10-QPeriod: Q3 FY2014

Motorola Solutions, Inc. Quarterly Report for Q3 Ended Sep 27, 2014

Filed November 4, 2014For Securities:MSI

Summary

Motorola Solutions, Inc. reported a decrease in net sales for both the three and nine months ended September 27, 2014, compared to the prior year periods. This decline was primarily driven by a decrease in the Products segment, with lower sales across multiple geographic regions. Operating earnings also declined, reflecting lower gross margins and increased "other charges," partly offset by reductions in SG&A and R&D expenses. Significant events during the period include the planned sale of the Enterprise business to Zebra Technologies Corporation, which will be reported as a discontinued operation. The company also engaged in substantial debt management activities, redeeming some senior notes and issuing new ones, increasing its overall long-term debt. Shareholder returns remained a priority, with significant amounts deployed towards share repurchases and dividends.

Financial Highlights

55 data points
Beta

Revenue

$1.44B

47.7% Gross Margin

Net Income

$147.00M

10.2% Net Margin

EPS (Diluted)

$0.59

Total Assets

$12.20B

Cash & Equivalents

$2.85B

Free Cash Flow

-$115.00M

Financial Statements
Beta
Revenue$1.44B
Cost of Revenue$751.00M
Gross Profit$685.00M
R&D Expenses$166.00M
SG&A Expenses$287.00M
Operating Income$207.00M
Interest Expense$38.00M
Net Income$147.00M
EPS (Basic)$0.60
EPS (Diluted)$0.59
Shares Outstanding (Basic)246.30M
Shares Outstanding (Diluted)248.20M

Key Highlights

  • 1Net sales declined 5% year-over-year to $1.436 billion in Q3 2014, and 8% year-over-year to $4.058 billion for the nine-month period.
  • 2Operating earnings decreased to $207 million in Q3 2014 (down 16% YoY) and to $452 million for the nine months (down 27% YoY).
  • 3Earnings from continuing operations attributable to common stockholders significantly decreased to $66 million ($0.27/share) in Q3 2014 from $261 million ($0.98/share) in Q3 2013.
  • 4The company has classified its Enterprise business as discontinued operations, with the sale to Zebra Technologies Corporation closing in October 2014 for $3.45 billion.
  • 5Long-term debt increased significantly due to new debt issuances, totaling $3.4 billion as of September 27, 2014, up from $2.5 billion at the end of 2013.
  • 6The company actively returned capital to shareholders, repurchasing $1.1 billion in shares and paying $236 million in dividends during the first nine months of 2014.
  • 7Pension plan remeasurements and potential lump-sum distributions were significant events impacting other comprehensive income and cash flow expectations.

Frequently Asked Questions

Net sales decreased due to lower sales in the Products segment, particularly in North America, APME, and Latin America. Operating earnings declined due to lower gross margins resulting from sales declines and product mix changes, alongside higher "other charges" including reorganization expenses, despite reductions in SG&A and R&D.

The Enterprise business has been classified as discontinued operations in anticipation of its sale to Zebra Technologies Corporation. This reflects the company's strategy to focus on its core Products and Services segments. The substantial earnings reported under discontinued operations are largely due to a significant tax benefit related to establishing a deferred tax asset for outside basis differences.

Motorola Solutions increased its long-term debt by issuing new senior notes totaling $1.4 billion, while also redeeming $400 million of existing notes. The company continued to prioritize returning capital to shareholders through substantial share repurchases and dividend payments, utilizing its significant remaining share repurchase authorization.

Key challenges include declining sales in core segments, managing operational restructuring costs, significant pension obligations and related plan changes, and potential tax implications of foreign earnings repatriation. The company also noted potential risks from uncapped contractual damage provisions and ongoing legal matters, though management believes these will not materially impact financial position.