Motorola Solutions Reports Fourth-Quarter and Full-Year Financial Results

Motorola Solutions, Inc. (NYSE: MSI) today reported its earnings results for the fourth quarter and full-year 2018. Click here for a printable news release and financial tables.

From strong organic revenue growth and cash generation to record EPS and backlog, we delivered an outstanding 2018, capped by an excellent fourth quarter, said Greg Brown, chairman and CEO, Motorola Solutions.

KEY FINANCIAL RESULTS (presented in millions, except per share data and percentages)

         
    Fourth Quarter   Full Year
    Q4 2018   Q4 2017   % Change   2018   2017   % Change
Sales   $2,254   $1,957   15 %   $7,343   $6,380   15 %
GAAP            
Operating Earnings $516 $503 3 % $1,255 $1,284

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%

% of Sales 22.9 % 25.7 % 17.1 % 20.1 %
EPS   $2.44   ($3.56)   N/M**   $5.62   ($0.95)   N/M
Non-GAAP
Operating Earnings $650 $566 15 % $1,740 $1,506 16 %
% of Sales 28.8 % 28.9 % 23.7 % 23.6 %
EPS   $2.63   $2.10   25 %   $7.15   $5.46   31 %
Products and Systems Integration Segment
Sales $1,670 $1,437 16 % $5,100 $4,513 13 %
GAAP Operating Earnings $405 $416

(3)

%

$854 $969

(12)

%

% of Sales 24.3 % 28.9 % 16.7 % 21.5 %
Non-GAAP Operating Earnings $483 $435 11 % $1,109 $1,026 8 %
% of Sales   28.9 %   30.3 %       21.7 %   22.7 %    
Services and Software Segment
Sales $584 $520 12 % $2,243 $1,867 20 %
GAAP Operating Earnings $111 $87 28 % $401 $315 27 %
% of Sales 19.0 % 16.7 % 17.9 % 16.9 %
Non-GAAP Operating Earnings $167 $131 27 % $631 $480 31 %
% of Sales   28.6 %   25.2 %       28.1 %   25.7 %    

*Q4 Non-GAAP EPS financial information excludes the after-tax impact of approximately $0.19 per diluted share related to share-based compensation, intangible assets amortization expense and highlighted items. Details on these non-GAAP adjustments and the use of non-GAAP measures are included later in this news release.

** N/M = Percent change is not meaningful due to the prior year net loss related to tax reform

OTHER SELECT FOURTH-QUARTER FINANCIAL RESULTS

  • Revenue Fourth-quarter sales were $2.3 billion, up $297 million, or 15 percent from the year-ago quarter, driven by growth in the Americas and EMEA. Approximately $159 million was related to acquisitions, and $25 million was related to the adoption of ASC 606. The Products and Systems Integration segment grew 16 percent driven by the Americas and EMEA. The Services and Software segment grew 12 percent with growth in all regions.
  • Operating margin GAAP operating margin was 22.9 percent of sales, compared with 25.7 percent in the year-ago quarter. The decline was primarily due to costs related to the closure of certain supply chain operations in Europe and acquisition-related operating expenses. Non-GAAP operating margin was 28.8 percent of sales, compared with 28.9 percent in the year-ago quarter. Higher gross margins were offset by higher operating expenses related to acquisitions.
  • Taxes – The GAAP effective tax rate was 8.8 percent, compared with 223.4 percent in the year-ago quarter. The non-GAAP effective tax rate was 23.5 percent compared with 32.8 percent in the year-ago quarter. Both tax rates for the fourth quarter of 2018 were favorably affected by the ongoing rate reduction and by other provisional adjustments as a result of the U.S. Tax Cuts and Jobs Act of 2017.
  • Cash flow Operating cash flow was $812 million, compared with $761 million of operating cash generated in the year-ago quarter driven primarily by higher earnings. Free cash flow was $743 million, compared with $740 million in the year-ago quarter on higher earnings partially offset by higher capital expenditures related primarily to the Airwave extension.
  • Capital allocation The company paid $85 million in cash dividends, repurchased $66 million of common stock and repaid the remaining $100 million on the revolving credit facility.
  • Backlog The company ended the quarter with backlog of $10.6 billion, up $988 million from the year-ago quarter inclusive of a $205 million unfavorable currency change. Services and Software backlog was up 18 percent or $1.1 billion primarily due to growth in the Americas and the Airwave contract extension through the end of 2022. Products and Systems Integration backlog was down $116 million primarily on two large system deployments in the Middle East and Africa. Products and System Integration backlog grew in the Americas and AP.

