense for the nine months ended September 30, 2017 and October 1, 2016 was $142 million and $137 million, respectively.

Investments

Investments consist of the following:



September 30, 2017	Cost Basis		Unrealized Gains		Investments
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	$	5	$	—	$	5
Corporate bonds	2		—		2
Common stock	5		8		13
	12		8		20
Other investments	215		—		215
Equity method investments	14		—		14
	$	241	$	8	$	249



December 31, 2016	Cost Basis		Unrealized Gains		Investments
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	$	51	$	—	$	51
Corporate bonds	5		—		5
	56		—		56
Other investments	211		—		211
Equity method investments	17		—		17
	$	284	$	—	$	284
Less: current portion of available-for-sale securities					46
					$	238

Other investments include strategic investments in non-public technology-driven startup companies recorded at cost of $74 million and $76 million, and insurance policies recorded at their cash surrender value of $141 million and $135 million, at September 30, 2017 and December 31, 2016, respectively.

During the three months ended September 30, 2017, Gains on the sale of investments and businesses was de minimus, compared to gains of $7 million during the three months ended October 1, 2016. During the nine months ended September 30, 2017, the Company recognized Gains on the sale of investments and businesses of $3 million, compared to losses of $13 million during the nine months ended October 1, 2016, of which, $19 million was associated with the sale of United Kingdom treasury securities, partially offset by gains of $6 million.

Other Assets

Other assets consist of the following:



	September 30, 2017		December 31, 2016
Long-term receivables	24		49
Defined benefit plan assets	138		102
Other	39		49
	$	201	200

Accrued Liabilities

Accrued liabilities consist of the following:



	September 30, 2017		December 31, 2016
Deferred revenue	$	469	$	439
Compensation	232		250
Billings in excess of costs and earnings	408		434
Tax liabilities	168		111
Dividend payable	76		77
Trade liabilities	154		180
Other	536		620
	$	2,043	$	2,111

Other Liabilities

Other liabilities consist of the following:



	September 30, 2017		December 31, 2016
Defined benefit plans	$	1,797	$	1,799
Deferred revenue	158		115
Unrecognized tax benefits	40		39
Deferred income taxes	142		121
Deferred consideration (Note 13)	82		72
Other	231		209
	$	2,450	$	2,355

Stockholders’ Equity

Share Repurchase Program: Through a series of actions, 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 September 30, 2017, the Company paid an aggregate of $358 million, including transaction costs, to repurchase approximately 4.3 million shares at an average price of $83.22 per share. As of September 30, 2017, the Company had used approximately $12.2 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving $1.8 billion of authority available for future repurchases.

Payment of Dividends: During the three months ended September 30, 2017 and October 1, 2016, the Company paid $76 million and $70 million, respectively, in cash dividends to holders of its common stock. During the nine months ended September 30, 2017 and October 1, 2016, the Company paid $230 million and $213 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 September 30, 2017 and October 1, 2016:



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Foreign Currency Translation Adjustments:
Balance at beginning of period	$	(413	)	$	(351	)	$	(494	)	$	(266	)
Other comprehensive income (loss) before reclassification adjustment	49			(47		)	133			(131		)
Tax expense	(3		)	(2		)	(6		)	(3		)
Other comprehensive income (loss), net of tax	46			(49		)	127			(134		)
Balance at end of period	$	(367	)	$	(400	)	$	(367	)	$	(400	)
Available-for-Sale Securities:
Balance at beginning of period	$	4		$	—		$	—		$	(3	)
Other comprehensive income (loss) before reclassification adjustment	1			1			8			(1		)
Tax (expense) benefit	—			—			(3		)	1
Other comprehensive income before reclassification adjustment, net of tax	1			1			5			—
Reclassification adjustment into Gains (losses) on sales of investments and businesses, net	—			—			—			6
Tax benefit	—			—			—			(2		)
Reclassification adjustment into Gains (losses) on sales of investments and businesses, net of tax	—			—			—			4
Other comprehensive income, net of tax	1			1			5			4
Balance at end of period	$	5		$	1		$	5		$	1
Defined Benefit Plans:
Balance at beginning of period	(1,790		)	(1,537		)	$	(1,823	)	$	(1,597	)
Other comprehensive income (loss) before reclassification adjustment	(4		)	—			(15		)	53
Tax expense	—			—			—			(16		)
Other comprehensive income (loss) before reclassification adjustment, net of tax	(4		)	—			(15		)	37
Reclassification adjustment - Actuarial net losses into Selling, general, and administrative expenses	17			13			49			40
Reclassification adjustment - Prior service benefits into Selling, general, and administrative expenses	(4		)	(7		)	(12		)	(20		)
Reclassification adjustment - Non-U.S. pension settlement loss into Other charges	21			—			46			—
Tax expense (benefit)	(4		)	(1		)	(9		)	8
Reclassification adjustment into Operating earnings, net of tax	30			5			74			28
Other comprehensive income, net of tax	26			5			59			65
Balance at end of period	$	(1,764	)	$	(1,532	)	$	(1,764	)	$	(1,532	)

