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Motorola Solutions Reports Fourth-Quarter and Full-Year Financial Results
[February 01, 2018]

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 of 2017. Click here for a printable news release and financial tables.

"We finished the year with a very strong fourth quarter, capping a record year for revenue, operating earnings, cash flow and backlog driven by continued organic growth on strength in land-mobile radio (LMR) solutions," said Greg Brown, chairman and CEO of Motorola Solutions. "We are poised for continued growth in LMR and software and services."



 

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

 
  Fourth Quarter   Full Year
    2017   2016   % Change   2017   2016   % Change
Sales   $1,957   $1,883   4%   $6,380   $6,038   6%
GAAP        
Operating earnings $511 $403 27% $1,282 $1,067 20%
% of Sales 26.1% 21.4% 20.1% 17.7%
EPS from continuing operations   $(3.56)   $1.43   N/M**   $(0.95)   $3.24   N/M
Non-GAAP
Operating earnings $576 $541 6% $1,552 $1,427 9%
% of Sales 29.4% 28.7% 24.3% 23.6%
EPS from continuing operations   $2.10   $2.03   3%   $5.46   $4.92   11%
Product Segment
Sales $1,233 $1,226 1% $3,772 $3,649 3%
GAAP Operating earnings $404 $330 22% $914 $734 25%
% of Sales 32.8% 26.9% 24.2% 20.1%
Non-GAAP Operating earnings $425 $407 4% $1,006 $910 11%
% of Sales   34.5%   33.2%       26.7%   24.9%    
Services Segment
Sales $724 $657 10% $2,608 $2,389 9%
GAAP Operating earnings $107 $73 47% $368 $333 11%
% of Sales 14.8% 11.1% 14.1% 13.9%
Non-GAAP Operating earnings $151 $134 13% $546 $517 6%
% of Sales   20.9%   20.4%       20.9%   21.6%    
 

*Q4 Non-GAAP financial information excludes the after-tax impact of approximately $5.50 per diluted share related to share-based compensation, intangible assets amortization expense and highlighted items for the fourth-quarter. 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 current year net loss related to tax reform

OTHER SELECT FOURTH-QUARTER FINANCIAL RESULTS

  • Revenue - Revenue increased 4 percent on strength in the Americas. Products segment revenue grew 1 percent. Services segment revenue grew 10 percent with growth in every region. Managed and Support Services grew 17 percent.
  • Operating margin - GAAP operating margin was 26.1 percent of revenue compared with 21.4 percent in the year-ago quarter driven by higher revenue in the current quarter as well as higher restructuring charges in the year-ago quarter. Non-GAAP operating margin was 29.4 percent of revenue, compared with 28.7 percent in the year-ago quarter. Improved non-GAAP results reflect higher revenue and associated earnings.
  • Taxes - The GAAP effective tax rate was 223.4 percent, compared to 32.6 percent in the year-ago quarter. Charges related to tax reform accounted for $874 million of GAAP tax expense for the quarter. The non-GAAP effective tax rate was 32.8 percent compared with 30.7 percent in the year-ago quarter, resulting in higher non-GAAP tax expense of $11 million.
  • Cash flow - The company generated $761 million in operating cash, up $248 million from the year-ago quarter. Free cash flow3 was $740 million, up $287 million. The cash flow was driven by higher operating earnings and improved working capital performance.
  • Capital Allocation - The company repurchased $125 million of its common stock and paid $76 million in cash dividends.

OTHER SELECT FULL-YEAR FINANCIAL RESULTS

  • Revenue - Revenue increased 6 percent including acquisitions. Organic revenue growth was 3 percent led by North America organic growth of 3 percent. Products segment revenue grew 3 percent led by higher North America system revenue, while the Services segment grew 9 percent on Managed and Support Services growth in all regions.
  • Operating margin - For the full year, GAAP operating margin was 20.1 percent of revenue, compared with 17.7 percent for the prior year. The increase was primarily driven by higher revenue. Non-GAAP operating margin was 24.3 percent of revenue, compared with 23.6 percent for the prior year, driven by higher revenue and lower operating expenses.
  • Taxes - The 2017 GAAP effective tax rate was 114.1 percent, compared to 33.5 percent for the prior year. Charges related to tax reform accounted for $874 million of GAAP tax expense for the year. The non-GAAP effective tax rate was 31.0 percent, compared with 31.2 percent in the prior year.
  • Cash flow - The company generated $1.3 billion in operating cash, up $181 million from the prior year. Free cash flow3 was $1.1 billion, up $225 million from the prior year. The increase was driven by higher revenue and associated earnings.
  • Capital Allocation - The company repurchased $483 million of its common stock, paid $307 million in cash dividends and invested $298 million in acquisitions.
  • Backlog - The company ended the year with record backlog of $9.6 billion, up $1.2 billion from the year-ago quarter. Products segment backlog was up 25 percent or $382 million, and Services was up 13 percent or $860 million. LMR demand led by the Americas continues to drive the backlog growth.