OTHER SELECT FULL-YEAR FINANCIAL RESULTS

  • Revenue Full-year sales were $7.3 billion, up $963 million, or 15 percent driven by growth in the Americas and EMEA. Approximately $507 million of revenue growth was related to acquisitions, and $83 million was related to the adoption of ASC 606. The Products and Systems Integration segment grew 13 percent driven by the Americas and EMEA. The Services and Software segment grew 20 percent with growth in all regions.
  • Operating margin GAAP operating margin was 17.1 percent of sales, compared with 20.1 percent in the prior year driven primarily by costs related to the closure of certain supply chain operations in Europe, an increase to an existing environmental reserve related to a legacy business and higher expenses related to acquisitions. Non-GAAP operating margin was 23.7 percent of sales, compared with 23.6 percent in the prior year due to higher revenue and gross margin partially offset by higher operating expenses related to acquisitions.
  • Taxes – The GAAP effective tax rate was 12.0 percent, compared with 114.1 percent in 2017. The Non-GAAP effective tax rate was 21.7 percent compared with 31.0 percent in the previous year. Both the tax rates for the full year 2018 were favorably affected primarily by the ongoing rate reduction and by other provisional adjustments as a result of the U.S. Tax Cuts and Jobs Act of 2017.
  • Cash flow Operating cash flow was $1.1 billion, compared with $1.3 billion in the prior year. Excluding the voluntary $500 million debt funded U.S. pension contribution in Q1, operating cash flow was $1.575 billion. Free cash flow was $878 million, compared with $1.1 billion in the prior year. Excluding the U.S. pension contribution in Q1, free cash flow was $1.4 billion. The higher cash flow, excluding the U.S. pension contribution, was driven primarily by higher earnings.
  • Capital allocation The company repurchased $132 million of its common stock, paid $337 million in cash dividends and invested $1.2 billion in acquisitions. From a financing perspective, the company issued $500 million in senior unsecured debt to make a $500 million voluntary contribution to the U.S. pension plan in Q1. Additionally, the company entered into a $400 million term loan and borrowed $400 million under the revolving credit facility to complete the Avigilon acquisition in Q1. The revolving credit facility was paid off throughout the year. The company also repurchased 20 percent of the Silver Lake convertible notes for $369 million in Q3, of which $200 million of principal was repaid with new senior unsecured debt in Q4.

KEY HIGHLIGHTS

Services and Software wins

  • $1.1 billion contract extension through 2022 for the Airwave network in the U.K.
  • $71 million services award from Maricopa County, Arizona
  • $26 million Next Gen 911 Core Services contract in North America
  • $16 million services award in Australia

Products and Systems Integration wins

  • $47 million P25 order with Snohomish County, Washington
  • $24 million P25 order with Ingham County, Michigan
  • $16 million P25 order with Riverside County, California

BUSINESS OUTLOOK

  • First-quarter 2019 – Motorola Solutions expects revenue growth of approximately 11 percent compared with the first quarter of 2018. The company expects non-GAAP earnings in the range of $1.11 to $1.16 per share. This assumes current foreign exchange rates, approximately 174 million fully diluted shares and a 25 percent effective tax rate.
  • Full-year 2019 – The company expects revenue growth of approximately 6 to 7 percent and non-GAAP earnings per share in the range of $7.55 to $7.70. This assumes current foreign exchange rates, approximately 175 million fully diluted shares and a 25 percent effective tax rate.

CONFERENCE CALL AND WEBCAST Motorola Solutions will host its quarterly conference call beginning at 4 p.m. U.S. Central Standard Time (5 p.m. U.S. Eastern Standard Time) on Thursday, Feb. 7. The conference call will be webcast live at www.motorolasolutions.com/investor.

CONSOLIDATED GAAP RESULTS (presented in millions, except per share data) A comparison of results from operations is as follows:

           
  Fourth Quarter     Full Year
    2018   2017     2018   2017
Net sales   $2,254   $1,957     $7,343   $6,380
Gross margin $1,088   $970 $3,480   $3,024
Operating earnings   $516   $503     $1,255   $1,284
Amounts attributable to Motorola Solutions, Inc. common stockholders
Net earnings (loss) 423 (575) 966 (155)
Diluted EPS $2.44 ($3.56) $5.62 ($0.95)
Weighted average diluted common shares outstanding   173.4   161.7     172.0   162.9

HIGHLIGHTED ITEMS AND SHARE-BASED COMPENSATION EXPENSE The table below includes highlighted items, share-based compensation expense and intangible amortization for the fourth quarter of 2018.

       
(per diluted common share)   Q4 2018  
 
GAAP Earnings   $2.44  
Highlighted Items:
Share-based compensation expense 0.09
Reorganization of business charges 0.25
Intangibles amortization expense 0.22
Asset impairment 0.01
Acquisition-related transaction fees 0.03
Fair value adjustments to equity investments (0.02 )
Investment impairments 0.02
FIN 48 reserve, valuation allowance, and other (0.03 )
Adjustments to the provisional tax expense as a result of the tax reform   (0.38 )
Non-GAAP Diluted EPS   $2.63  

USE OF NON-GAAP FINANCIAL INFORMATION

In addition to the GAAP results included in this presentation, Motorola Solutions also has included non-GAAP measurements of results. The company has provided these non-GAAP measurements to help investors better understand its core operating performance, enhance comparisons of core operating performance from period-to-period and allow better comparisons of operating performance to its competitors. Among other things, management uses these operating results, excluding the identified items, to evaluate performance of the businesses and to evaluate results relative to certain incentive compensation targets. Management uses operating results excluding these items because it believes this measurement enables it to make better period-to-period evaluations of the financial performance of core business operations. The non-GAAP measurements are intended only as a supplement to the comparable GAAP measurements and the company compensates for the limitations inherent in the use of non-GAAP measurements by using GAAP measures in conjunction with the non-GAAP measurements. As a result, investors should consider these non-GAAP measurements in addition to, and not in substitution for or as superior to, measurements of financial performance prepared in accordance with generally accepted accounting principles.

