Motorola Solutions Reports First-Quarter 2016 Financial Results

DEFINITIONS

1 Amounts attributable to Motorola Solutions, Inc. common shareholders.

2 Free cash flow represents operating cash flow less capex

3 Net debt represents cash and cash equivalents less long-term debt, including current portion

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. ©2016 Motorola Solutions, Inc. All rights reserved.

    GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
     
Three Months Ended
April 2, 2016 April 4, 2015
Net sales from products $ 702 $ 758
Net sales from services   491     465  
Net sales 1,193 1,223
 
Costs of products sales 366 359
Costs of services sales   325     316  
Costs of sales 691 675
   
Gross margin   502     548  
 
Selling, general and administrative expenses 234 256
Research and development expenditures 135 159
Other charges 20 12
Intangibles amortization   13     2  
Operating earnings   100     119  
 
Other income (expense):
Interest expense, net (49 ) (40 )
Gains (losses) on sales of investments and businesses, net (21 ) 46
Other   (8 )   3  
Total other income (expense)   (78 )   9  
Earnings from continuing operations before income taxes 22 128
Income tax expense   5     40  
Earnings from continuing operations 17 88
 
Loss from discontinued operations, net of tax       (13 )
Net earnings 17 75
 
Less: Earnings attributable to noncontrolling interests       1  
Net earnings attributable to Motorola Solutions, Inc. $ 17   $ 74  
 
Amounts attributable to Motorola Solutions, Inc. common stockholders:
Earnings from continuing operations, net of tax $ 17 $ 87
Loss from discontinued operations, net of tax       (13 )
Net earnings attributable to Motorola Solutions, Inc. $ 17   $ 74  
 

Earnings (loss) per common share:

Basic:
Continuing operations $ 0.10 $ 0.40
Discontinued operations       (0.06 )
$ 0.10   $ 0.34  
 
Diluted:
Continuing operations $ 0.10 $ 0.40
Discontinued operations       (0.06 )
$ 0.10   $ 0.34  

Weighted average common shares outstanding:

Basic 174.5 215.3
Diluted   177.0     217.8  
     
Percentage of Net Sales*
Net sales from products 58.8 % 62.0 %
Net sales from services   41.2 %   38.0 %
Net sales 100.0 % 100.0 %
 
Costs of products sales 52.1 % 47.4 %
Costs of services sales   66.2 %   68.0 %
Costs of sales 57.9 % 55.2 %
   
Gross margin   42.1 %   44.8 %
 
Selling, general and administrative expenses 19.6 % 20.9 %
Research and development expenditures 11.3 % 13.0 %
Other charges 1.7 % 1.0 %
Intangibles amortization   1.1 %   0.2 %
Operating earnings   8.4 %   9.7 %
 
Other income (expense):
Interest expense, net (4.1 )% (3.3 )%
Gains (losses) on sales of investments and businesses, net (1.8 )% 3.8 %
Other   (0.7 )%   0.2 %
Total other income (expense)   (6.5 )%   0.7 %
Earnings from continuing operations before income taxes 1.8 % 10.5 %
Income tax expense   0.4 %   3.3 %
Earnings from continuing operations 1.4 % 7.2 %
Loss from discontinued operations, net of tax % (1.1 )%
Net earnings   1.4 %   6.1 %
 
Less: Earnings attributable to noncontrolling interests % 0.1 %
Net earnings attributable to Motorola Solutions, Inc.   1.4 %   6.1 %
* Percentages may not add up due to rounding
 
    GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
   
April 2, 2016 December 31, 2015
Assets
Cash and cash equivalents $ 1,940 $ 1,980
Accounts receivable, net 1,148 1,362
Inventories, net 287 296
Other current assets 626 954
Current assets held for disposition       27  
Total current assets   4,001     4,619  
 
Property, plant and equipment, net 997 487
Investments 228 231
Deferred income taxes 2,330 2,278
Goodwill 590 420
Other assets 884 271
Non-current assets held for disposition   19     40  
Total assets $ 9,049   $ 8,346  
 