STRATEGIC WINS

  • $290 million LMR system in Middle Eastern country that recently deployed a private Public Safety LTE system
  • $197 million seven-year LMR managed services contract extension for the Melbourne Metropolitan Radio Network in Australia
  • $76 million P25 order from city of Dallas
  • $53 million P25 order from city of Los Angeles
  • $39 million P25 order from city of Toronto
  • $18 million P25 upgrade and seven-year managed services agreement with Dow Chemical

BUSINESS OUTLOOK

  • First-quarter 2018 - Motorola Solutions expects revenue growth of approximately 7 percent compared with the first quarter of 2017. The company expects non-GAAP earnings per share in the range of $0.83 to $0.88 per share.
  • Full-year 2018 - The company expects revenue growth of approximately 5 percent and non-GAAP earnings per share in the range of $6.50 to $6.65 per share. This assumes current foreign exchange rates and a non-GAAP effective tax rate of approximately 25 percent.

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) Thursday, Feb 1. The conference call will be webcast live with audio and slides 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
    2017   2016   2017   2016
Net sales   $1,957     $ 1,883   $6,380     $ 6,038
Gross margin 970   928 3,024   2,869
Operating earnings   511       403   1,282       1,067
Amounts attributable to Motorola Solutions, Inc. common stockholders
Net earnings (575 ) 243 (155 ) 560
Diluted EPS from continuing operations $ (3.56 ) $ 1.43 $ (0.95 ) $ 3.24
Weighted average diluted common shares outstanding   161.7       170.4   162.9       173.1
 

COMPONENTS OF TAX REFORM HIGHLIGHTED ITEMS (presented in millions)

     
    Q4 2017
Re-measurement of U.S. deferred tax assets at enacted tax rate   $366
Valuation allowance on foreign tax credits $471
Repatriation tax and others   $37
Total   $874
 

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 2017.

     
(per diluted common share)   Q4 2017
 
Basic GAAP Loss from Continuing Operations $(3.56)
Adjust for dilution*   $0.16
Diluted Loss from Continuing Operations   $(3.40)
Highlighted Items:
Share-based compensation expense 0.07
Reorganization of business charges 0.05
Intangibles amortization expense 0.18
Gain on legal settlements (0.02)
Non-US pension settlement loss 0.01
Tax reform 5.18
Release of FIN 48 reserve (0.01)
Valuation allowance on non-U.S. deferred tax assets 0.05
Tax benefit on U.S. capital loss   (0.01)
Total Highlighted Items   $5.50
     
Non-GAAP Diluted EPS from Continuing Operations   $2.10
 

* Under U.S. GAAP, the accounting for a net loss from continuing operations results in the presentation of dilutive earnings per share equal to basic earnings per share, as any increase in basic shares would be anti-dilutive to earnings per share. As a result of the highlighted items identified during Q4 2017, the Company reported a net loss from continuing operations within our GAAP Consolidated Statement of Operations, while reporting income on a non-GAAP basis. An adjustment is shown to reflect the dilution of 7.2 million dilutive shares outstanding in Q4 2017.

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.

Organic Revenue: Reflects net sales calculated under GAAP excluding net sales from acquired business owned for less than four full quarters. Management believes organic revenue helps it and investors better identify the underlying trends of established and ongoing operations by excluding the effects of acquisitions which can obscure period to period comparisons.

Highlighted items: The company has excluded the effects of highlighted items including, but not limited to, acquisition-related transaction costs, tangible and intangible asset impairments, restructuring 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, including recently enacted tax reform legislation, 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 company's 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 company's acquisitions. Investors should note that the use of intangible assets contributed to the company's revenues earned during the periods presented and will contribute to the company's future period revenues as well. Intangible assets amortization expense will recur in future periods.