Highlighted items: The company has excluded the effects of highlighted items including, but not limited to, acquisition-related transaction costs, asset impairments, reorganization of business charges, non-cash pension adjustments, significant litigation and other contingencies, significant gains and losses on investments, and the income tax effects of significant tax matters, from its non-GAAP operating expenses and net income measurements because the company believes that these historical items do not reflect expected future operating earnings or expenses and do not contribute to a meaningful evaluation of the company’s current operating performance or comparisons to the company’s past operating performance. For the purposes of management’s internal analysis over operating performance, the company uses financial statements that exclude highlighted items, as these charges do not contribute to a meaningful evaluation of the company’s current operating performance or comparisons to the company’s past operating performance.

Share-based compensation expense: The company has excluded share-based compensation expense from its non-GAAP operating expenses and net income measurements. Although share-based compensation is a key incentive offered to the companys employees and the company believes such compensation contributed to the revenue earned during the periods presented and also believes it will contribute to the generation of future period revenues, the company continues to evaluate its performance excluding share-based compensation expense primarily because it represents a significant non-cash expense. Share-based compensation expense will recur in future periods.

Intangible assets amortization expense: The company has excluded intangible assets amortization expense from its non-GAAP operating expenses and net earnings measurements, primarily because it represents a non-cash expense and because the company evaluates its performance excluding intangible assets amortization expense. Amortization of intangible assets is consistent in amount and frequency but is significantly affected by the timing and size of the companys acquisitions. Investors should note that the use of intangible assets contributed to the companys revenues earned during the periods presented and will contribute to the companys future period revenues as well. Intangible assets amortization expense will recur in future periods.

Adjusted operating cash flow: Adjusted operating cash flow information reflects operating cash flow under GAAP excluding a $500 million voluntary, debt-funded U.S. pension contribution in the first quarter 2018. The Company has excluded the impact of this contribution because the company believes that this item does not reflect expected future operating cash flows and does not contribute to a meaningful evaluation of the company’s current operating cash flow performance or comparisons to the company’s past operating cash flow performance.

Free cash flow: Free cash flow represents operating cash flow less capital expenditures. We believe that free cash flow is also useful to investors as the basis for comparing our performance and coverage ratios with other companies in our industries, although our measure of free cash flow may not be directly comparable to similar measures used by other companies

Organic Revenue: Organic revenue reflects net sales calculated under GAAP excluding net sales from acquired business owned for less than four full quarters and excluding the effects of ASC 606. The Company believes non-GAAP organic revenue growth provides useful information for evaluating the periodic growth of the business on a consistent basis and provides for a meaningful period-to-period comparison and analysis of trends in the business.

Details of the above items and reconciliations of the non-GAAP measurements to the corresponding GAAP measurements can be found at the end of this press release.

BUSINESS RISKS

This news release contains “forward-looking statements” within the meaning of applicable federal securities law. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as believes, expects, intends, anticipates, estimates and similar expressions. The company can give no assurance that any actual or future results or events discussed in these statements will be achieved. Any forward-looking statements represent the companys views only as of today and should not be relied upon as representing the companys views as of any subsequent date. Readers are cautioned that such forward-looking statements are subject to a variety of risks and uncertainties that could cause the companys actual results to differ materially from the statements contained in this release. Such forward-looking statements include, but are not limited to, Motorola Solutions financial outlook for the first quarter and full year of 2019. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 8 through 20 in Item 1A of Motorola Solutions 2017 Annual Report on Form 10-K and in its other SEC filings available for free on the SECs website at www.sec.gov and on Motorola Solutions website at www.motorolasolutions.com, could cause Motorola Solutions actual results to differ materially from those estimated or predicted in the forward-looking statements. Many of these risks and uncertainties cannot be controlled by Motorola Solutions, and factors that may impact forward-looking statements include, but are not limited to: (1) the economic outlook for the government communications industry; (2) the impact of foreign currency fluctuations on the company; (3) the level of demand for the company’s products; (4) the company’s ability to refresh existing and introduce new products and technologies in a timely manner; (5) exposure under large systems and managed services contracts, including risks related to the fact that certain customers require that the company build, own and operate their systems, often over a multi-year period; (6) negative impact on the company’s business from global economic and political conditions, which may include: (i) continued deferment or cancellation of purchase orders by customers; (ii) the inability of customers to obtain financing for purchases of the company’s products; (iii) increased demand to provide vendor financing to customers; (iv) increased financial pressures on third-party dealers, distributors and retailers; (v) the viability of the company’s suppliers that may no longer have access to necessary financing; (vi) counterparty failures negatively impacting the companys financial position; (vii) changes in the value of investments held by the company’s pension plan and other defined benefit plans, which could impact future required or voluntary pension contributions; and (viii) the companys ability to access the capital markets on acceptable terms and conditions; (7) the impact of a security breach or other significant disruption in the companys IT systems, those of its partners or suppliers or those it sells to or operates or maintains for its customers; (8) the outcome of ongoing and future tax matters; (9) the company’s ability to purchase sufficient materials, parts and components to meet customer demand, particularly in light of global economic conditions and reductions in the companys purchasing power; (10) risks related to dependence on certain key suppliers, subcontractors, third-party distributors and other representatives; (11) the impact on the company’s performance and financial results from strategic acquisitions or divestitures; (12) risks related to the company’s manufacturing and business operations in foreign countries; (13) the creditworthiness of the company’s customers and distributors, particularly purchasers of large infrastructure systems; (14) the ownership of certain logos, trademarks, trade names and service marks including MOTOROLA by Motorola Mobility Holdings, Inc.; (15) variability in income received from licensing the company’s intellectual property to others, as well as expenses incurred when the company licenses intellectual property from others; (16) unexpected liabilities or expenses, including unfavorable outcomes to any pending or future litigation or regulatory or similar proceedings; (17) the impact of the percentage of cash and cash equivalents held outside of the United States; (18) the ability of the company to pay future dividends due to possible adverse market conditions or adverse impacts on the companys cash flow; (19) the ability of the company to complete acquisitions or repurchase shares under its repurchase program due to possible adverse market conditions or adverse impacts on the companys cash flow; (20) the impact of changes in governmental policies, laws or regulations; (21) negative consequences from the company’s use of third party vendors for various activities, including certain manufacturing operations, information technology and administrative functions; and (22) the companys ability to settle the par value of its Senior Convertible Notes in cash. Motorola Solutions undertakes no obligation to publicly update any forward-looking statement or risk factor, whether as a result of new information, future events or otherwise

