UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

_______
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported): August 7, 2014
 
Motorola Solutions, Inc.
(Exact Name of Registrant as Specified in Charter)
 
 
DELAWARE
 
 
(State or Other Jurisdiction of Incorporation)
 
 
1-7221
 
36-1115800
(Commission File Number)
 
(IRS Employer Identification No.)
 
1303 East Algonquin Road
Schaumburg, Illinois
 
60196
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
 
Registrant’s telephone number, including area code: (847) 576-5000
 
 
  _____________________________
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 8.01 Other events
Motorola Solutions, Inc. (the “Company”) is filing this Current Report on Form 8-K solely to update the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (“Motorola’s 2013 Annual Report”) to reflect: (i) the revised presentation of the Company’s segments as a result of the realignment of its operations into two segments: Products and Services, as previously reported on Form 8-K furnished on July 31, 2014, and (ii) the reclassification of the historical financial results of the Company’s Enterprise business as discontinued operations as a result of the agreement dated April 14, 2014 to sell certain assets and liabilities of the Enterprise business to Zebra Technologies, Inc. (the “Transaction”). The results of operations of the portions of the Enterprise business being sold as part of the Transaction have been reclassified to discontinued operations and the assets and liabilities being sold as part of the Transaction have been presented in the Company’s consolidated financial statements as assets and liabilities held for sale for all periods presented.
Attached as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K are the updated “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8: Financial Statements and Supplementary Data” both from the Company’s 2013 Annual Report, to reflect the revised segment presentation and the reclassification of the historical financial results of the Enterprise business as discontinued operations.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
The following are filed as Exhibits to this Report:
Exhibit 23
Consent of Independent Registered Public Accounting Firm
 
 
Exhibit 99.1
“Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations”
 
 
Exhibit 99.2
“Item 8: Financial Statements and Supplementary Data”
 
 
Exhibit 101
The Consolidated Balance Sheets as of December 31, 2013 and 2012 and the following financial information for the three years in the period ended December 31, 2013 from Motorola Solutions, Inc.’s Current Report on Form 8-K are formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Statements of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) Notes to Consolidated Financial Statements.





SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
MOTOROLA SOLUTIONS, INC.
(Registrant)
 
 
 
 
 
 
 
 Dated: August 7, 2014
By:
 /s/ John K. Wozniak
 
 
 
Name:
John K. Wozniak
 
 
 
Title:
Corporate Vice President and Chief Accounting Officer
 





EXHIBIT INDEX
Exhibit No.
Description
 
 
23
Consent of Independent Registered Public Accounting Firm
 
 
99.1
“Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations”
 
 
99.2
“Item 8: Financial Statements and Supplementary Data”
 
 
101
The Consolidated Balance Sheets as of December 31, 2013 and 2012 and the following financial information for the three years in the period ended December 31, 2013 from Motorola Solutions, Inc.’s Current Report on Form 8-K are formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Statements of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) Notes to Consolidated Financial Statements.



Exhibit 23 - KPMG Consent


Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Motorola Solutions, Inc.:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 033-59285, 333‑51847, 333-36308, 333-53120, 333-60612, 333-87728, 333-105107, 333-123879, 333-133736, 333-142845, and 333-160137) and Form S-3 (Nos. 333-181223, 333-76337, and 333-36320) of Motorola Solutions, Inc. of our reports dated February 13, 2014, except as it relates to the presentation of the Enterprise business (excluding certain assets and liabilities to be retained by Motorola Solutions, Inc.) as a discontinued operation as discussed in Note 2 and the related change in segment information discussed in Notes 12 and 14, as to which the date is August 7, 2014, with respect to the consolidated balance sheets of Motorola Solutions, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013, which report appears in the August 7, 2014 Form 8-K.

Chicago, Illinois
August 7, 2014


Exhibit 99.1 - MD&A


Exhibit 99.1
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our financial position and results of operations for each of the three years in the period ended December 31, 2013. This commentary should be read in conjunction with our consolidated financial statements and the notes thereto appearing under “Item 8: Financial Statements and Supplementary Data.”
Executive Overview
Recent Developments
On April 14, 2014, we entered into a Master Acquisition Agreement (the “Acquisition Agreement”) with Zebra Technologies Corporation to sell our Enterprise business for $3.45 billion in cash. Certain assets of the Enterprise business will be excluded from the transaction and retained by us, including our iDEN business, and other assets and certain liabilities as specified in the Acquisition Agreement. The transaction is expected to close by the end of 2014. As a result of the pending sale, we have reported the Enterprise business as a discontinued operation in our consolidated financial statements and footnotes for all periods presented.
As a result of the reclassification of the Enterprise business to discontinued operations, we now have two segments: Products and Services. We have updated all periods presented to reflect this change in presentation.
Our Business
We are a leading provider of mission-critical communication infrastructure, devices, software and services. Our products and services help government, public safety and commercial customers improve their operations through increased effectiveness and efficiency of their mobile workforces. Our customers benefit from our global footprint and thought leadership, with sales in more than 100 countries, an industry leadership position, an unmatched portfolio of products and services and a strong patent portfolio.
We conduct our business globally and manage it by two segments:
Products: The Products segment offers an extensive portfolio of network infrastructure, devices, system software and applications for the public safety, hospitality, education, manufacturing, transportation, utilities, mining and retail industries, including our:  (i) “ASTRO” products, which meet the Association of Public Safety Communications Officials Project 25 standard, (ii) “Dimetra” products which meet the European Telecommunications Standards Institute Terrestrial Trunked Radio “TETRA” standard, (iii) Professional and Commercial Radio (“PCR”) products, (iv) integrated digital enhanced network (“iDEN”) products, and (v) broadband technology products, such as Long-Term Evolution (“LTE”). In addition, the Products segment offers smart public safety solutions including computer-aided dispatch, records systems, data management systems and Real Time Crime Center solutions. In 2013, the segment’s net sales were $4.1 billion, representing 66% of our consolidated net sales.
Services: The Services segment has a full breadth of service offerings for both public safety and private communication networks including: (i) Integration services, (ii) Lifecycle Management and Support services, (iii) Managed services, and (iv) Solutions services. Integration services includes implementation, optimization, and integration of networks, devices, and applications.  Lifecycle Management and Support services includes lifecycle planning, upgrades, call center, network monitoring, and repair services.  Managed services includes managing customer networks at defined services levels. Solutions services includes integration of hardware and software to meet customer needs. In 2013, the segment’s net sales were $2.1 billion, representing 34% of our consolidated net sales.
What were our 2013 financial results?
•
Net sales were $6.2 billion in 2013 compared to $6.3 billion in 2012.
•
Operating earnings were $947 million in 2013, compared to $920 million in 2012. Operating margin was 15.2% of net sales in 2013, compared to 14.7% of net sales in 2012.
•
Earnings from continuing operations were $933 million, or $3.45 per diluted common share, including a tax benefit that had a $1.25 per diluted earnings per share impact, in 2013, compared to $670 million, or $2.25 per diluted common share, in 2012.
•
Cash from operating activities was $555 million in 2013, compared to $674 million in 2012.
•
We provided $1.7 billion in cash to shareholders through share repurchases and $292 million in cash dividends during 2013.
•
We issued $600 million of 3.50% senior notes due 2023 in the first quarter of 2013.