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 company's views only as of today and should not be relied upon as representing the company's 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 company's 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 2018. Motorola Solutions cautions the reader that the risk factors below, as well as those on pages 9 through 21 in Item 1A of Motorola Solutions 2016 Annual Report on Form 10-K, on page 37 in item 1A of Motorola Solutions' Quarterly Report on Form 10-Q for the quarter ended July 1, 2017 and in its other SEC filings available for free on the SEC's website at www.sec.gov and on Motorola Solutions' website at www.motorolasolutions.com/newsroom, 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 company's 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 company's ability to access the capital markets on acceptable terms and conditions; (7) the impact of a security breach or other significant disruption in the company's 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 company's 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 company's 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 company's 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; (22) the impact of implementing a new enterprise resource planning (ERP) system; and (23) the company's 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

DEFINITIONS

1 Organic revenue reflects net sales calculated under GAAP excluding net sales from acquired business owned for less than four full quarters.

2 On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act or "tax reform". Details of the fourth-quarter charges related to tax reform are included in this news release.

3 Free cash flow represents operating cash flow less capital expenditures

ABOUT MOTOROLA SOLUTIONS

Motorola Solutions (NYSE: MSI) creates innovative, mission-critical communication solutions and services that help public safety and commercial customers build safer cities and thriving communities. For ongoing news, visit www.motorolasolutions.com/newsroom or subscribe to a news feed.

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. ©2018 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, 2017 December 31, 2016
Net sales from products $ 1,233 $ 1,226
Net sales from services   724     657  
Net sales 1,957 1,883
 
Costs of products sales 519 525
Costs of services sales   468     430  
Costs of sales 987 955
   
Gross margin   970     928  
 
Selling, general and administrative expenses 257 277
Research and development expenditures 154 142
Other charges 9 76
Intangibles amortization   39     30  
Operating earnings   511     403  
 
Other income (expense):
Interest expense, net (47 ) (48 )
Gains on sales of investments and businesses, net - 7
Other   1     -  
Total other expense   (46 )   (41 )
Net earnings before income taxes 465 362
Income tax expense   1,039     118  
Net earnings (loss) (574 ) 244
 
Less: Earnings attributable to noncontrolling interests   1     1  
Net earnings (loss) attributable to Motorola Solutions, Inc. $ (575 ) $ 243  
 

Earnings (loss) per common share:

Basic: $ (3.56 ) $ 1.47
 
Diluted: $ (3.56 ) $ 1.43

Weighted average common shares outstanding:

Basic 161.7 165.4
Diluted   161.7     170.4  
     
Percentage of Net Sales*
Net sales from products 63.0 % 65.1 %
Net sales from services   37.0 %   34.9 %
Net sales 100.0 % 100.0 %
 
Costs of products sales 42.1 % 42.8 %
Costs of services sales   64.6 %   65.4 %
Costs of sales 50.4 % 50.7 %
   
Gross margin   49.6 %   49.3 %
 
Selling, general and administrative expenses 13.1 % 14.7 %
Research and development expenditures 7.9 % 7.5 %
Other charges 0.5 % 4.0 %
Intangibles amortization   2.0 %   1.6 %
Operating earnings   26.1 %   21.4 %
 
Other income (expense):
Interest expense, net (2.4 )% (2.5 )%
Gains on sales of investments and businesses, net - % 0.4 %
Other   0.1 %   - %
Total other expense   (2.4 )%   (2.2 )%
Net earnings before income taxes 23.8 % 19.2 %
Income tax expense   53.1 %   6.3 %
Net earnings (loss)   (29.3 )%   13.0 %
 
Less: Earnings attributable to noncontrolling interests 0.1 % 0.1 %
Net earnings (loss) attributable to Motorola Solutions, Inc.   (29.4 )%   12.9 %
* 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, 2017 December 31, 2016 December 31, 2015
Net sales from products $ 3,772 $ 3,649 $ 3,676
Net sales from services   2,608     2,389     2,019  
Net sales 6,380 6,038 5,695
 
Costs of products sales 1,686 1,649 1,625
Costs of services sales   1,670     1,520     1,351  
Costs of sales 3,356 3,169 2,976
     
Gross margin   3,024     2,869     2,719  
 
Selling, general and administrative expenses 979 1,000 1,021
Research and development expenditures 568 553 620
Other charges 44 136 76
Intangibles amortization   151     113     8  
Operating earnings   1,282     1,067     994  
 