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions is a global leader in mission-critical communications. Our technology platforms in communications, software, video and services make cities safer and help communities and businesses thrive. At Motorola Solutions, we are ushering in a new era in public safety and security. Learn more at www.motorolasolutions.com.

MOTOROLA, MOTOROLA SOLUTIONS and the Stylized M Logo are trademarks or registered trademarks of Motorola Trademark Holdings, LLC and are used under license. All other trademarks are the property of their respective owners. 2019 Motorola Solutions, Inc. All rights reserved.

    GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
     
Three Months Ended
December 31, 2018 December 31, 2017
Net sales from products $ 1,470 $ 1,233
Net sales from services   784     724  
Net sales 2,254 1,957
 
Costs of products sales 652 519
Costs of services sales   514     468  
Costs of sales 1,166 987
   
Gross margin   1,088     970  
 
Selling, general and administrative expenses 337 267
Research and development expenditures 165 154
Other charges 22 7
Intangibles amortization   48     39  
Operating earnings   516     503  
 
Other income (expense):
Interest expense, net (59 ) (47 )
Other   7     9  
Total other expense   (52 )   (38 )
Net earnings before income taxes 464 465
Income tax expense   40     1,039  
Net earnings (loss) 424 (574 )
 
Less: Earnings attributable to noncontrolling interests   1     1  
Net earnings (loss) attributable to Motorola Solutions, Inc. $ 423   $ (575 )
 

Earnings (loss) per common share:

Basic: $ 2.58 $ (3.56 )
Diluted: $ 2.44 $ (3.56 )

Weighted average common shares outstanding:

Basic 163.5 161.7
Diluted   173.4     161.7  
     
Percentage of Net Sales*
Net sales from products 65.2 % 63.0 %
Net sales from services   34.8 %   37.0 %
Net sales 100.0 % 100.0 %
 
Costs of products sales 44.4 % 42.1 %
Costs of services sales   65.6 %   64.6 %
Costs of sales 51.7 % 50.4 %
   
Gross margin   48.3 %   49.6 %
 
Selling, general and administrative expenses 15.0 % 13.6 %
Research and development expenditures 7.3 % 7.9 %
Other charges 1.0 % 0.4 %
Intangibles amortization   2.1 %   2.0 %
Operating earnings   22.9 %   25.7 %
 
Other income (expense):
Interest expense, net (2.6 )% (2.4 )%
Other   0.3 %   0.5 %
Total other expense   (2.3 )%   (1.9 )%
Net earnings before income taxes 20.6 % 23.8 %
Income tax expense   1.8 %   53.1 %
Net earnings (loss) 18.8 % (29.3 )%
 
Less: Earnings attributable to noncontrolling interests   %   0.1 %
Net earnings (loss) attributable to Motorola Solutions, Inc.   18.8 %   (29.4 )%
* Percentages may not add up due to rounding
      GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share amounts)
         
Years Ended
December 31, 2018 December 31, 2017 December 31, 2016
Net sales from products $ 4,463 $ 3,772 $ 3,649
Net sales from services   2,880     2,608     2,389  
Net sales 7,343 6,380 6,038
 
Costs of products sales 2,035 1,686 1,649
Costs of services sales   1,828     1,670     1,520  
Costs of sales 3,863 3,356 3,169
     
Gross margin   3,480     3,024     2,869  
 
Selling, general and administrative expenses 1,254 1,025 1,044
Research and development expenditures 637 568 553
Other charges (income) 146 (4 ) 111
Intangibles amortization   188     151     113  
Operating earnings   1,255     1,284     1,048  
 