Total Accumulated other comprehensive loss	$	(2,126	)	$	(1,931	)	$	(2,126	)	$	(1,931	)

3. Debt and Credit Facilities

As of September 30, 2017, the Company had a $2.2 billion syndicated, unsecured revolving credit facility scheduled to mature in April 2022, which can be used for borrowing and letters of credit (the "2017 Motorola Solutions Credit Agreement"). The 2017 Motorola Solutions Credit Agreement includes a $500 million letter of credit sub-limit with $450 million of fronting commitments. Borrowings under the facility bear interest at the prime rate plus the applicable margin, or at a spread above the London Interbank Offered Rate, at the Company's option. An annual facility fee is payable on the undrawn amount of the credit line. The interest rate and facility fee are subject to adjustment if the Company's credit rating changes. The Company must comply with certain customary covenants including a maximum leverage ratio, as defined in the 2017 Motorola Solutions Credit Agreement. The Company was in compliance with its financial covenants as of September 30, 2017. During the quarter ended September 30, 2017, the Company had borrowings and repayments of $150 million under the 2017 Motorola Solutions Credit Agreement. Such borrowings were used to purchase Kodiak Networks, and were repaid using cash from operations within the quarter.

On August 25, 2015, the Company entered into an agreement with Silver Lake Partners to issue $1.0 billion of 2% Senior Convertible Notes which mature in September 2020. The notes became fully convertible as of August 25, 2017. The notes are convertible based on a conversion rate of 14.7476, as may be adjusted for dividends declared, per $1,000 principal amount (which is currently equal to a conversion price of $67.81 per share). In the event of conversion, the notes may be settled in either cash or stock, at the Company's discretion. The Company intends to settle the principal amount of the Senior Convertible Notes in cash.

4. Risk Management

Foreign Currency Risk

As of September 30, 2017, the Company had outstanding foreign exchange contracts with notional amounts totaling $541 million, compared to $717 million outstanding at December 31, 2016. 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 September 30, 2017, and the corresponding positions as of December 31, 2016:



	Notional Amount
Net Buy (Sell) by Currency	September 30, 2017			December 31, 2016
Euro	$	185		$	122
British Pound	69			246
Chinese Renminbi	(72		)	(108		)
Brazilian Real	(47		)	(56		)
Australian Dollar	(45		)	(51		)

During the nine months ended September 30, 2017, the Company entered into forward contracts to sell £50 million, expiring in December 2017. The Company also entered into forward contracts to sell £25 million, expiring in June 2018, as well as to sell £25 million, expiring in September 2018. The forward contracts have been designated as a net investment hedge which is in place to partially hedge the Company's British pound foreign currency exposure on its net investment in Airwave Solutions Limited. The gains and losses on the Company's net investment in British pound-denominated foreign operations, driven by changes in foreign exchange rates, are economically offset by movements in the fair values of the forward contracts designated as net investment hedges. Any changes in fair value of the net investment hedges are reflected as a component of Accumulated other comprehensive loss. As of September 30, 2017, the fair value of the derivative contracts was a $3 million liability.

Interest Rate Risk

The Company's subsidiaries have variable interest loans denominated in the Euro and Chilean Peso. 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 hedges. 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 swaps was a $1 million liability at September 30, 2017 and de minimus December 31, 2016.

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 30, 2017, all of the counterparties have investment grade credit ratings. As of September 30, 2017, the Company had $7 million of exposure to aggregate net credit risk with all counterparties.