Other income (expense):
Interest expense, net (201 ) (205 ) (173 )
Gains (losses) on sales of investments and businesses, net 3 (6 ) 107
Other   (8 )   (12 )   (11 )
Total other expense   (206 )   (223 )   (77 )
Earnings from continuing operations before income taxes 1,076 844 917
Income tax expense   1,227     282     274  
Earnings (loss) from continuing operations (151 ) 562 643
 
Loss from discontinued operations, net of tax   -     -     (30 )
Net earnings (loss) (151 ) 562 613
 
Less: Earnings attributable to noncontrolling interests   4     2     3  
Net earnings (loss) attributable to Motorola Solutions, Inc. $ (155 ) $ 560   $ 610  
 
Amounts attributable to Motorola Solutions, Inc. common stockholders:
Earnings (loss) from continuing operations, net of tax $ (155 ) $ 560 $ 640
Loss from discontinued operations, net of tax   -     -     (30 )
Net earnings (loss) attributable to Motorola Solutions, Inc. $ (155 ) $ 560   $ 610  
 

Earnings (loss) per common share:

Basic:
Continuing operations $ (0.95 ) $ 3.30 $ 3.21
Discontinued operations   -     -     (0.15 )
$ (0.95 ) $ 3.30   $ 3.06  
 
Diluted:
Continuing operations $ (0.95 ) $ 3.24 $ 3.17
Discontinued operations   -     -     (0.15 )
$ (0.95 ) $ 3.24   $ 3.02  

Weighted average common shares outstanding:

Basic 162.9 169.6 199.6
Diluted   162.9     173.1     201.8  
         
Percentage of Net Sales*
Net sales from products 59.1 % 60.4 % 64.5 %
Net sales from services   40.9 %   39.6 %   35.5 %
Net sales 100.0 % 100.0 % 100.0 %
 
Costs of products sales 44.7 % 45.2 % 44.2 %
Costs of services sales   64.0 %   63.6 %   66.9 %
Costs of sales 52.6 % 52.5 % 52.3 %
     
Gross margin   47.4 %   47.5 %   47.7 %
 
Selling, general and administrative expenses 15.3 % 16.6 % 17.9 %
Research and development expenditures 8.9 % 9.2 % 10.9 %
Other charges 0.7 % 2.3 % 1.3 %
Intangibles amortization   2.4 %   1.9 %   0.1 %
Operating earnings   20.1 %   17.7 %   17.5 %
 
Other income (expense):
Interest expense, net (3.2 )% (3.4 )% (3.0 )%
Gains (losses) on sales of investments and businesses, net - % (0.1 )% 1.9 %
Other   (0.1 )%   (0.2 )%   (0.2 )%
Total other expense   (3.2 )%   (3.7 )%   (1.4 )%
Earnings from continuing operations before income taxes 16.9 % 14.0 % 16.1 %
Income tax expense   19.2 %   4.7 %   4.8 %
Earnings (loss) from continuing operations (2.4 )% 9.3 % 11.3 %
Loss from discontinued operations, net of tax - % - % (0.5 )%
Net earnings (loss)   (2.4 )%   9.3 %   10.8 %
 
Less: Earnings attributable to noncontrolling interests 0.1 % - % 0.1 %
Net earnings (loss) attributable to Motorola Solutions, Inc.   (2.4 )%   9.3 %   10.7 %
* Percentages may not add up due to rounding
    GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions)
   
December 31, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 1,205 $ 967
Restricted cash   63     63  
Total cash and cash equivalents   1,268     1,030  
Accounts receivable, net 1,523 1,410
Inventories, net 327 273
Other current assets   832     755  
Total current assets   3,950     3,468  
 
Property, plant and equipment, net 856 789
Investments 247 238
Deferred income taxes 1,023 2,219
Goodwill 938 728
Intangible assets, net 861 821
Other assets   333     200  
Total assets $ 8,208   $ 8,463  
 
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 52 $ 4
Accounts payable 593 553
Accrued liabilities   2,286     2,111  
Total current liabilities   2,931     2,668  
 
Long-term debt 4,419 4,392
Other liabilities 2,585 2,355
 
Total Motorola Solutions, Inc. stockholders' equity (deficit) (1,742 ) (964 )
 
Noncontrolling interests 15 12
   
Total liabilities and stockholders' equity $ 8,208   $ 8,463  
 
Financial Ratios:
Net cash (debt)* $ (3,203 ) $ (3,366 )
 