Other income (expense):
Interest expense, net (222 ) (201 ) (205 )
Gains (losses) on sales of investments and businesses, net 16 3 (6 )
Other   53     (10 )   7  
Total other expense   (153 )   (208 )   (204 )
Net earnings before income taxes 1,102 1,076 844
Income tax expense   133     1,227     282  
Net earnings (loss) 969 (151 ) 562
 
Less: Earnings attributable to noncontrolling interests   3     4     2  
Net earnings (loss) attributable to Motorola Solutions, Inc. $ 966   $ (155 ) $ 560  
 

Earnings (loss) per common share:

Basic: $ 5.95 $ (0.95 ) $ 3.30
Diluted: $ 5.62 $ (0.95 ) $ 3.24

Weighted average common shares outstanding:

Basic 162.4 162.9 169.6
Diluted   172.0     162.9     173.1  
         
Percentage of Net Sales*
Net sales from products 60.8 % 59.1 % 60.4 %
Net sales from services   39.2 %   40.9 %   39.6 %
Net sales 100.0 % 100.0 % 100.0 %
 
Costs of products sales 45.6 % 44.7 % 45.2 %
Costs of services sales   63.5 %   64.0 %   63.6 %
Costs of sales 52.6 % 52.6 % 52.5 %
     
Gross margin   47.4 %   47.4 %   47.5 %
 
Selling, general and administrative expenses 17.1 % 16.1 % 17.3 %
Research and development expenditures 8.7 % 8.9 % 9.2 %
Other charges 2.0 % (0.1 )% 1.8 %
Intangibles amortization   2.6 %   2.4 %   1.9 %
Operating earnings   17.1 %   20.1 %   17.4 %
 
Other income (expense):
Interest expense, net (3.0 )% (3.2 )% (3.4 )%
Gains (losses) on sales of investments and businesses, net 0.2 % % (0.1 )%
Other   0.7 %   (0.2 )%   0.1 %
Total other expense   (2.1 )%   (3.3 )%   (3.4 )%
Net earnings before income taxes 15.0 % 16.9 % 14.0 %
Income tax expense   1.8 %   19.2 %   4.7 %
Net earnings (loss)   13.2 %   (2.4 )%   9.3 %
 
Less: Earnings attributable to noncontrolling interests % 0.1 % %
Net earnings (loss) attributable to Motorola Solutions, Inc.   13.2 %   (2.4 )%   9.3 %
* Percentages may not add up due to rounding
    GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions)
   
December 31, 2018 December 31, 2017
Assets
Cash and cash equivalents $ 1,246 $ 1,205
Restricted cash   11     63  
Total cash and cash equivalents 1,257 1,268
Accounts receivable, net   1,293     1,523  
Contract assets 1,012
Inventories, net 356 327
Other current assets   354     832  
Total current assets   4,272     3,950  
 
Property, plant and equipment, net 895 856
Investments 169 247
Deferred income taxes 985 1,023
Goodwill 1,514 938
Intangible assets 1,230 861
Other assets   344     333  
Total assets $ 9,409   $ 8,208  
 
Liabilities and Stockholders’ Equity
Current portion of long-term debt $ 31 $ 52
Accounts payable 592 593
Contract liabilities 1,263
Accrued liabilities   1,210     2,286  
Total current liabilities   3,096     2,931  
 
Long-term debt 5,289 4,419
Other liabilities 2,300 2,585
 
Total Motorola Solutions, Inc. stockholders equity (deficit) (1,293 ) (1,742 )
 
Noncontrolling interests   17     15  
Total liabilities and stockholders equity $ 9,409   $ 8,208  
    GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
     
Three Months Ended
December 31, 2018 December 31, 2017
Operating
Net earnings (loss) attributable to Motorola Solutions, Inc. $ 423 $ (575 )
Earnings attributable to noncontrolling interests   1     1  
Net earnings (loss) 424 (574 )
Adjustments to reconcile Net earnings (loss) to Net cash provided by operating activities:
Depreciation and amortization 93 89
Non-cash other charges 3
Non-U.S. pension settlement loss 2
Share-based compensation expense 20 17
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable (124 ) (141 )
Inventories 10 37
Other current assets and contract assets (114 ) 42
Accounts payable, accrued liabilities, and contract liabilities 441 338
Other assets and liabilities 72 (54 )
Deferred income taxes   (10 )   1,002  
Net cash provided by operating activities   812     761  
Investing
Acquisitions and investments, net (6 ) (21 )
Proceeds from sales of investments 5 9
Capital expenditures   (69 )   (21 )
Net cash used for investing activities   (70 )   (33 )
Financing
Repayment of debt (311 ) (7 )
Net proceeds from issuance of debt 195 3
Issuance of common stock 29 21
Purchase of common stock (66 ) (125 )
Payment of dividends (85 ) (76 )
Deferred acquisition costs   (76 )   (2 )
Net cash used for financing activities   (314 )   (186 )
   
Effect of exchange rate changes on cash, cash equivalents, and restricted cash   (22 )   9  
Net increase in cash and cash equivalents 406 551
Cash, cash equivalents, and restricted cash, beginning of period   851     717  
Cash, cash equivalents, and restricted cash, end of period $ 1,257   $ 1,268  
 
Financial Ratios:
Free cash flow* $ 743 $ 740
 
*Free cash flow = Net cash provided by operating activities – Capital Expenditures
      GAAP-5
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
         