1


What were the financial results for our two segments in 2013?
•
In the Products segment: Net sales were $4.1 billion in 2013, a decrease of $127 million, or 3%, compared to $4.2 billion in 2012. On a geographic basis, net sales decreased in North America, Latin America and Asia Pacific and Middle East ("APME") and increased in Europe and Africa ("EA") compared to 2012. Operating earnings were $639 million in 2013, compared to $656 million in 2012. Operating margin improved in 2013 to 15.6% from 15.5% in 2012.
•
In the Services segment: Net sales were $2.1 billion in 2013, an increase of $85 million, or 4%, compared to $2.0 billion in 2012. On a geographic basis, net sales increased in North America, Latin America and EA and decreased in APME, compared to 2012. Operating earnings were $308 million in 2013, compared to $264 million in 2012. Operating margin increased in 2013 to 14.5% from 13.0% in 2012.


2


Results of Operations 
 
Years ended December 31
(Dollars in millions, except per share amounts)
2013
 
% of
Sales **
 
2012
 
% of
Sales **
 
2011
 
% of
Sales **
Net sales from products
$
4,109

 
 
 
$
4,236

 
 
 
$
3,901

 
 
Net sales from services
2,118

 
 
 
2,033

 
 
 
1,837

 
 
Net sales
6,227

 
 
 
6,269

 
 
 
5,738

 
 
Costs of product sales
1,808

 
44.0
 %
 
1,795

 
42.4
 %
 
1,697

 
43.5
 %
Costs of services sales
1,310

 
61.9
 %
 
1,280

 
63.0
 %
 
1,114

 
60.6
 %
Costs of sales
3,118

 
50.1
 %
 
3,075

 
49.1
 %
 
2,811

 
49.0
 %
Gross margin
3,109

 
49.9
 %
 
3,194

 
50.9
 %
 
2,927

 
51.0
 %
Selling, general and administrative expenses
1,330

 
21.4
 %
 
1,472

 
23.5
 %
 
1,422

 
24.8
 %
Research and development expenditures
761

 
12.2
 %
 
790

 
12.6
 %
 
778

 
13.6
 %
Other charges
71

 
1.1
 %
 
12

 
0.2
 %
 
129

 
2.2
 %
Operating earnings
947

 
15.2
 %
 
920

 
14.7
 %
 
598

 
10.4
 %
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(113
)
 
(1.8
)%
 
(66
)
 
(1.1
)%
 
(74
)
 
(1.3
)%
Gains on sales of investments and businesses, net
37

 
0.6
 %
 
26

 
0.4
 %
 
23

 
0.4
 %
Other
9

 
0.1
 %
 
1

 
—
 %
 
(66
)
 
(1.2
)%
Total other expense
(67
)
 
(1.1
)%
 
(39
)
 
(0.6
)%
 
(117
)
 
(2.0
)%
Earnings from continuing operations before income taxes
880

 
14.1
 %
 
881

 
14.1
 %
 
481

 
8.4
 %
Income tax expense (benefit)
(59
)
 
(0.9
)%
 
211

 
3.4
 %
 
(95
)
 
(1.7
)%
Earnings from continuing operations
939

 
15.1
 %
 
670

 
10.7
 %
 
576

 
10.0
 %
Less: Earnings (loss) attributable to noncontrolling interests
6

 
0.1
 %
 
—

 
—
 %
 
(6
)
 
(0.1
)%
Earnings from continuing operations*
933

 
15.0
 %
 
670

 
10.7
 %
 
582

 
10.1
 %
Earnings from discontinued operations, net of tax
166

 
2.7
 %
 
211

 
3.4
 %
 
576

 
10.0
 %
Net earnings*
$
1,099

 
17.6
 %
 
$
881

 
14.1
 %
 
$
1,158

 
20.2
 %
Earnings per diluted common share*:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
3.45

 
 
 
$
2.25

 
 
 
$
1.71

 
 
Discontinued operations
0.61

 
 
 
0.71

 
 
 
1.70

 
 
Earnings per diluted common share*
$
4.06

 
 
 
$
2.96

 
 
 
$
3.41

 
 
*    Amounts attributable to Motorola Solutions, Inc. common shareholders.
**    Percentages may not add due to rounding.

3



Geographic market sales, measured by the locale of the end customer, as a percent of total net sales for 2013, 2012 and 2011 are as follows:
Geographic Market Sales by Locale of End Customer
 
2013
 
2012
 
2011
North America
63
%
 
62
%
 
60
%
Latin America
8
%
 
9
%
 
11
%
EA
16
%
 
14
%
 
14
%
APME
13
%
 
15
%
 
15
%
 
100
%
 
100
%
 
100
%
Results of Operations—2013 Compared to 2012
Net Sales
Net sales were $6.2 billion in 2013 compared to $6.3 billion in 2012. The slight decrease in net sales reflects a $127 million, or 3%, decrease in the Products segment driven by: (i) a decrease in PCR sales, due to lower sales as a result of the narrowbanding initiative in 2012, and (ii) lower iDEN sales, partially offset by an $85 million, or 4%, increase in the Services segment driven by an increase in Integration and Lifecycle Management and Support services.
Gross Margin
Gross margin was $3.1 billion, or 49.9% of net sales in 2013, compared to $3.2 billion, or 50.9% of net sales, in 2012. The decrease in gross margin percentage was driven primarily by: (i) lower iDEN equipment sales and (ii) the overall mix between Products and Services sales.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased 10% to $1.3 billion, or 21.4% of net sales in 2013, compared to $1.5 billion, or 23.5% of net sales in 2012. The decrease in SG&A is primarily driven by: (i) a number of structural cost improvements, including defined benefit expenses, and (ii) decreases in variable compensation expenses.
Research and Development Expenditures
R&D expenditures decreased 4% to $761 million, or 12.2% of net sales in 2013, compared to $790 million, or 12.6% of net sales in 2012. The decrease in R&D expenditures is primarily due to: (i) reduced compensation expenses and (ii) reduced spending in certain development programs, such as iDEN.
Other Charges
We recorded net charges of $71 million in Other charges in 2013, compared to net charges of $12 million in 2012. The charges in 2013 included: (i) $70 million of net reorganization of business charges and (ii) $1 million of charges relating to amortization of intangibles. The charges in 2012 primarily included $27 million of charges relating to reorganization of business charges, partially offset by $16 million of income related to a legal matter. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was $113 million in 2013, compared to net interest expense of $66 million in 2012. Net interest expense in 2013 included interest expense of $132 million, partially offset by interest income of $19 million. Net interest expense in 2012 included interest expense of $108 million, partially offset by interest income of $42 million. The increase in net interest expense in 2013 compared to 2012 is primarily attributable to: (i) higher interest expense driven by an increase in average debt outstanding and $5 million of income tax-related interest charges and (ii) a decrease in interest income due to lower average cash and cash equivalents during 2013 compared to 2012.