*Net cash (debt) = Total cash - Current portion of long-term debt - Long-term debt
    GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In millions)
     
Three Months Ended
December 31, 2017 December 31, 2016
Operating
Net earnings (loss) attributable to Motorola Solutions, Inc. $ (575 ) $ 243
Earnings attributable to noncontrolling interests   1     1  
Net earnings (loss) (574 ) 244
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization 89 75
Non-cash other charges 3 11
Non-U.S. pension settlement loss 2 26
Share-based compensation expense 17 16
Gains on sales of investments and businesses, net - (7 )
Loss from the extinguishment of long-term debt - 2
Deferred income taxes 1,002 71
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable (141 ) (250 )
Inventories 37 6
Other current assets 42 (81 )
Accounts payable and accrued liabilities 338 464
Other assets and liabilities   (54 )   (64 )
Net cash provided by operating activities   761     513  
Investing
Acquisitions and investments, net (21 ) (259 )
Proceeds from sales of investments and businesses, net 9 33
Capital expenditures (21 ) (60 )
Proceeds from sales of property, plant and equipment   -     4  
Net cash used for investing activities   (33 )   (282 )
Financing
Repayment of debt (7 ) (683 )
Net proceeds from issuance of debt 3 -
Issuance of common stock 21 14
Purchase of common stock (125 ) (114 )
Payment of dividends (76 ) (68 )
Deferred acquisition costs   (2 )   -  
Net cash used for financing activities   (186 )   (851 )
   
Effect of exchange rate changes on cash and cash equivalents from continuing operations   9     (37 )
Net increase (decrease) in cash and cash equivalents 551 (657 )
Cash and cash equivalents, beginning of period   717     1,687  
Cash and cash equivalents, end of period $ 1,268   $ 1,030  
 
Financial Ratios:
Free cash flow* $ 740 $ 453
 
*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, 2017 December 31, 2016   December 31, 2015
Operating
Net earnings (loss) attributable to Motorola Solutions, Inc. $ (155 ) $ 560 $ 610
Earnings attributable to noncontrolling interests   4     2       3  
Net earnings (loss) (151 ) 562 613
Loss from discontinued operations, net of tax   -     -       (30 )
Earnings (loss) from continuing operations, net of tax (151 ) 562 643
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization 343 295 150
Non-cash other charges 32 54 52
Non-U.S. pension curtailment gain - - (32 )
Non-U.S. pension settlement loss 48 26 -
Share-based compensation expense 66 68 78
Loss (gains) on sales of investments and businesses, net (3 ) 6 (107 )
Loss from the extinguishment of long-term debt - 2 -
Deferred income taxes 1,100 213 160
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
Accounts receivable (60 ) (6 ) 21
Inventories (46 ) 6 16
Other current assets (99 ) (185 ) 92
Accounts payable and accrued liabilities 160 241 26
Other assets and liabilities   (44 )   (117 )     (78 )
Net cash provided by operating activities from continuing operations   1,346     1,165       1,021  
Investing
Acquisitions and investments, net (404 ) (1,474 ) (586 )
Proceeds from sales of investments and businesses, net 183 670 230
Capital expenditures (227 ) (271 ) (175 )
Proceeds from sales of property, plant and equipment - 73 3
Net cash used for investing activities from continuing operations   (448 )   (1,002 )     (528 )
Financing
Repayment of debt (21 ) (686 ) (4 )
Net proceeds from issuance of debt 10 673 971
Issuance of common stock 82 93 84
Purchase of common stock (483 ) (842 ) (3,177 )
Excess tax benefit from share-based compensation - - 5
Payment of dividends (307 ) (280 ) (277 )
Payment of dividends to non-controlling interest (1 ) - -
Deferred acquisition costs   (2 )   -       -  
Net cash used for financing activities from continuing operations   (722 )   (1,042 )     (2,398 )
       
Effect of exchange rate changes on cash and cash equivalents from continuing operations   62     (71 )     (69 )
Net increase (decrease) in cash and cash equivalents 238 (950 ) (1,974 )
Cash and cash equivalents, beginning of period   1,030     1,980       3,954  
Cash and cash equivalents, end of period $ 1,268   $ 1,030     $ 1,980  
 