The following tables summarize the fair values and locations in the condensed consolidated balance sheets of all derivative financial instruments held by the Company as of September 30, 2017 and December 31, 2016:



	Fair Values of Derivative Instruments
	Assets			Liabilities
September 30, 2017	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	—	Other assets	$	3	Other liabilities
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	7	Other current assets	$	5	Accrued liabilities
Interest agreements	—		Other current assets	1		Accrued liabilities
Total derivatives not designated as hedging instruments	$	7		$	6
Total derivatives	$	7		$	9



	Fair Values of Derivative Instruments
	Assets			Liabilities
December 31, 2016	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	9	Other current assets	$	32	Accrued liabilities

The following table summarizes the effect of derivatives designated as hedging instruments on the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2017 and October 1, 2016:



	Three Months Ended					Nine Months Ended					Balance Sheet Location
Derivatives Designated as Hedging Instruments	September 30, 2017			October 1, 2016		September 30, 2017			October 1, 2016		Balance Sheet Location
Foreign exchange contracts	$	(1	)	$	—	$	(3	)	$	—	Other comprehensive income (loss)

The following table summarizes the effect of derivatives not designated as hedging instruments on the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2017 and October 1, 2016:



	Three Months Ended						Nine Months Ended						Statements of Operations Location
Gain (loss) on Derivative Instruments	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			Statements of Operations Location
Interest agreements	$	(1	)	$	—		$	(1	)	$	—		Other income (expense)
Foreign exchange contracts	4			(11		)	15			(41		)	Other income (expense)
Total derivatives	$	3		$	(11	)	$	14		$	(41	)

5. 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
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Net earnings before income taxes	$	286		$	293		$	610		$	482
Income tax expense	73			100			188			164
Effective tax rate	26		%	34		%	31		%	34		%

The Company recorded $73 million of net tax expense during the three months ended September 30, 2017, resulting in an effective tax rate of 26%, compared to $100 million of net tax expense during the three months ended October 1, 2016, resulting in an effective tax rate of 34%. The effective tax rate in the third quarter of 2017 was lower than the U.S. statutory tax rate of 35% primarily driven by a tax benefit due to the recognition of a U.S. capital loss. 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 Company recorded $188 million of net tax expense during the nine months ended September 30, 2017, resulting in an effective tax rate of 31%, compared to $164 million of net tax expense during the nine months ended October 1, 2016, resulting in an effective tax rate of 34%. The effective tax rate in the first nine months of 2017 was lower than the U.S. statutory tax rate of 35% primarily due to a tax benefit due to the recognition of a U.S. capital loss. The effective tax rate in 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.

6. 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 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Service cost	$	—		$	—		$	1		$	2		$	—		$	—
Interest cost	46			46			10			13			1			1
Expected return on plan assets	(57		)	(55		)	(24		)	(23		)	(3		)	(2		)
Amortization of:
Unrecognized net loss	11			9			4			3			2			1
Unrecognized prior service benefit	—			—			—			—			(4		)	(7		)
Settlement loss	—			—			21			—			—			—
Net periodic pension cost (benefit)	$	—		$	—		$	12		$	(5	)	$	(4	)	$	(7	)



	U.S. Pension Benefit Plans						Non-U.S. Pension Benefit Plans						Postretirement Health Care Benefits Plan
Nine Months Ended	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Service cost	$	—		$	—		$	3		$	6		$	—		$	—
Interest cost	138			138			30			41			3			3
Expected return on plan assets	(172		)	(165		)	(71		)	(71		)	(9		)	(7		)
Amortization of:
Unrecognized net loss	33			27			12			9			4			4
Unrecognized prior service benefit	—			—			—			—			(12		)	(20		)
Settlement loss	—			—			46			—			—			—
Net periodic cost (benefit)	$	(1	)	$	—		$	20		$	(15	)	$	(14	)	$	(20	)

During the nine months ended September 30, 2017, the Company offered lump-sum settlements to certain participants in the Non-U.S. defined benefit plan within the United Kingdom. The lump-sum settlements were targeted to certain participants who had accrued a pension benefit, but had not yet started receiving pension benefit payments. The window for the participant registration in the program closed during the second quarter. However, the Company accounted for settlements through the third quarter of 2017, as remaining lump-sum settlements were paid to participants. As a result of the actions taken through the first nine months of 2017, the Company recorded a settlement loss of $21 million and $46 million during the three and nine months ended September 30, 2017, which is recorded within Other Charges within the condensed consolidated statement of operations.