4


Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $37 million in 2013, compared to $26 million in 2012. These gains consist of gains on the sale of multiple equity investments in both 2013 and 2012.
Other
Net Other income was $9 million in 2013, compared to net Other income of $1 million in 2012. The net Other income in 2013 was primarily comprised of: (i) $10 million of equity method investment earnings and (ii) $11 million of other non-operating gains, partially offset by: (i) a $9 million loss on foreign currency and (ii) investment impairments of $3 million. The net Other income in 2012 was primarily comprised of: (i) $3 million of equity method investment earnings and (ii) $9 million of other non-operating gains, partially offset by: (i) $6 million loss from the extinguishment of debt and (ii) investment impairments of $4 million.
Effective Tax Rate
We recorded $59 million of net tax benefit in 2013, resulting in a negative effective tax rate, compared to $211 million of net tax expense in 2012, resulting in an effective tax rate of 24%. Our effective tax rate in 2013 was favorably impacted by: (i) $337 million of net tax benefit, or $1.25 of diluted earnings per share from continuing operations, associated with excess foreign tax credits, (ii) a $25 million reduction in our deferred tax liability for undistributed foreign earnings primarily due to our assertion that certain earnings are now permanently reinvested, and (iii) a $9 million tax benefit for prior year R&D tax credits. The tax benefit associated with the excess foreign tax credits relates to the earnings of certain non-U.S. subsidiaries reorganized under our holding company structure implemented during 2013. Our effective tax rate in 2013 was unfavorably impacted by a $20 million tax charge associated with the liquidation of the Sigma Fund, as discussed within "Liquidity and Capital Resources."
Our effective tax rate in 2012 was lower than the U.S. statutory tax rate of 35% primarily due to: (i) a $60 million tax benefit related to the reversal of a significant portion of the valuation allowance established on certain foreign deferred tax assets and (ii) a $13 million reduction in unrecognized tax benefits for facts that then indicated the extent to which certain tax positions were more-likely-than-not of being sustained.
Our effective tax rate will change from period to period based on non-recurring events, such as the settlement of income tax audits, changes in valuation allowances and the tax impact of significant unusual or extraordinary items, as well as recurring factors including changes in the geographic mix of income and effects of various global income tax strategies.
Earnings from Continuing Operations Attributable to Motorola Solutions, Inc.
We had net earnings from continuing operations attributable to Motorola Solutions, Inc. of $933 million, or $3.45 per diluted share, in 2013, compared to $670 million, or $2.25 per diluted share, in 2012.
The increase in net earnings from continuing operations attributable to Motorola Solutions Inc. in 2013, as compared to 2012, was primarily driven by: (i) a lower effective tax rate due to the $337 million net tax benefit associated with foreign tax credits and (ii) decreased defined benefit expenses of over $100 million, partially offset by: (i) a $85 million decrease in gross margin, (ii) a $43 million increase in reorganization of business charges, and (iii) a $47 million increase in net interest expense. The increase in earnings per diluted share from continuing operations was driven by higher net earnings as well as the reduction in shares outstanding as a result of our share repurchase program.
Earnings from Discontinued Operations
In 2013, we had $166 million in earnings from discontinued operations, net of tax, or $0.61 per diluted share, compared to $211 million of earnings from discontinued operations, net of tax, or $0.71 per diluted share, in 2012. The earnings from discontinued operations in 2013 and 2012 were primarily from the Enterprise business. The decrease from 2012 to 2013 is primarily related to an increase in amortization of intangible assets, as a result of the purchase of Psion at the end of 2012.
Results of Operations—2012 Compared to 2011
Net Sales
Net sales were $6.3 billion in 2012, a 9% increase compared to net sales of $5.7 billion in 2011. The increase in net sales reflects: (i) a $335 million, or 9% increase in net sales in the Products segment driven by ASTRO and PCR sales reflecting higher device sales as a result of the narrowbanding initiative, partially offset by a decrease in iDEN sales and (ii) a $196 million, or 11% increase in net sales in the Services segment driven by Integration and Lifecycle Management and Support services.

5


Gross Margin
Gross margin was $3.2 billion, or 50.9% of net sales in 2012, compared to $2.9 billion, or 51.0% of net sales, in 2011. The slight decrease in gross margin percentage was primarily driven by: (i) lower iDEN equipment sales and (ii) a decrease in gross margin percentage in our Services segment, as a result of an increase in Integration services, which are typically lower margin than our Lifecycle Management and Support services.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses increased 4% to $1.5 billion, or 23.5% of net sales in 2012, compared to $1.4 billion, or 24.8% of net sales in 2011. The increase in SG&A expenses is driven by: (i) an increase in defined benefit and (ii) employee benefit-related expenses, including incentives.
Research and Development Expenditures
R&D expenditures increased 2% to $790 million, or 12.6% of net sales in 2012, compared to $778 million, or 13.6% of net sales in 2011. The increase in R&D expenditures reflects higher R&D expenditures in both segments, primarily due to: (i) an increase in employee benefit-related expenses and (ii) increased investment in next-generation technologies.
Other Charges
We recorded net charges of $12 million in Other charges in 2012, compared to net charges of $129 million in 2011. The charges in 2012 primarily included $27 million of charges relating to reorganization of business charges, partially offset by $16 million of income related to a legal matter. The charges in 2011 included: (i) $88 million of net charges relating to legal matters, (ii) $35 million of net reorganization of business charges, (iii) $10 million related to a long-term financing receivable reserve, and (iv) $5 million related to amortization of intangibles, partially offset by $9 million in gains related to pension plan adjustments. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was $66 million in 2012, compared to net interest expense of $74 million in 2011. Net interest expense in 2012 included interest expense of $108 million, partially offset by interest income of $42 million. Net interest expense in 2011 included interest expense of $132 million, partially offset by interest income of $58 million. The decrease in net interest expense in 2012 compared to 2011 is primarily attributable to lower interest expense driven by lower average debt outstanding, partially offset by a decrease in interest income due to lower average cash and cash equivalents during 2012 compared to 2011.
Gains on Sales of Investments and Businesses
Gains on sales of investments and businesses were $26 million in 2012, compared to $23 million in 2011. In 2012 the gains related to the sale of multiple equity investments, compared to 2011 where $17 million consisted of gains on the sale of multiple equity investments and $6 million related to gains on the sale of businesses.
Other
Net Other income was $1 million in 2012, compared to net Other expense of $66 million in 2011. The net Other income in 2012 was primarily comprised of: (i) $3 million of equity method investment earnings and (ii) $9 million of other non-operating gains, partially offset by: (i) $6 million loss from the extinguishment of debt and (ii) investment impairments of $4 million. The net Other expense in 2011 was primarily comprised of: (i) an $81 million loss from the extinguishment of a portion of our outstanding long-term debt and (ii) $4 million of investment impairments, and (iii) $3 million of other non-operating losses, partially offset by: (i) $12 million of equity method investment earnings and (ii) a $10 million foreign currency gain.
Effective Tax Rate
We recorded $211 million of net tax expense in 2012, resulting in an effective tax rate of 24%, compared to a $95 million net tax benefit in 2011, resulting in a negative effective tax rate. Our effective tax rate in 2012 was lower than the U.S. statutory tax rate of 35% primarily due to: (i) a $60 million tax benefit related to the reversal of a significant portion of the valuation allowance established on certain foreign deferred tax assets and (ii) a $13 million reduction in unrecognized tax benefits for facts that then indicated the extent to which certain tax positions were more-likely-than-not of being sustained. Our negative effective tax rate in 2011 was primarily due to: (i) a $274 million tax benefit related to the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets and (ii) reductions in unrecognized tax benefits for facts that then indicated the extent to which certain tax positions were more-likely-than-not of being sustained, partially offset by an increase in the U.S. federal income tax accrual for undistributed foreign earnings.