Financial Ratios:
Free cash flow* $ 1,119 $ 894 $ 846
 
*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, 2017 December 31, 2016 % Change
Products $ 1,233 $ 1,226 1 %
Services   724     657   10 %
Total Motorola Solutions $ 1,957   $ 1,883   4 %
     
Years Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 3,772 $ 3,649 3 %
Services   2,608     2,389   9 %
Total Motorola Solutions $ 6,380   $ 6,038   6 %
               
Operating Earnings
     
Three Months Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 404 $ 330 22 %
Services   107     73   47 %
Total Motorola Solutions $ 511   $ 403   27 %
     
Years Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 914 $ 734 25 %
Services   368     333   11 %
Total Motorola Solutions $ 1,282   $ 1,067   20 %
 
 
               
Operating Earnings %
     
Three Months Ended
   
December 31, 2017 December 31, 2016
Products 32.8 % 26.9 %
Services   14.8 %   11.1 %
Total Motorola Solutions   26.1 %   21.4 %
     
Years Ended
   
December 31, 2017   December 31, 2016
Products 24.2 % 20.1 %
Services   14.1 %   13.9 %
Total Motorola Solutions   20.1 %   17.7 %

 

          Non-GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Adjustments (Intangibles Amortization Expense, Share-Based Compensation Expense, and Highlighted Items)
                     
Q1 2017
 
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 $ 6 $ 11 $ 0.06
Reorganization of business charges Cost of sales and Other charges 19 4 15 0.09
Intangibles amortization expense Intangibles amortization 36 9 27 0.16
Gain on legal settlement Other charges (42 ) (16 ) (26 ) (0.15 )
Building impairment Other charges 8 -

8

0.05
Non-US pension settlement loss Other charges 9 - 9 0.05
Sale of investments Sale of Investment or Business (Gain) or Loss (3 ) (1 ) (2 ) (0.01 )
Acquisition-related transaction fees Other charges 1 - 1 0.01
       
Total impact on Net earnings $ 45 $ 2 $ 43 $ 0.26
                     
Q2 2017
 
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 $ 16 $ 5 $ 11 $ 0.07
Reorganization of business charges Cost of sales and Other charges 3 - 3 0.02
Intangibles amortization expense Intangibles amortization 37 9 28 0.17
Non-US pension settlement loss Other charges 16 - 16 0.08
Gain on legal settlement Other charges (1 ) - (1 ) (0.01 )
Sale of business Sale of Investment or Business (Gain) or Loss 1 - 1 0.01
       
Total impact on Net earnings $ 72 $ 14 $ 58 $ 0.34
                     
Q3 2017
 
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 $ 16 $ 5 $ 11 $ 0.07
Reorganization of business charges Cost of sales and Other charges 8 2 6 0.04
Intangibles amortization expense Intangibles amortization 39 10 29 0.17
Non-US pension settlement loss Other charges 21 - 21 0.11
Asset impairment Other charges 1 - 1 0.01
Tax benefit on U.S. capital loss Income tax benefit - 22 (22 ) (0.13 )
Reserve on unrecognized tax benefit Income tax expense - (1 ) 1 0.01
       
Total impact on Net earnings $ 85 $ 38 $ 47 $ 0.28
                     
Q4 2017
 
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 $ 6 $ 11 $ 0.07
Reorganization of business charges Cost of sales and Other charges 12 3 9 0.05
Intangibles amortization expense Intangibles amortization 39 9 30 0.18
Non-US pension settlement loss Other charges 2 - 2 0.01
Gain on legal settlements Other charges (5 ) (2 ) (3 ) (0.02 )
Tax benefit on U.S. capital loss Income tax expense - 1 (1 ) (0.01 )
Tax reform Income tax expense (benefit) - (874 ) 874 5.18
Release of FIN 48 reserve Income tax expense (benefit) - 1 (1 ) (0.01 )
Valuation allowance on non-U.S. deferred tax assets Income tax expense (benefit)   -     (9 )   9     0.05  
       
