10-QPeriod: Q2 FY2014

Motorola Solutions, Inc. Quarterly Report for Q2 Ended Jun 28, 2014

Filed August 5, 2014For Securities:MSI

Summary

Motorola Solutions, Inc. reported its second quarter and first half 2014 financial results, showing a decline in net sales compared to the prior year. For the three months ended June 28, 2014, net sales were $1.39 billion, a 7% decrease from $1.50 billion in the same period of 2013. This decline was primarily driven by a 10% drop in the Products segment, with notable decreases in North America and APME. The Services segment saw a smaller 1% decrease. The company reported earnings from continuing operations of $78 million ($0.30 per diluted share) for the quarter, down significantly from $223 million ($0.81 per diluted share) in the prior year. This decrease was attributed to lower gross margins and a higher effective tax rate. However, the reported net earnings of $824 million ($3.22 per diluted share) were substantially boosted by a $746 million after-tax gain from discontinued operations, primarily due to a large tax benefit related to the pending sale of the Enterprise business to Zebra Technologies. For the six months ended June 28, 2014, net sales were $2.62 billion, a 9% decrease year-over-year. Earnings from continuing operations were $163 million ($0.63 per diluted share), compared to $380 million ($1.37 per diluted share) in the prior year. Net earnings for the six months were $951 million ($3.70 per diluted share), significantly influenced by the discontinued operations gain.

Financial Highlights

55 data points
Beta

Revenue

$1.39B

47.1% Gross Margin

Net Income

$824.00M

59.2% Net Margin

EPS (Diluted)

$3.22

Total Assets

$11.87B

Cash & Equivalents

$2.88B

Free Cash Flow

$118.00M

Financial Statements
Beta
Revenue$1.39B
Cost of Revenue$737.00M
Gross Profit$656.00M
R&D Expenses$176.00M
SG&A Expenses$308.00M
Operating Income$138.00M
Interest Expense$34.00M
Net Income$824.00M
EPS (Basic)$3.25
EPS (Diluted)$3.22
Shares Outstanding (Basic)253.70M
Shares Outstanding (Diluted)256.20M

Key Highlights

  • 1Net sales for Q2 2014 decreased 7% to $1.39 billion, driven by a 10% decline in the Products segment.
  • 2Earnings from continuing operations for Q2 2014 were $78 million ($0.30/share), a sharp decrease from $223 million ($0.81/share) in Q2 2013.
  • 3Net earnings for Q2 2014 were significantly boosted by a $746 million tax benefit related to discontinued operations, leading to reported net earnings of $824 million ($3.22/share).
  • 4The company announced an agreement to sell its Enterprise business to Zebra Technologies for $3.45 billion, expecting to close by year-end 2014.
  • 5Operating earnings for the Products segment decreased 24% in Q2 2014 compared to the prior year, while the Services segment's operating earnings fell 45%.
  • 6Motorola Solutions returned $631 million to shareholders through share repurchases ($473 million) and dividends ($158 million) in the first half of 2014.
  • 7The company refinanced its revolving credit facility, increasing its capacity to $2.0 billion.

Frequently Asked Questions

The substantial increase in Net Earnings from $258 million in Q2 2013 to $824 million in Q2 2014 was primarily driven by a $721 million tax benefit recorded in relation to the pending sale of the Enterprise business, which is classified as discontinued operations. While continuing operations saw a decline, the gain from discontinued operations heavily impacted the net earnings figure.

Net sales decreased by 7% in Q2 2014, primarily due to a 10% decline in the Products segment, particularly in North America and APME. This revenue decline, coupled with a shift in sales mix and lower gross margins, led to a decrease in operating earnings from continuing operations. Selling, general, and administrative expenses, as well as R&D expenditures, were also reduced.

The Enterprise business is classified as discontinued operations because Motorola Solutions entered into an agreement to sell it to Zebra Technologies for $3.45 billion. This transaction is expected to close by the end of 2014. The financial results of this business are reported separately, and a significant tax benefit related to this pending sale has substantially boosted the company's net earnings for the reported periods.

Motorola Solutions is actively returning capital to shareholders. In the first half of 2014, the company repurchased approximately $473 million of its common stock and paid $158 million in dividends. The company also announced an increase in its quarterly dividend to $0.34 per share, demonstrating confidence in its financial position and commitment to shareholder returns.