6


Earnings from Continuing Operations Attributable to Motorola Solutions, Inc.
We had net earnings from continuing operations attributable to Motorola Solutions, Inc. of $670 million, or $2.25 per diluted share, in 2012, compared to $582 million, or $1.71 per diluted share, in 2011.
The increase in earnings from continuing operations attributable to Motorola Solutions, Inc. in 2012 compared to 2011 was primarily attributable to: (i) a $267 million increase in gross margin, (ii) a $117 million decrease in Other charges related to lower legal charges of $88 million, lower reorganization of business charges of $12 million, lower intangible asset amortization of $4 million, and a one-time net income from legal matters of $16 million in 2012, and (iii) lower Other expenses primarily due to a loss on extinguishment of debt incurred in 2011 of $81 million. These positive impacts on earnings from continuing operations were partially offset by an increase in income tax expense in 2012 due to a $274 million benefit for the valuation allowance reversal recorded in 2011. The increase in earnings per diluted share from continuing operations was primarily due to higher earnings as well as the reduction in shares outstanding as a result of our share repurchase program.
Earnings from Discontinued Operations
After taxes, we had earnings from discontinued operations of $211 million, or $0.71 per diluted share, in 2012, compared to earnings from discontinued operations of $576 million, or $1.70 per diluted share, in 2011. The earnings from discontinued operations in 2012 were primarily from the operations of the Enterprise business and the earnings from discontinued operations in 2011 consisted of: (i) $371 million related the Networks business sold in 2011, (ii) $164 million related to the Enterprise business, and (iii) $48 million related to the Wireless Broadband businesses sold in 2011, partially offset by an $8 million loss recorded on the amateur marine radio business sold in 2012.

Segment Information
The following commentary should be read in conjunction with the financial results of each operating business segment as detailed in Note 12, “Information by Segment and Geographic Region,” to our consolidated financial statements. Net sales and operating results for our two segments for 2013, 2012, and 2011 are presented below.
Products Segment
In 2013, the Products segment’s net sales represented 66% of our consolidated net sales, compared to 68% in 2012 and 2011.
 
Years ended December 31
 
Percent Change
(Dollars in millions)
2013
 
2012
 
2011
 
2013—2012
 
2012—2011
Segment net sales
$
4,109

 
$
4,236

 
$
3,901

 
(3
)%
 
9
%
Operating earnings
639

 
656

 
338

 
(3
)%
 
94
%
Segment Results—2013 Compared to 2012
In 2013, the segment’s net sales were $4.1 billion, a 3% decrease compared to 2012. The 3% decrease in net sales in the Products segment primarily reflects a decrease in sales of iDEN equipment year over year. In addition, our sales of PCR declined coming off of a record sales year in 2012 driven by the narrowbanding initiative. On a geographic basis, net sales declined in all regions except EA, compared to 2012. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately 63% of the segment’s net sales in both 2013 and 2012. North America showed continued strength in sales to state and local governments; however, federal sales declined partially due to sequestration and the government shutdown in October 2013. EA showed strong growth driven by infrastructure sales. The segment’s backlog was $1.1 billion at December 31, 2013 and $1.6 billion at December 31, 2012.
The segment had operating earnings of $639 million in 2013, compared to operating earnings of $656 million in 2012. As a percentage of net sales in 2013 as compared to 2012, gross margin was down 1% and SG&A and R&D expenditures decreased. The decrease in operating earnings was primarily due to an increase in Other charges as a result of increased reorganization of business charges in 2013 as compared to 2012, partially offset by a decrease in SG&A expenses as a result of lower variable compensation expenses and reduced defined benefit plan expenses.
Segment Results—2012 Compared to 2011
In 2012, the segment’s net sales were $4.2 billion, a 9% increase compared to net sales of $3.9 billion in 2011. The 9% increase in net sales in the Products segment reflects growth in both subscribers and infrastructure across the product portfolio, partially offset by a decrease in iDEN equipment sales. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately 63% of the segment’s net sales, benefiting from the narrowbanding initiative, in 2012 and 59% in 2011. The segment’s backlog was $1.6 billion at December 31, 2012 and December 31, 2011.
The segment had operating earnings of $656 million in 2012, compared to operating earnings of $338 million in 2011.

7


The increase in operating earnings was primarily due to: (i) an increase in gross margin, driven by the 9% increase in net sales and (ii) a decline in Other charges, driven by lower charges for legal matters and reorganization of business in 2012 as compared to 2011. As a percentage of net sales in 2012 as compared to 2011, gross margin increased slightly and operating leverage increased primarily due to the 9% increase in net sales while improving the segment's fixed cost structure.
Services Segment
In 2013, the Services segment’s net sales represented 34% of our consolidated net sales, compared to 32% in 2012 and 2011.
 
Years ended December 31
 
Percent Change
(Dollars in millions)
2013
 
2012
 
2011
 
2013—2012
 
2012—2011
Segment net sales
$
2,118

 
$
2,033

 
$
1,837

 
4
%
 
11
%
Operating earnings
308

 
264

 
260

 
17
%
 
2
%
Segment Results—2013 Compared to 2012
In 2013, the segment’s net sales were $2.1 billion, a 4% increase compared to 2012. The 4% increase in net sales in the Services segment was due to increased Integration services associated with new and replacement systems. On a geographic basis, all regions increased with the exception of APME, compared to 2012. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately 61% of the segment’s net sales in 2013 and 2012. The segment’s backlog was $4.3 billion at December 31, 2013, compared to $3.4 billion at December 31, 2012.
The segment had operating earnings of $308 million in 2013, compared to operating earnings of $264 million in 2012. As a percentage of net sales in 2013 as compared to 2012, gross margin was slightly higher, SG&A expenditures decreased, and R&D expenditures decreased. The increase in operating earnings was primarily due to: (i) an increase in gross margin as a result of higher margin Integration projects and (ii) decreases in SG&A expenses as a result of lower variable compensation expenses and reduced defined benefit plan expenses, partially offset by higher Other charges as a result of higher reorganization of business charges.
Segment Results—2012 Compared to 2011
In 2012, the segment’s net sales were $2.0 billion, an 11% increase compared to net sales of $1.8 billion in 2011. The 11% increase in net sales in the Services segment reflects a double-digit increase in Integration services as well as a single-digit increase in Lifecycle Management and Support services as a result of new and refreshed system sales. On a geographic basis, all regions increased. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately 61% of the segment’s net sales in 2012, and approximately 63% in 2011. The segment’s backlog was $3.4 billion at December 31, 2012, compared to $3.0 billion at December 31, 2011.
The segment had operating earnings of $264 million in 2012, an increase of 2% compared to operating earnings of $260 million in 2011. The increase in operating earnings was primarily due to a decrease in Other charges as a result of a decline in reorganization of business charges and less net charges for legal matters that occurred in 2012, as compared to 2011. As a percentage of net sales in 2012 as compared to 2011, gross margin decreased primarily related to mix as more Integration services and Lifecycle Management and Support services were recognized into revenue, while iDEN services declined, and operating leverage increased due to the 11% increase in net sales.