Years Ended
December 31, 2018 December 31, 2017 December 31, 2016
Operating
Net earnings (loss) attributable to Motorola Solutions, Inc. $ 966 $ (155 ) $ 560
Earnings attributable to noncontrolling interests   3     4     2  
Net earnings (loss) 969 (151 ) 562
Adjustments to reconcile Net earnings (loss) to Net cash provided by operating activities:
Depreciation and amortization 360 343 295
Non-cash other charges 56 32 54
Non-U.S. pension settlement loss 48 26
Share-based compensation expense 73 66 68
Loss (gains) on sales of investments and businesses, net (16 ) (3 ) 6
Loss (gain) from the extinguishment of long term debt (6 ) 2
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable 62 (60 ) (6 )
Inventories 71 (46 ) 6
Other current assets and contract assets (251 ) (99 ) (185 )
Accounts payable, accrued liabilities, and contract liabilities 271 160 241
Other assets and liabilities (523 ) (44 ) (117 )
Deferred income taxes   9     1,100     213  
Net cash provided by operating activities   1,075     1,346     1,165  
Investing
Acquisitions and investments, net (1,164 ) (404 ) (1,474 )
Proceeds from sales of investments 95 183 670
Capital expenditures (197 ) (227 ) (271 )
Proceeds from sales of property, plant and equipment           73  
Net cash used for investing activities   (1,266 )   (448 )   (1,002 )
Financing
Repayment of debt (723 ) (21 ) (686 )
Net proceeds from issuance of debt 1,490 10 673
Issuance of common stock 168 82 93
Purchase of common stock (132 ) (483 ) (842 )
Payment of dividends (337 ) (307 ) (280 )
Payment of dividends to non-controlling interest (1 ) (1 )

Settlement of conversion premium on convertible debt

(169 )
Deferred acquisition costs   (76 )   (2 )    
Net cash provided by (used for) financing activities   220     (722 )   (1,042 )
     
Effect of exchange rate changes on cash, cash equivalents, and restricted cash   (40 )   62     (71 )
Net increase (decrease) in cash, cash equivalents, and restricted cash (11 ) 238 (950 )
Cash, cash equivalents, and restricted cash, beginning of period   1,268     1,030     1,980  
Cash, cash equivalents, and restricted cash, end of period $ 1,257   $ 1,268   $ 1,030  
 
Financial Ratios:
Free cash flow* $ 878 $ 1,119 $ 894
 
*Free cash flow = Net cash provided by operating activities – Capital Expenditures
      GAAP-6
Motorola Solutions, Inc. and Subsidiaries
Segment Information
(In millions)
               
Net Sales
     
Three Months Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 1,670 $ 1,437 16 %
Services and Software   584     520   12 %
Total Motorola Solutions $ 2,254   $ 1,957   15 %
     
Years Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 5,100 $ 4,513 13 %
Services and Software   2,243     1,867   20 %
Total Motorola Solutions $ 7,343   $ 6,380   15 %
               
Operating Earnings
     
Three Months Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 405 $ 416 (3 )%
Services and Software   111     87   28 %
Total Motorola Solutions $ 516   $ 503   3 %
     
Years Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 854 $ 969 (12 )%
Services and Software   401     315   27 %
Total Motorola Solutions $ 1,255   $ 1,284   (2 )%
 
 
               
Operating Earnings %
     
Three Months Ended
   
December 31, 2018 December 31, 2017
Products and Systems Integration 24.3 % 28.9 %
Services and Software 19.0 % 16.7 %
Total Motorola Solutions   22.9 %   25.7 %
     
Years Ended
   
December 31, 2018 December 31, 2017
Products and Systems Integration 16.7 % 21.5 %
Services and Software 17.9 % 16.9 %
Total Motorola Solutions   17.1 %   20.1 %

 

          Non-GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Adjustments (Intangibles Amortization Expense, Share-Based Compensation Expense, and Highlighted Items)
                     
Q1 2018
 
PBT Tax PAT
Non-GAAP Adjustments Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact
 
Share-based compensation expense Cost of sales, SG&A and R&D $ 17 $ 4 $ 13 $ 0.08
Reorganization of business charges Cost of sales and Other charges 13 3 10 0.06
Intangibles amortization expense Intangibles amortization 41 8 33 0.19
Loss on legal settlements Other charges 1 1 0.01
Loss on derivative instruments related to Avigilon purchase Other expense 14 4 10 0.06
Release of FIN 48 reserve Income tax expense 1 (1 ) (0.01 )
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net (11 ) (3 ) (8 ) (0.05 )
Acquisition-related transaction fees Other charges 17 5 12 0.07
       
Total impact on Net earnings $ 92 $ 22 $ 70 $ 0.41
                     
Q2 2018
 
PBT Tax PAT
Non-GAAP Adjustments Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact
 
Share-based compensation expense Cost of sales, SG&A and R&D $ 17 $ 4 $ 13 $ 0.08
Reorganization of business charges Cost of sales and Other charges 25 6 19 0.10
Intangibles amortization expense Intangibles amortization 53 12 41 0.23
Avigilon purchase accounting adjustment Cost of sales 10 3 7 0.04
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net 1 1 0.01
Loss on foreign currency related to Avigilon purchase Other expense 1 1 0.01
FIN 48 reserve Income tax expense (1 ) 1 0.01
State audit settlement Income tax expense 12 (12 ) (0.07 )
       