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 4 $ 4
Accounts payable 424 518
Accrued liabilities   1,604     1,671  
Total current liabilities   2,032     2,193  
 
Long-term debt 5,023 4,345
Other liabilities 2,131 1,904
 
Total Motorola Solutions, Inc. stockholders’ equity (deficit) (147 ) (106 )
 
Noncontrolling interests 10 10
   
Total liabilities and stockholders’ equity $ 9,049   $ 8,346  
 
Financial Ratios:
Net cash (debt)* $ (3,087 ) $ (2,369 )
 
*Net cash (debt) = Total cash - Current portion of long-term debt - Long-term debt
 
    GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
     
Three Months Ended
April 2, 2016 April 4, 2015
Operating
Net earnings attributable to Motorola Solutions, Inc. $ 17 $ 74
Earnings attributable to noncontrolling interests       1  
Net earnings 17 75
Loss from discontinued operations, net of tax       (13 )
Earnings from continuing operations, net of tax 17 88

Adjustments to reconcile Earnings from continuing operations to Net cash provided by operating
activities from continuing operations:

Depreciation and amortization 62 41
Non-cash other charges 11 1
Share-based compensation expense 17 21
Losses (gains) on sales of investments and businesses, net 21 (46 )
Deferred income taxes 35 23

Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign
currency translation adjustments:

Accounts receivable 277 309
Inventories (4 ) (44 )
Other current assets (43 ) 26
Accounts payable and accrued liabilities (363 ) (247 )
Other assets and liabilities   (17 )   (16 )
Net cash provided by operating activities from continuing operations   13     156  
Investing
Acquisitions and investments, net (1,053 ) (74 )
Proceeds from sales of investments and businesses, net 481 88
Capital expenditures (51 ) (33 )
Proceeds from sales of property, plant and equipment       1  
Net cash used for investing activities from continuing operations   (623 )   (18 )
Financing
Repayment of debt (1 ) (1 )
Net proceeds from issuance of debt 673
Issuance of common stock 40 41
Purchase of common stock (64 ) (653 )
Excess tax benefit from share-based compensation 1
Payment of dividends   (71 )   (75 )
Net cash provided by (used for) financing activities from continuing operations   577     (687 )
   
Effect of exchange rate changes on cash and cash equivalents from continuing operations   (7 )   (52 )
Net decrease in cash and cash equivalents (40 ) (601 )
Cash and cash equivalents, beginning of period   1,980     3,954  
Cash and cash equivalents, end of period $ 1,940   $ 3,353  
 
Financial Ratios:
Free cash flow* $ (38 ) $ 123
 
*Free cash flow = Net cash provided by operating activities - Capital Expenditures
 
      GAAP-4
Motorola Solutions, Inc. and Subsidiaries
Segment Information
(In millions)
 
Net Sales
     
Three Months Ended
     
April 2, 2016 April 4, 2015 % Change
Products $ 702 $ 758 (7 )%
Services   491     465   6 %
Total Motorola Solutions $ 1,193   $ 1,223   (2 )%
 
 
Operating Earnings
     
Three Months Ended
     
April 2, 2016 April 4, 2015 % Change
Products $ 51 $ 64 (20 )%
Services   49     55   (11 )%
Total Motorola Solutions $ 100   $ 119   (16 )%
 
 
Operating Earnings %
     
Three Months Ended
   
April 2, 2016 April 4, 2015
Products 7.3 % 8.4 %
Services   10.0 %   11.8 %
Total Motorola Solutions   8.4 %   9.7 %
 
                  GAAP-5
Motorola Solutions, Inc. and Subsidiaries
Regional Revenue Information
(In millions)
 
During the first quarter of 2016, we restructured our regions operationally combining the Europe and Africa and Middle East regions into one region which is now reflected as Europe, Middle East, and Africa ("EMEA"). Accordingly, we now report net sales in the following four geographic regions: North America, Latin America, EMEA, and Asia Pacific ("AP"). We have updated all periods presented to reflect this change in presentation.
 