Reorganization of Businesses
During 2013, we implemented various productivity improvement plans aimed at continuing operating margin improvements by driving efficiencies and reducing operating costs. In 2013, we recorded net reorganization of business charges of $133 million relating to the separation of 2,200 employees, of which 1,400 were indirect employees and 800 were direct employees. Of these charges, $47 million related to discontinued operations. The remaining $86 million of charges in earnings from continuing operations included $16 million recorded to Cost of sales and $70 million recorded to Other charges. Included in the aggregate $86 million are charges of: (i) $94 million for employee separation costs and (ii) $2 million for exit costs, partially offset by $10 million of reversals for accruals no longer needed.
We realized cost-saving benefits of approximately $21 million in 2013 from the plans that were initiated during 2013, primarily in operating expenses. Beyond 2013, we expect the reorganization plans initiated during 2013 to provide annualized cost savings of approximately $103 million, consisting of $19 million of savings in Cost of sales, and $84 million of savings in operating expenses. These cost savings include reduced payroll or other operating expenses; however, as we continue to outsource manufacturing and other functions, these cost savings may not be realizable as variable outsourced manufacturing and other activities increase.
During 2012, we recorded net reorganization of business charges of $50 million relating to the separation of 1,000

8


employees, of which 700 were indirect employees and 300 were direct employees. Of these charges, $17 million related to discontinued operations. The remaining $33 million of charges in earnings from continuing operations included $6 million recorded to Cost of sales and $27 million recorded to Other charges. Included in the aggregate $33 million are charges of: (i) $35 million for employee separation costs and (ii) $5 million for building impairments, partially offset by $7 million for reversals of accruals no longer needed.
During 2011, we recorded net reorganization of business charges of $58 million relating to the separation of 900 employees, of which 600 were indirect employees and 300 were direct employees. Of these charges, $18 million related to discontinued operations. The remaining $40 million of charges in earnings from continuing operations included $5 million recorded to Cost of sales and $35 million recorded to Other charges. Included in the aggregate $40 million are charges of: (i) $28 million for employee separation costs and (ii) $13 million for exit costs, partially offset by $1 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by business segment:
Years ended December 31
2013
 
2012
 
2011
Products
$
57

 
$
22

 
$
27

Services
29

 
11

 
13

 
$
86

 
$
33

 
$
40

Cash payments for exit costs and employee separations in connection with these reorganization plans were $59 million,$55 million, and $81 million in 2013, 2012, and 2011, respectively. The cash payments included $20 million in 2013, $20 million in 2012, and $28 million in 2011 related to employees of discontinued operations. The $109 million reorganization of businesses accrual remaining at December 31, 2013, includes: (i) $103 million relating to employee separation costs that are expected to be paid primarily in 2014 and (ii) $6 million relating to lease termination obligations that are expected to be paid over a number of years. As part of the sale of its Enterprise business, the Company retains the reorganization of business charges accruals and the responsibility to pay affected employees for those charges incurred prior to the closing of the sale of the Enterprise business.

Liquidity and Capital Resources
We decreased our total cash and cash equivalent balances, Sigma Fund, and short-term investments by $376 million from $3.6 billion as of December 31, 2012 to $3.2 billion as of December 31, 2013. This decrease was primarily due to the return of $2.0 billion of capital to shareholders through share repurchases and dividends paid during 2013, partially offset by: (i) $555 million of operating cash flow, (ii) $593 million of net proceeds from the issuance of debt and (iii) $365 million of cash generated from discontinued operations.
Cash and Cash Equivalents
At December 31, 2013, our cash and cash equivalents (which are highly-liquid investments purchased with an original maturity of three months or less) were $3.2 billion, an increase of $1.8 billion, compared to $1.5 billion at December 31, 2012. The increase in cash and cash equivalents is primarily due to the liquidation of the Sigma Fund which had a balance of $2.1 billion at December 31, 2012. At December 31, 2013, $1.8 billion of the $3.2 billion cash and cash equivalents balance was held in the U.S. and $1.4 billion was held in other countries (including $732 million in the United Kingdom). At both December 31, 2013 and December 31, 2012, restricted cash was $63 million.
We continue to analyze and review various repatriation strategies to efficiently repatriate cash. In 2013, we repatriated approximately $777 million in cash to the U.S. from international jurisdictions. At December 31, 2013, we had approximately $450 million of foreign earnings that are not permanently reinvested and may be repatriated without an additional tax charge to our consolidated statements of operations, given the U.S. federal and foreign income tax accrued on the undistributed earnings and the utilization of available foreign tax credits. Undistributed earnings that we intend to reinvest indefinitely, and for which no income taxes have been provided, aggregate to $1.4 billion, $1.0 billion and $1.0 billion at December 31, 2013, 2012 and 2011, respectively. We currently have no plans to repatriate the foreign earnings permanently reinvested.  If circumstances change and it becomes apparent that some or all of the permanently reinvested earnings will be remitted to the U.S. in the foreseeable future, an additional income tax charge may be necessary. During 2013, we made a $150 million cash tax payment, comprised of $87 million for withholding taxes associated with an intercompany foreign dividend and $63 million for previously accrued non-U.S. income taxes associated with the settlement of an income tax audit.
Where appropriate, we may also pursue capital reduction activities; however, such activities can be involved and lengthy. While we regularly repatriate funds, and a portion of offshore funds can be repatriated with minimal adverse financial impact, repatriation of some of these funds may be subject to delay for local country approvals and could have potential adverse cash tax consequences.

9


On January 4, 2011, the distribution of Motorola Mobility from Motorola Solutions was completed. As part of the distribution, we contributed $3.2 billion of cash and cash equivalents to Motorola Mobility. We had an obligation to fund an additional $300 million, upon receipt of cash distributions as a result of future capital reductions of an overseas subsidiary, of which $225 million was paid during 2011 and $73 million was paid during 2012. These contributions are reflected as financing activities in our consolidated statements of cash flows for the years ended December 31, 2012 and 2011.
Operating Activities
Cash provided by operating activities from continuing operations in 2013 was $555 million, compared to $674 million in 2012 and $366 million in 2011. Operating cash flows in 2013, as compared to 2012, were negatively impacted by: (i) higher cash tax payments, including Indian tax deposits of $43 million and (ii) lower collections and sales of long-term receivables, including receivables related to the Networks divestiture that were retained after the sale and sold or collected in 2012, partially offset by approximately $190 million of lower defined benefit plan contributions.  Operating cash flows in 2012, as compared to 2011, were positively impacted by: (i) increased sales and the expansion of operating margins, (ii) a $149 million decrease in contributions to our pension plans, and (iii) improvements in our working capital management, including approximately $100 million of sold or collected long-term receivables related to the Networks divestiture that were retained after the sale.
In the first quarter of 2013, the Indian rupee equivalent of $43 million was seized by the Indian tax authorities from our Indian subsidiary related to Indian income tax and interest assessments currently under review by the Indian and U.S. Competent Authorities. As a result of our appeals, the Supreme Court of India directed the Indian tax authorities to refund the full amount of cash seized and such refund was received by our Indian subsidiary on January 17, 2014.
We contributed $150 million, $340 million, and $489 million to our U.S. pension plans during 2013, 2012, and 2011 respectively. In addition, we contributed $32 million, $31 million, and $38 million to our non-U.S. pension plans during 2013, 2012, and 2011, respectively.
Our pension deficit is impacted by the volatility of corporate bond rates which are used to determine the plan discount rate as well as returns on the pension plan asset portfolio. The discount rate used to measure the U.S. liability at the end of 2013 was 5.15%, compared to 4.35% in the prior year. As a result of the increase in the discount rate, net of contributions and other factors, our total underfunded U.S. pensions at year end decreased to approximately $1.2 billion. As of December 31, 2013, changing the U.S. pension plans discount rate by one percentage point would change the U.S. pension plans net periodic pension cost in 2014 as follows:
 