Total impact on Net earnings $ 65 $ (865 ) $ 930 5.50
                     
FY 2017
 
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 $ 66 $ 22 $ 44 $ 0.26
Reorganization of business charges Cost of sales and Other charges 42 9 33 0.20
Intangibles amortization expense Intangibles amortization 151 37 114 0.67
Gain on legal settlements Other charges (47 ) (17 ) (30 ) (0.18 )
Building impairment Other charges 8 - 8 0.05
Non-US pension settlement loss Other charges 48 - 48 0.28
Sale of investments or business Sale of Investment or Business (Gain) or Loss (2 ) (1 ) (1 ) (0.01 )
Acquisition-related transaction fees Other charges 1 - 1 0.01
Asset impairment Other charges 1 - 1 0.01
Tax benefit on U.S. capital loss Income tax expense (benefit) - 23 (23 ) (0.14 )
Reserve on unrecognized tax benefit Income tax expense - (1 ) 1 0.01
Tax reform Income tax expense (benefit) - (874 ) 874 5.18
Release of FIN 48 reserve Income tax expense (benefit) - 1 (1 ) (0.01 )
Tax valuation Income tax expense (benefit) - (9 ) 9 0.05
       
Total impact on Net earnings $ 268 $ (810 ) $ 1,078 $ 6.38
      Non-GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Segment Information
(In millions)
               
Net Sales
     
Three Months Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 1,233 $ 1,226 1 %
Services   724     657   10 %
Total Motorola Solutions $ 1,957   $ 1,883   4 %
     
Years Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 3,772 $ 3,649 3 %
Services   2,608     2,389   9 %
Total Motorola Solutions $ 6,380   $ 6,038   6 %
 
               
Non-GAAP Operating Earnings
     
Three Months Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 425 $ 407 4 %
Services   151     134   13 %
Total Motorola Solutions $ 576   $ 541   6 %
     
Years Ended
     
December 31, 2017 December 31, 2016 % Change
Products $ 1,006 $ 910 11 %
Services   546     517   6 %
Total Motorola Solutions $ 1,552   $ 1,427   9 %
 
               
Non-GAAP Operating Earnings %
     
Three Months Ended
   
December 31, 2017 December 31, 2016
Products 34.5 % 33.2 %
Services   20.9 %   20.4 %
Total Motorola Solutions   29.4 %   28.7 %
     
Years Ended
   
December 31, 2017 December 31, 2016
Products 26.7 % 24.9 %
Services   20.9 %   21.6 %
Total Motorola Solutions   24.3 %   23.6 %
      Non-GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Operating Earnings after Non-GAAP Adjustments
             
Q1 2017
     
    TOTAL Products Services
Net sales $ 1,281 $ 703 $ 578
Operating earnings ("OE")   $ 176   $ 89   $ 87  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 11 6
Reorganization of business charges 19 13 6
Intangibles amortization expense 36 6 30
Acquisition-related transaction fees 1 - 1
Gain on legal settlement (42 ) (30 ) (12 )
Building impairment 8 6 2
Non-US pension settlement loss   9     6     3  
Total above-OE non-GAAP adjustments 48 12 36
         
Operating earnings after non-GAAP adjustments   $ 224   $ 101   $ 123  
     
Operating earnings as a percentage of net sales - GAAP 13.7 % 12.7 % 15.1 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   17.5 %   14.4 %   21.3 %
             
Q2 2017
     
    TOTAL Products Services
Net sales $ 1,497 $ 848 $ 649
Operating earnings ("OE")   $ 257   $ 168   $ 89  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 16 11 5
Reorganization of business charges 3 3 -
Intangibles amortization expense 37 1 36
Gain on legal settlement (1 ) (1 ) -
Non-US pension settlement loss   16     11     5  
Total above-OE non-GAAP adjustments 71 25 46
         
Operating earnings after non-GAAP adjustments   $ 328   $ 193   $ 135  
     
Operating earnings as a percentage of net sales - GAAP 17.2 % 19.8 % 13.7 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   21.9 %   22.8 %   20.8 %
             
Q3 2017
     
    TOTAL Products Services
Net sales $ 1,645 $ 989 $ 656
Operating earnings ("OE")   $ 338   $ 253   $ 85  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 16 10 6
Reorganization of business charges 8 6 2
Intangibles amortization expense 39 2 37
Non-US pension settlement loss 21 15 6
Asset impairment   1     1     -  
Total above-OE non-GAAP adjustments 85 34 51
         
Operating earnings after non-GAAP adjustments   $ 423   $ 287   $ 136  
     
Operating earnings as a percentage of net sales - GAAP 20.5 % 25.6 % 13.0 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   25.7 %   29.0 %   20.7 %
             