Total impact on Net earnings $ 107 $ 36 $ 71 $ 0.41
                     
Q3 2018
 
PBT Tax PAT
Non-GAAP Adjustments Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact
 
Share-based compensation expense Cost of sales, SG&A and R&D $ 19 $ 5 $ 14 $ 0.08
Reorganization of business charges Cost of sales and Other charges 25 6 19 0.11
Intangibles amortization expense Intangibles amortization 46 10 36 0.21
Avigilon purchase accounting adjustment Cost of sales 9 2 7 0.04
Gain from the extinguishment of convertible debt Other income (6 ) (6 ) (0.03 )
Fair value adjustments to equity investments Other income (7 ) (2 ) (5 ) (0.03 )
Loss on legal settlement Other charges 2 1 1 0.01
Environmental reserve expense Other charges 57 14 43 0.25
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net (6 ) (1 ) (5 ) (0.03 )
Return-to-provision adjustments as related to federal tax reform Income tax expense 16 (16 ) (0.10 )
       
Total impact on Net earnings $ 139 $ 51 $ 88 $ 0.51
                     
Q4 2018
 
PBT Tax PAT
Non-GAAP Adjustments Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact
 
Share-based compensation expense Cost of sales, SG&A and R&D $ 20 $ 5 $ 15 $ 0.09
Reorganization of business charges Cost of sales and Other charges 58 13 45 0.25
Intangibles amortization expense Intangibles amortization 48 10 38 0.22
Asset impairment Other charges 1 1 0.01
Acquisition-related transaction fees Other charges 7 1 6 0.03
Fair value adjustments to equity investments Other income (4 ) (1 ) (3 ) (0.02 )
Investment impairments Investment impairments 5 1 4 0.02
FIN 48 reserve, valuation allowance, and other Income tax expense 6 (6 ) (0.03 )
Adjustments to the provisional tax expense as a result of the tax reform Income tax expense 65 (65 ) (0.38 )
       
Total impact on Net earnings $ 135 $ 100 $ 35 $ 0.19
                     
FY 2018
 
PBT Tax PAT
Non-GAAP Adjustments Statement Line (Inc)/Exp Inc/(Exp) (Inc)/Exp EPS impact
 
Share-based compensation expense Cost of sales, SG&A and R&D $ 73 $ 18 $ 55 $ 0.32
Reorganization of business charges Cost of sales and Other charges 120 28 92 0.53
Avigilon purchase accounting adjustment Cost of sales 19 5 14 0.08
Intangibles amortization expense Intangibles amortization 188 40 148 0.86
Loss on legal settlements Other charges 3 1 2 0.01
Loss on derivative instruments related to Avigilon purchase Other expense 14 4 10 0.06
Gain from the extinguishment of convertible debt Other income (6 ) (6 ) (0.03 )
Sale of investments (Gain) or Loss on Sales of Investments and Businesses, net (16 ) (4 ) (12 ) (0.07 )
Acquisition-related transaction fees Other charges 24 6 18 0.10
Fair value adjustments to equity investments Other income (11 ) (3 ) (8 ) (0.05 )
Loss on foreign currency related to Avigilon purchase Other expense 2 2 0.01
Asset impairment Other charges 1 1 0.01
Environmental reserve expense Other charges 57 14 43 0.25
Investment impairments Investment impairments 5 1 4 0.02
FIN 48 reserve, valuation allowance, and other Income tax expense 18 (18 ) (0.10 )
Adjustments to the provisional tax expense as a result of the tax reform Income tax expense 81 (81 ) (0.47 )
       
Total impact on Net earnings $ 473 $ 209 $ 264 $ 1.53
      Non-GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Segment Information
(In millions)
               
Net Sales
     
Three Months Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 1,670 $ 1,437 16 %
Services and Software   584     520   12 %
Total Motorola Solutions $ 2,254   $ 1,957   15 %
     
Years Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 5,100 $ 4,513 13 %
Services and Software   2,243     1,867   20 %
Total Motorola Solutions $ 7,343   $ 6,380   15 %
 
               
Non-GAAP Operating Earnings
     
Three Months Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 483 $ 435 11 %
Services and Software   167     131   27 %
Total Motorola Solutions $ 650   $ 566   15 %
     
Years Ended
     
December 31, 2018 December 31, 2017 % Change
Products and Systems Integration $ 1,109 $ 1,026 8 %
Services and Software   631     480   31 %
Total Motorola Solutions $ 1,740   $ 1,506   16 %
 
               
Non-GAAP Operating Earnings %
     
Three Months Ended
   
December 31, 2018 December 31, 2017
Products and Systems Integration 28.9 % 30.3 %
Services and Software 28.6 % 25.2 %
Total Motorola Solutions   28.8 %   28.9 %
     
Years Ended
   
December 31, 2018 December 31, 2017
Products and Systems Integration 21.7 % 22.7 %
Services and Software 28.1 % 25.7 %
Total Motorola Solutions   23.7 %   23.6 %
      Non-GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Operating Earnings after Non-GAAP Adjustments
             