1% Point
Increase
 
1% Point
Decrease
Increase (decrease) in:
 
 
 
U.S. pension plan net periodic pension costs
$
(11
)
 
$
9

Investing Activities
Net cash provided by investing activities from continuing operations was $2.0 billion in 2013, compared to $970 million in 2012 and $2.5 billion in 2011. The $1.1 billion increase in net cash provided by investing activities from 2012 to 2013 was primarily due to a $1.1 billion increase in proceeds from sales of Sigma Fund investments, which we exited in the fourth quarter of 2013. The $1.5 billion decrease in net cash provided by investing activities from 2011 to 2012 was primarily due to: (i) a $1.2 billion decrease in cash received from sales of investments and businesses relating to the sale of the Networks business and (ii) a $439 million decrease in proceeds from net sales of Sigma Fund investments.
Sigma Fund: Prior to December 2013, we invested most of our U.S. dollar-denominated cash in a fund (the “Sigma Fund”) that was managed by independent investment management firms under specific investment guidelines restricting the type of investments held and their time to maturity. In December 2013, we completed the liquidation of the Sigma Fund and migrated the international U.S dollar-denominated cash to a U.S. dollar cash pool invested in U.S. dollar prime money market funds. The creation of the international cash pool enhances our flexibility to fund global operations. These money market funds are classified as Cash and cash equivalents within the consolidated balance sheets as of December 31, 2013. We had net proceeds of $2.1 billion from sales of Sigma Fund investments in 2013, compared to $1.1 billion in net proceeds from sales of Sigma Fund investments in 2012 and $1.5 billion from sales of Sigma Fund investments in 2011.
As of December 31, 2012, we had investments in the Sigma Fund of $2.1 billion (including $1.0 billion held outside the U.S.) which was invested in cash and U.S. government, agency, and government-sponsored enterprise obligations.
Acquisitions and Investments: We used cash of $57 million for acquisitions and new investment activities in 2013, compared to receiving cash of $83 million in 2012 and the use of $4 million in 2011. The cash used in 2013 was for the acquisition of a communications software provider in push-to-talk-over-broadband applications for a purchase price, net of cash acquired, of $36 million, and other small strategic investments. The cash received in 2012 was primarily for the agreement with Nokia Siemens Networks ("NSN") to take over responsibility to implement Norway´s TETRA public safety network,

10


offset by other small strategic investments. The cash used in 2011 was for small strategic investments.
Capital Expenditures: Capital expenditures were $169 million in 2013, compared to $170 million in 2012, and $165 million in 2011. Capital spending in 2013 was primarily driven by updating our information technology infrastructure, facility renovations, and building out factory lines for new product introductions.
Sales of Property, Plant, and Equipment: We had $66 million of proceeds related to the sale of property, plant, and equipment in 2013, compared to $40 million in 2012 and $6 million in 2011. The proceeds in all periods were primarily comprised of sales of buildings and land.
Sales of Investments and Businesses: We received $61 million of proceeds in 2013 compared to disbursements of $58 million in 2012 and proceeds of $1.1 billion in 2011. The $61 million of proceeds received in 2013 were primarily comprised of proceeds from sales of equity investments. The $58 million of disbursements in 2012 were primarily comprised of payments to NSN related to the purchase price adjustment from the sale of the Networks business completed in 2011, partially offset by proceeds from sales of certain of our equity investments. The $1.1 billion in proceeds in 2011 were primarily comprised of net proceeds received in connection with the sales of: (i) the Networks business, (ii) the Wireless Broadband businesses, (iii) certain of our equity investments, and (iv) the Israel-based module business.
Financing Activities
Net cash used for financing activities was $842 million in 2013 compared to $2.1 billion in 2012 and $5.1 billion in 2011. Cash used for financing activities in 2013 was primarily comprised of: (i) $1.7 billion used for purchases of our common stock under our share repurchase program and (ii) $292 million of cash used for the payment of dividends, partially offset by: (i) $593 million of net proceeds from the issuance of debt, (ii) $365 million of distributions received from discontinued operations, and (iii) $165 million of net proceeds from the issuance of common stock in connection with our employee stock option and employee stock purchase plans.
Cash used for financing activities in 2012 was primarily comprised of: (i) $2.4 billion used for purchases of our common stock under our share repurchase program, (ii) $413 million of cash used for the repayment of debt, and (iii) $270 million of cash used for the payment of dividends, partially offset by: (i) $747 million of net proceeds from the issuance of debt, (ii) $217 million of distributions received from discontinued operations, and (iii) $133 million of net cash received from the issuance of common stock in connection with our employee stock option and employee stock purchase plans.
Cash used for financing activities in 2011 was primarily comprised of: (i) $3.4 billion of contributions to Motorola Mobility, (ii) $1.2 billion used for repayment of long-term debt, (iii) $1.1 billion of cash used for purchases of common stock under our share repurchase program, and (iv) $72 million of cash used for payment of dividends, partially offset by: (i) $492 million of distributions received from discontinued operations and (ii) $192 million of net cash received from the issuance of common stock in connection with our employee stock option and employee stock purchase plans.
Current and Long-Term Debt:  At both December 31, 2013 and December 31, 2012, our current portion of long-term debt was $4 million. We had outstanding long-term debt of $2.5 billion and $1.9 billion at December 31, 2013 and December 31, 2012 respectively.
During 2013, we issued an aggregate face principal amount of $600 million of 3.50% Senior Notes due March 1, 2023, recognizing net proceeds of $588 million, after debt discount and issuance costs.
During 2012, we issued an aggregate face principal amount of $750 million of 3.75% Senior Notes due May 15, 2022 (the “2022 Senior Notes”).  We also redeemed $400 million aggregate principal amount outstanding of our 5.375% Senior Notes due November 2012 (the “2012 Senior Notes”).  All of the 2012 Senior Notes were redeemed for an aggregate purchase price of approximately $408 million.  This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
During 2011, we repurchased $540 million of our outstanding long-term debt for a purchase price of $615 million, excluding approximately $6 million of accrued interest. In addition, we repaid the entire $600 million aggregate principal amount due on notes which had reached maturity. The $540 million of long-term debt repurchased included principal amounts of: (i) $196 million of the $314 million then outstanding of the 6.50% Debentures due 2025, (ii) $174 million of the $210 million then outstanding of the 6.50% Debentures due 2028, and (iii) $170 million of the $225 million then outstanding of the 6.625% Senior Notes due 2037. After accelerating the amortization of debt issuance costs and debt discounts, we recognized a loss of approximately $81 million related to this debt tender in Other within Other income (expense) in the consolidated statements of operations.
The three largest U.S. national ratings agencies rate our senior unsecured long-term debt investment grade. We believe that we will be able to maintain sufficient access to the capital markets at our current ratings. Any future disruptions, uncertainty or volatility in the capital markets may result in higher funding costs for us and adversely affect our ability to access funds.