Q4 2017
     
    TOTAL Products Services
Net sales $ 1,957 $ 1,233 $ 724
Operating earnings ("OE")   $ 511   $ 404   $ 107  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 11 6
Reorganization of business charges 12 9 3
Non-US pension settlement loss 2 1 1
Gain on legal settlements (5 ) (3 ) (2 )
Intangibles amortization expense   39     3     36  
Total above-OE non-GAAP adjustments 65 21 44
         
Operating earnings after non-GAAP adjustments   $ 576   $ 425   $ 151  
     
Operating earnings as a percentage of net sales - GAAP 26.1 % 32.8 % 14.8 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   29.4 %   34.5 %   20.9 %
             
FY 2017
     
    TOTAL Products Services
Net sales $ 6,380 $ 3,772 $ 2,608
Operating earnings ("OE")   $ 1,282   $ 914   $ 368  
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 66 43 23
Reorganization of business charges 42 31 11
Intangibles amortization expense 151 12 139
Acquisition-related transaction fees 1 - 1
Gain on legal settlements (47 ) (34 ) (13 )
Building impairment 8 6 2
Non-US pension settlement loss 48 33 15
Asset impairment   1     1     -  
Total above-OE non-GAAP adjustments 270 92 178
         
Operating earnings after non-GAAP adjustments   $ 1,552   $ 1,006   $ 546  
     
Operating earnings as a percentage of net sales - GAAP 20.1 % 24.2 % 14.1 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments   24.3 %   26.7 %   20.9 %
      Non-GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Organic Revenue
Total Motorola Solutions
     
Three Months Ended
     
  December 31, 2017 December 31, 2016 % Change
Net sales $ 1,957   $ 1,883   4 %
 
Non-GAAP adjustments:
Acquisitions (48 ) (8 )
     
Organic revenue   1,909   $ 1,875   2 %
 
     
Years Ended
     
  December 31, 2017 December 31, 2016 % Change
Net sales   6,380     6,038   6 %
 
Non-GAAP adjustments:
Acquisitions (261 ) (69 )
     
Organic revenue $ 6,119   $ 5,969   3 %
 
             
North America
     
Three Months Ended
     
  December 31, 2017 December 31, 2016 % Change
Americas net sales   1,351     1,269   6 %
 
Adjustments:
Latin America (103 ) (99 )
North America acquisitions   (26 )   (8 )
North America organic revenue   1,222     1,162   5 %
 
     
Years Ended
     
  December 31, 2017 December 31, 2016 % Change
Americas net sales   4,341     4,074   7 %
 
Adjustments:
Latin America (365 ) (285 )
North America acquisitions   (67 )   (8 )
North America organic revenue   3,909     3,781   3 %
    Non-GAAP-5
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Earnings Per Share
             
(per diluted common share)     Q4 2017   2017
 
Basic GAAP Loss from Continuing Operations $ (3.56 ) $ (0.95 )
Adjust for dilution*       $ 0.16     $ 0.03  
Diluted Loss from Continuing Operations     $ (3.40 )   $ (0.92 )
Highlighted Items:
Share-based compensation expense 0.07 0.26
Reorganization of business charges 0.05 0.20
Intangibles amortization expense 0.18 0.67
Gain on legal settlements (0.02 ) (0.18 )
Non-US pension settlement loss 0.01 0.28
Tax reform 5.18 5.18
Release of FIN 48 reserve (0.01 ) (0.01 )
Valuation allowance on non-U.S. deferred tax assets 0.05 0.05
Tax benefit on U.S. capital loss (0.01 ) (0.14 )
Reserve on unrecognized tax benefit - 0.01
Acquisition-related transaction fees - 0.01
Asset impairment - 0.01
Sale of investments or business - (0.01 )
Building impairment         -       0.05  
Total Highlighted Items       $ 5.50     $ 6.38  
             
Non-GAAP Diluted EPS from Continuing Operations   $ 2.10     $ 5.46  
 
* Under U.S. GAAP, the accounting for a net loss from continuing operations results in the presentation of dilutive earnings per share equal to basic earnings per share, as any increase in basic shares would be anti-dilutive to earnings per share. As a result of the highlighted items identified during Q4 2017, the Company reported a net loss from continuing operations for the three months and year ended December 31, 2017 within our GAAP Consolidated Statement of Operations, while reporting income on a non-GAAP basis over the same periods. An adjustment is reflected to correct for the dilution of 7.2 million dilutive shares outstanding in Q4 2017 and 6.4 million dilutive shares outstanding for the full of 2017.


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