The Company’s regional net sales under the new regional alignment and as previously reported were as follows:
                           
Revised regional sales
                         
Q1   Q2   Q3   Q4   FY FY FY
2015   2015   2015   2015   2015 2014 2013
North America 770 883 922 1,138 3,713 3,599 3,894
Latin America 96 95 85 82 358 508 518
EMEA 223 227 244 280 974 1,129 1,066
AP   134     163     171     182     650   645   749
$ 1,223   $ 1,368   $ 1,422   $ 1,682   $ 5,695 $ 5,881 $ 6,227
                         
Regional sales as previously reported
                     
Q1 Q2 Q3 Q4 FY FY FY
2015   2015   2015   2015   2015 2014 2013
North America 770 883 922 1,138 3,713 3,599 3,894
Latin America 96 95 85 82 358 508 518
EA 192 197 213 247 849 1,034 988
AP 134 163 171 182 650 645 749
ME   31     30     31     33     125   95   78
$ 1,223   $ 1,368   $ 1,422   $ 1,682   $ 5,695 $ 5,881 $ 6,227
 

 

          Non-GAAP-1
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Adjustments (Intangibles Amortization Expense, Share-Based Compensation Expense and Highlighted Items)
                     
Q1 2016
 
Non-GAAP Adjustments Statement Line

PBT
(Inc)/Exp

Tax
Inc/(Exp)

PAT
(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 23 8 15 0.08
Intangibles amortization expense Intangibles amortization 13 3 10 0.06
Acquisition related transaction fees Other charges 13 13 0.07
Loss on investment in United Kingdom treasuries Other expense (income) 19 7 12 0.07
Realized foreign currency loss on acquisition Other expense (income) 10 3 7 0.04
Loss on sale of Malaysia facility and operations Other expense (income) 7 7 0.04
       
Total impact on Net earnings $ 102 $ 27 $ 75 $ 0.42
 
      Non-GAAP-2
Motorola Solutions, Inc. and Subsidiaries
Non-GAAP Segment Information
(In millions)
               
Net Sales
     
Three Months Ended
     
April 2, 2016 April 4, 2015 % Change  
Products $ 702 $ 758 (7 )%
Services   491     465   6 %
Total Motorola Solutions $ 1,193   $ 1,223   (2 )%
 
               
Non-GAAP Operating Earnings
     
Three Months Ended
     
April 2, 2016 April 4, 2015 % Change  
Products $ 84 $ 90 (7 )%
Services   82     66   24 %
Total Motorola Solutions $ 166   $ 156   6 %
 
               
Non-GAAP Operating Earnings %
     
Three Months Ended
   
April 2, 2016 April 4, 2015
Products 12.0 % 11.9 %
Services   16.7 %   14.2 %
Total Motorola Solutions   13.9 %   12.8 %
 
      Non-GAAP-3
Motorola Solutions, Inc. and Subsidiaries
Operating Earnings after Non-GAAP Adjustments
             
Q1 2016
     
    TOTAL Products Services
Net sales $ 1,193 $ 702 $ 491
Operating earnings ("OE")   $ 100 $ 51 $ 49
 
Above-OE non-GAAP adjustments:
Share-based compensation expense 17 11 6
Reorganization of business charges 23 21 2
Intangibles amortization expense 13 1 12
Acquisition related transaction fees 13 13
Total above-OE non-GAAP adjustments 66 33 33
         
Operating earnings after non-GAAP adjustments   $ 166 $ 84 $ 82
     
Operating earnings as a percentage of net sales - GAAP 8.4 % 7.3 % 10.0 %
Operating earnings as a percentage of net sales - after non-GAAP adjustments 13.9 % 12.0 % 16.7 %
 

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