11


We may, from time to time, seek to retire certain of our outstanding debt through open market cash purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Share Repurchase Program: Through actions taken on July 28, 2011, January 30, 2012, July 25, 2012, and July 22, 2013, the Board of Directors has authorized an aggregate share repurchase amount of up to $7.0 billion of our outstanding shares of common stock (the “share repurchase program”). The share repurchase program does not have an expiration date. As of December 31, 2013, we have used approximately $5.2 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving approximately $1.8 billion of authority available for future repurchases.
We paid an aggregate of $1.7 billion during 2013, including transaction costs, to repurchase approximately 28.6 million shares at an average price of $59.30 per share. All repurchased shares have been retired.
Payment of Dividends: We paid cash dividends to holders of our common stock of $292 million in 2013, $270 million in 2012, and $72 million in 2011.
During 2011, we paid $8 million of dividends to minority shareholders in connection with subsidiary common stock.
Credit Facilities
As of December 31, 2013, we had a $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to expire on June 30, 2014. We must comply with certain customary covenants, including maintaining maximum leverage and minimum interest coverage ratios as defined in the 2011 Motorola Solutions Credit Agreement. We were in compliance with our financial covenants as of December 31, 2013. As of and during the year ended December 31, 2013, we did not borrow under the 2011 Motorola Solutions Credit Agreement.
Contractual Obligations and Other Purchase Commitments
Summarized in the table below are our obligations and commitments to make future payments under long-term debt obligations, lease obligations, purchase obligations and tax obligations as of December 31, 2013. 
 
Payments Due by Period
(in millions)
Total
 
2014
 
2015
 
2016
 
2017
 
2018
 
Uncertain
Timeframe
 
Thereafter
Long-term debt obligations
$
2,457

 
$
20

 
$
5

 
$
6

 
$
406

 
$
6

 
$
—

 
$
2,014

Lease obligations
445

 
89

 
64

 
49

 
38

 
30

 
—

 
175

Purchase obligations*
24

 
18

 
4

 
2

 
—

 
—

 
—

 
—

Tax obligations
147

 
25

 
—

 
—

 
—

 
—

 
122

 
—

Total contractual obligations
$
3,073

 
$
152

 
$
73

 
$
57

 
$
444

 
$
36

 
$
122

 
$
2,189

*Amounts included represent firm, non-cancelable commitments.
Lease Obligations:  We lease certain office, factory and warehouse space, land, information technology and other equipment, principally under non-cancelable operating leases. Our future minimum lease obligations, net of minimum sublease rentals, totaled $445 million. Rental expense, net of sublease income, was $51 million in 2013, $45 million in 2012, and $69 million in 2011.
Purchase Obligations:  During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by us or establish the parameters defining our requirements.  In addition, we have entered into software license agreements which are firm commitments and are not cancelable. As of December 31, 2013, we had entered into firm, noncancelable, and unconditional commitments under such arrangements through 2016. The total payments expected to be made under these agreements are $24 million, of which $20 million relate to engineering software and services arrangements and $4 million relate to take or pay obligations from arrangements with suppliers for the sourcing of inventory supplies and materials. We do not anticipate the cancellation of any of our take or pay agreements in the future and estimate that purchases from these suppliers will exceed the minimum obligations during the agreement periods.
Tax Obligations:  We have approximately $147 million of unrecognized income tax benefits relating to multiple tax jurisdictions and tax years. Based on the potential outcome of our global tax examinations, or the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next twelve months. The associated net tax impact on the effective tax rate, exclusive of valuation allowance changes, is estimated to be in the range of a $50 million tax charge to a $75 million tax benefit, with cash payments not expected to exceed $25 million.
Commitments Under Other Long-Term Agreements:  We have entered into certain long-term agreements to purchase software, components, supplies and materials from suppliers which are not "take or pay" in nature. Most of the agreements

12


extend for periods of one to three years (three to five years for software). Generally, these agreements do not obligate us to make any purchases, and many permit us to terminate the agreement with advance notice (usually ranging from 60 to 180 days). If we were to terminate these agreements, we generally would be liable for certain termination charges, typically based on work performed and supplier on-hand inventory and raw materials attributable to canceled orders. Our liability would only arise in the event we terminate the agreements for reasons other than “cause.”
We outsource certain corporate functions, such as benefit administration and information technology-related services. These contracts are expected to expire in 2017. Our remaining payments under these contracts are approximately $485 million over the remaining life of the contracts; however, these contracts can be terminated. Termination would result in a penalty substantially less than the remaining annual contract payments. We would also be required to find another source for these services, including the possibility of performing them in-house.
As is customary in bidding for and completing certain projects and pursuant to a practice we have followed for many years, we have a number of performance/bid bonds, standby letters of credit and surety bonds outstanding (collectively, referred to as “Performance Bonds”), primarily relating to projects of the Government segment. These Performance Bonds normally have maturities of multiple years and are standard in the industry as a way to give customers a convenient mechanism to seek resolution if a contractor does not satisfy certain requirements under a contract. Typically, a customer can draw on the Performance Bond only if we do not fulfill all terms of a project contract. If such an occasion occurred, we would be obligated to reimburse the institution that issued the Performance Bond for the amounts paid. In our long history, it has been rare for us to have a Performance Bond drawn upon. At December 31, 2013, outstanding Performance Bonds totaled approximately $808 million, compared to $888 million at December 31, 2012. Any future disruptions, uncertainty, or volatility in bank, insurance or capital markets, or a change in our credit ratings could adversely affect our ability to obtain Performance Bonds and may result in higher funding costs.
Off-Balance Sheet Arrangements:  Under the definition contained in Item 303(a)(4)(ii) of Regulation S-K, we do not have any off-balance sheet arrangements.
Long-term Customer Financing Commitments
Outstanding Commitments:  Certain purchasers of our products and services may request that we provide long-term financing (defined as financing with a term of greater than one year) in connection with the sale of equipment. These requests may include all or a portion of the purchase price of the products and services. Our obligation to provide long-term financing may be conditioned on the issuance of a letter of credit in favor of us by a reputable bank to support the purchaser's credit or a pre-existing commitment from a reputable bank to purchase the long-term receivables from us. We had outstanding commitments to provide long-term financing to third-parties totaling $50 million at December 31, 2013, compared to $41 million at December 31, 2012.
Outstanding Long-Term Receivables:  We had net non-current long-term receivables of $1 million at December 31, 2013, compared to net non-current long-term receivables of $42 million (net of allowances for losses of $10 million) at December 31, 2012. These long-term receivables are generally interest bearing, with interest rates ranging from 2% to 13%.
Sales of Receivables
From time to time, we sell accounts receivable and long-term receivables to third-parties under one-time arrangements while others have been sold to third-parties under committed facilities that involve contractual commitments. We may or may not retain the obligation to service the sold accounts receivable and long-term receivables. We had no significant committed facilities for the sale of long-term receivables at December 31, 2013 or at December 31, 2012.
The following table summarizes the proceeds received from sales of accounts receivable and long-term receivables for the years ended December 31, 2013, 2012, and 2011:
Years ended December 31
2013
 