7. Share-Based Compensation Plans

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



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Share-based compensation expense included in:
Costs of sales	$	2		$	2		$	7		$	7
Selling, general and administrative expenses	11			12			32			35
Research and development expenditures	3			3			10			10
Share-based compensation expense included in Operating earnings	16			17			49			52
Tax benefit	5			5			16			16
Share-based compensation expense, net of tax	$	11		$	12		$	33		$	36
Decrease in basic earnings per share	$	(0.07	)	$	(0.07	)	$	(0.20	)	$	(0.21	)
Decrease in diluted earnings per share	$	(0.07	)	$	(0.07	)	$	(0.19	)	$	(0.21	)

During the nine months ended September 30, 2017, the Company granted 0.6 million RSUs and 0.1 million market stock units ("MSUs") with an aggregate grant-date fair value of $46 million and $6 million, respectively, and 0.4 million stock options and 0.6 million performance options ("POs") with an aggregate grant-date fair value of $5 million and $9 million, respectively. Share-based compensation expense will generally be recognized over the vesting period of three years.

8. 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 30, 2017 and December 31, 2016 were as follows:



September 30, 2017	Level 1		Level 2		Total
Assets:
Foreign exchange derivative contracts	$	—	$	7	$	7
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	—		5		5
Corporate bonds	—		2		2
Common stock	13		—		13
Liabilities:
Foreign exchange derivative contracts	$	—	$	8	$	8
Interest agreements	—		1		1



December 31, 2016	Level 2		Total
Assets:
Foreign exchange derivative contracts	$	9	$	9
Available-for-sale securities:
Government, agency, and government-sponsored enterprise obligations	51		51
Corporate bonds	5		5
Liabilities:
Foreign exchange derivative contracts	$	32	$	32

The Company had no Level 3 holdings as of September 30, 2017 or December 31, 2016.

At September 30, 2017 and December 31, 2016, the Company had $263 million and $309 million, respectively, of investments in money market prime and government funds (Level 1) 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 30, 2017 and December 31, 2016 was $4.6 billion and $4.5 billion (Level 2), respectively.

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

9. 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:



	September 30, 2017			December 31, 2016
Long-term receivables	$	43		$	63
Less current portion	(19		)	(14		)
Non-current long-term receivables	$	24		$	49

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 $135 million at September 30, 2017, compared to $125 million at December 31, 2016.

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 30, 2017 and October 1, 2016:



	Three Months Ended				Nine Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
Accounts receivable sales proceeds	$	99	$	8	$	179	$	15
Long-term receivables sales proceeds	55		39		123		173
Total proceeds from receivable sales	$	154	$	47	$	302	$	188

At September 30, 2017, the Company had retained servicing obligations for $780 million of long-term receivables, compared to $774 million at December 31, 2016. 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 September 30, 2017 and December 31, 2016 is as follows:



September 30, 2017	Total Long-term Receivable		Current Billed Due		Past Due Under 90 Days		Past Due Over 90 Days
Municipal leases secured tax exempt	$	25	$	—	$	—	$	2
Commercial loans and leases secured	18		3		1		1
Long-term receivables, including current portion	$	43	$	3	$	1	$	3



December 31, 2016	Total Long-term Receivable		Current Billed Due		Past Due Over 90 Days
Municipal leases secured tax exempt	$	20	$	—	$	—
Commercial loans and leases secured	43		—		2
Long-term receivables, including current portion	$	63	$	—	$	2

10. Commitments and Contingencies

Legal Matters

The Company is a defendant in various lawsuits, claims, and actions, which 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 condensed consolidated financial position, liquidity, or results of operations. However, an unfavorable resolution 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, or in the periods in which more information is obtained that changes management's opinion of the ultimate disposition.

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 to amounts not in excess of a percentage of the contract value. The Company had no accruals for any such obligations at September 30, 2017.

In addition, the Company may provide indemnifications for losses that result from the breach of general warranties contained in certain commercial and intellectual property agreements. Historically, the Company has not made significant payments under these agreements.

11. Segment Information

The Company conducts its business globally and manages it through the following two segments:

Products: The Products segment is comprised of Devices and Systems. Devices includes two-way portable and vehicle-mounted radios, accessories, software features, and upgrades. Systems includes the radio network core and central processing software, base stations, consoles, repeaters, and software applications and features. The primary customers of the Products segment are government, public safety and first-responder agencies, municipalities, and commercial and industrial customers who operate private communications networks and manage a mobile workforce.