Q1 2018
     
Products and Systems
    TOTAL Integration Services and Software
Net sales $ 1,468 $ 952 $ 516
Operating earnings (“OE”)   $ 171   $ 90   $ 81  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 12 5
Reorganization of business charges 13 9 4
Intangibles amortization expense 41 1 40
Acquisition-related transaction fees 17 12 5
Loss on legal settlements   1     1      
Total above-OE non-GAAP adjustments 89 35 54
         
Operating earnings after non-GAAP adjustments   $ 260   $ 125   $ 135  
     
Operating earnings as a percentage of net sales – GAAP 11.6 % 9.5 % 15.7 %
Operating earnings as a percentage of net sales – after non-GAAP adjustments   17.7 %   13.1 %   26.2 %
             
Q2 2018
     
Products and Systems
    TOTAL Integration Services and Software
Net sales $ 1,760 $ 1,189 $ 571
Operating earnings (“OE”)   $ 273   $ 175   $ 98  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 12 5
Reorganization of business charges 25 19 6
Intangibles amortization expense 53 10 43
Avigilon purchase accounting adjustment   10     10      
Total above-OE non-GAAP adjustments 105 51 54
         
Operating earnings after non-GAAP adjustments   $ 378   $ 226   $ 152  
     
Operating earnings as a percentage of net sales – GAAP 15.5 % 14.7 % 17.2 %
Operating earnings as a percentage of net sales – after non-GAAP adjustments   21.5 %   19.0 %   26.6 %
             
Q3 2018
     
Products and Systems
    TOTAL Integration Services and Software
Net sales $ 1,862 $ 1,288 $ 574
Operating earnings (“OE”)   $ 294   $ 183   $ 111  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 19 13 6
Reorganization of business charges 25 19 6
Intangibles amortization expense 46 11 35
Avigilon purchase accounting adjustment 9 9
Loss on legal settlement 2 1 1
Environmental reserve expense   57     40     17  
Total above-OE non-GAAP adjustments 158 93 65
         
Operating earnings after non-GAAP adjustments   $ 452   $ 276   $ 176  
     
Operating earnings as a percentage of net sales – GAAP 15.8 % 14.2 % 19.3 %
Operating earnings as a percentage of net sales – after non-GAAP adjustments   24.3 %   21.4 %   30.7 %
             
Q4 2018
     
Products and Systems
    TOTAL Integration Services and Software
Net sales $ 2,254 $ 1,670 $ 584
Operating earnings (“OE”)   $ 516   $ 405   $ 111  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 20 14 6
Reorganization of business charges 58 53 5
Intangibles amortization expense 48 11 37
Asset impairment 1 1
Acquisition-related transaction fees   7         7  
Total above-OE non-GAAP adjustments 134 78 56
         
Operating earnings after non-GAAP adjustments   $ 650   $ 483   $ 167  
     
Operating earnings as a percentage of net sales – GAAP 22.9 % 24.3 % 19.0 %
Operating earnings as a percentage of net sales – after non-GAAP adjustments   28.8 %   28.9 %   28.6 %
             
FY 2018
     
Products and Systems
    TOTAL Integration Services and Software
Net sales $ 7,343 $ 5,100 $ 2,243
Operating earnings (“OE”)   $ 1,255   $ 854   $ 401  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 73 50 23
Reorganization of business charges 120 101 19
Intangibles amortization expense 188 31 157
Environmental reserve expense 57 40 17
Acquisition-related transaction fees 24 12 12
Asset impairment 1 1
Avigilon purchase accounting adjustment 19 19
Loss on legal settlements   3     2     1  
Total above-OE non-GAAP adjustments 485 255 230
         
Operating earnings after non-GAAP adjustments   $ 1,740   $ 1,109   $ 631  
     
Operating earnings as a percentage of net sales – GAAP 17.1 % 16.7 % 17.9 %
Operating earnings as a percentage of net sales – after non-GAAP adjustments   23.7 %   21.7 %   28.1 %
      Non-GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Organic Revenue
Total Motorola Solutions
     
Three Months Ended
     
    December 31, 2018 December 31, 2017 % Change
Net sales   $ 2,254   $ 1,957   15 %
 
Non-GAAP adjustments:
Acquisitions (159 )
ASC 606 impact   (25 )    
Organic revenue $ 2,070   $ 1,957   6 %
 
     
Years Ended
     
    December 31, 2018 December 31, 2017 % Change
Net sales   $ 7,343   $ 6,380   15 %
 
Non-GAAP adjustments:
Acquisitions (516 ) (9 )
ASC 606 impact   (83 )    
Organic revenue $ 6,744   $ 6,371   6 %
  Non-GAAP-5
Motorola Solutions, Inc. and Subsidiaries

Non-GAAP Adjusted Operating Cash Flow

 

 
Year Ended December
    31, 2018
Net cash provided by operating activities   $ 1,075
 
Voluntary, debt-funded U.S. pension contribution 500
     
Adjusted Operating cash flow   $ 1,575

MEDIA CONTACT
Kate Dyer
Motorola Solutions
+224-374-3124
[email protected]

INVESTOR CONTACT
Chris Kutsor
Motorola Solutions
+1
847-576-4995
[email protected]