Services: The Services segment provides a full set of offerings for government, public safety and commercial communication networks including: (i) Integration services, (ii) Managed & Support services, and (iii) iDEN services. Integration services includes implementation, optimization, and integration of networks, devices, software, and applications. Managed & Support services includes a continuum of service offerings beginning with repair, technical support and hardware maintenance. More advanced offerings include network monitoring, software maintenance and cyber security services. Managed services offerings range from partial or full operation of customer owned networks to operation of Motorola Solutions owned networks. Services are provided across all radio network technologies, Command Center Consoles and Smart Public Safety Solutions. iDEN services consists primarily of hardware and software maintenance services for our legacy iDEN customers.

The following table summarizes Net sales by segment:



	Three Months Ended				Nine Months Ended
	September 30, 2017		October 1, 2016		September 30, 2017		October 1, 2016
Products	$	989	$	920	$	2,540	$	2,423
Services	656		612		1,883		1,732
	$	1,645	$	1,532	$	4,423	$	4,155

The following table summarizes the Operating earnings by segment:



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Products	$	253		$	225		$	510		$	404
Services	85			116			260			260
Operating earnings	338			341			770			664
Total other expense	(52		)	(48		)	(160		)	(182		)
Earnings before income taxes	$	286		$	293		$	610		$	482

12. Reorganization of Business

2017 Charges

During the three months ended September 30, 2017, the Company recorded net reorganization of business charges of $8 million including $6 million of charges in Other charges and $2 million of charges in Cost of sales in the Company's condensed consolidated statements of operations. Included in the $8 million were charges of $7 million related to employee separation costs and $1 million related to exit costs.

During the nine months ended September 30, 2017, the Company recorded net reorganization of business charges of $30 million including $22 million of charges in Other charges and $8 million of charges in Cost of sales in the Company's condensed consolidated statements of operations. Included in the $30 million were charges of $30 million related to employee separation costs and $5 million related to exit costs, partially offset by $5 million of reversals for accruals no longer needed.

The following table displays the net charges incurred by segment:



September 30, 2017	Three Months Ended		Nine Months Ended
Products	$	6	$	22
Services	2		8
	$	8	$	30

The following table displays a rollforward of the reorganization of business accruals established for lease exit costs and employee separation costs from January 1, 2017 to September 30, 2017:



	January 1, 2017		Additional Charges		Adjustments			Amount Used			September 30, 2017
Exit costs	$	7	$	5	$	—		$	(3	)	$	9
Employee separation costs	95		30		(5		)	(74		)	46
	$	102	$	35	$	(5	)	$	(77	)	$	55

Exit Costs

At January 1, 2017, the Company had $7 million of accruals for exit costs. During the nine months ended September 30, 2017, there were $5 million of additional charges and $3 million of cash payments related to the exit of leased facilities. The remaining accrual of $9 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at September 30, 2017, primarily represents future cash payments for lease obligations that are expected to be paid over a number of years.

Employee Separation Costs

At January 1, 2017, the Company had an accrual of $95 million for employee separation costs. The 2017 additional charges of $30 million represent severance costs for approximately 400 employees. The adjustment of $5 million reflects reversals for accruals no longer needed. The $74 million used reflects cash payments to severed employees. The remaining accrual of $46 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at September 30, 2017, is expected to be paid, primarily within one year, to approximately 500 employees, who have either been severed or have been notified of their severance and have begun or will begin receiving payments.

2016 Charges

During the three months ended October 1, 2016, the Company recorded net reorganization of business charges of $7 million including $6 million of charges in Other charges and $1 million of charges in Cost of sales in the Company's condensed consolidated statements of operations. Included in the $7 million were charges of $8 million related to employee separation costs, partially offset by $1 million of reversals for accruals no longer needed.

During the nine months ended October 1, 2016, the Company recorded net reorganization of business charges of $74 million including $48 million of charges in Other charges and $26 million of charges in Cost of sales in the Company's condensed consolidated statements of operations. Included in the $74 million were charges of: (i) $54 million related to employee separation costs, (ii) $20 million for impairments, including $17 million for a building impairment and $3 million for the impairment of the corporate aircraft, and (iii) $5 million for exit costs, partially offset by $5 million of reversals for accruals no longer needed.

The following table displays the net charges incurred by segment:



October 1, 2016	Three Months Ended		Nine Months Ended
Products	$	5	$	59
Services	2