2012
 
2011
Cumulative annual proceeds received from sales:
 
 
 
 
 
Accounts receivable sales proceeds
$
14

 
$
12

 
$
8

Long-term receivables sales proceeds
131

 
178

 
224

Total proceeds from receivable sales
$
145

 
$
190

 
$
232

At December 31, 2013, the Company had retained servicing obligations for $434 million of long-term receivables, compared to $375 million of long term receivables at December 31, 2012. Servicing obligations are limited to collection activities of the sales of accounts receivables and long-term receivables.

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Adequate Internal Funding Resources
We believe that we have adequate internal resources available to fund expected working capital and capital expenditure requirements for the next twelve months as supported by the level of cash, cash equivalents and short-term investments in the U.S. and the ability to repatriate funds from foreign jurisdictions.
Other Contingencies
Potential Contractual Damage Claims in Excess of Underlying Contract Value:  In certain circumstances, our businesses may enter into contracts with customers pursuant to which the damages that could be claimed by the other party for failed performance might exceed the revenue we receive from the contract. Contracts with these types of uncapped damage provisions are fairly rare, but individual contracts could still represent meaningful risk. There is a possibility that a damage claim by a counterparty to one of these contracts could result in expenses to us that are far in excess of the revenue received from the counterparty in connection with the contract.
Indemnification Provisions:  In addition, we may provide indemnifications for losses that result from the breach of general warranties contained in certain commercial, intellectual property and divestiture agreements. Historically, we have not made significant payments under these agreements, nor have there been significant claims asserted against us. However, there is an increasing risk in relation to intellectual property indemnities given the current legal climate. In indemnification cases, payment by us is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow us to challenge the other party’s claims. In some instances we may have recourse against third-parties for certain payments made by us. Further, our obligations under divestiture agreements for indemnification based on breach of representations and warranties are generally limited in terms of duration, typically not more than 24 months, and for amounts not in excess of a percentage of the contract value.
Legal Matters:  We are a defendant in various lawsuits, claims and actions, which arise in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, an unfavorable resolution could have a material adverse effect on our consolidated financial position, liquidity or results of operations in the periods in which the matters are ultimately resolved.

Forward-Looking Statements
Except for historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements in “Management's Discussion and Analysis,” about: (a) our business strategies and expected results, (b) the sale of our Enterprise business to Zebra Technologies and the timing thereof, including the return of proceeds to shareholders in a timely manner subsequent to the close of the transaction, (c) future payments, charges, use of accruals and expected cost-saving benefits associated with our productivity improvement plans, reorganization of business programs, and employee separation costs, (d) the return of capital to shareholders through dividends and/or repurchasing shares, (e) our ability and cost to repatriate funds, (f) the impact of the timing and level of sales and the geographic location of such sales, (g) the impact of maintaining inventory, (h) future cash contributions to pension plans or retiree health benefit plans, (i) the liquidity of our investments, (j) our ability and cost to access the capital markets, (k) our ability to borrow and the amount available under our credit facilities, (l) our ability to retire outstanding debt, (m) our ability and cost to obtain performance related bonds, (n) adequacy of resources to fund expected working capital and capital expenditure measurements, (o) our plans with respect to the level of outstanding debt, (p) expected payments pursuant to commitments under long-term agreements, (q) the ability to meet minimum purchase obligations, (r) our ability to sell accounts receivable and the terms and amounts of such sales, (s) the outcome and effect of ongoing and future legal proceedings, (t) the impact of recent accounting pronouncements on our financial statements, and (u) the expected effective tax rate and deductibility of certain items.
Some of the risk factors that affect our business and financial results are discussed in Part I, "Item 1A: Risk Factors" in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q, and in our other SEC filings available for free on the SEC's website at www.sec.gov and on Motorola Solutions' website at www.motorolasolutions.com. We wish to caution the reader that the risk factors discussed in each of these documents and those described in our other Securities and Exchange Commission filings, could cause our actual results to differ materially from those stated in the forward-looking statements.


14


® Reg. U.S. Patent & Trademark Office.
MOTOROLA MOTO, MOTOROLA SOLUTIONS and the Stylized M Logo, as well as iDEN are trademarks or registered trademarks of Motorola Trademark Holdings, LLC and are used under license. All other products or service names are the property of their respective owners.


15
Exhibit 99.2 Financial Statments



Exhibit 99.2
Item 8: Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Motorola Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Motorola Solutions, Inc. and Subsidiaries (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Motorola Solutions, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Motorola Solutions, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 13, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Chicago, Illinois
February 13, 2014, except as it relates to the presentation of the Enterprise business (excluding certain assets and liabilities to be retained by the Company) as a discontinued operation as discussed in Note 2 and the related change in segment information discussed in Notes 12 and 14, as to which the date is August 7, 2014
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations 
 
Years ended December 31
(In millions, except per share amounts)
2013
 
2012
 
2011
Net sales from products
$
4,109

 
$
4,236

 
$
3,901

Net sales from services
2,118

 
2,033

 
1,837

Net sales
6,227

 
6,269

 
5,738

Costs of product sales
1,808

 
1,795

 
1,697

Costs of services sales
1,310

 
1,280

 
1,114

Costs of sales
3,118

 
3,075

 
2,811

Gross margin
3,109

 
3,194

 
2,927

Selling, general and administrative expenses
1,330

 
1,472

 
1,422

Research and development expenditures
761

 
790

 
778

Other charges
71

 
12

 
129

Operating earnings
947

 
920

 
598

Other income (expense):
 
 
 
 
 
Interest expense, net
(113
)
 
(66
)
 
(74
)
Gains on sales of investments and businesses, net
37

 
26

 
23

Other
9

 
1

 
(66
)
Total other expense
(67
)
 
(39
)
 
(117
)
Earnings from continuing operations before income taxes
880

 
881

 
481

Income tax expense (benefit)
(59
)
 
211

 
(95
)
Earnings from continuing operations
939

 
670

 
576

Earnings from discontinued operations, net of tax
166

 
211

 
576

Net earnings
1,105

 
881

 
1,152

Less: Earnings (loss) attributable to noncontrolling interests
6

 
—

 
(6
)
Net earnings attributable to Motorola Solutions, Inc.
$
1,099

 
$
881

 
$
1,158

Amounts attributable to Motorola Solutions, Inc. common stockholders:
 
 
 
 
 
Earnings from continuing operations, net of tax
$
933

 
$
670

 
$
582

Earnings from discontinued operations, net of tax
166

 
211

 
576

Net earnings
$
1,099

 
$
881

 
$
1,158

Earnings per common share:
 
 
 
 
 
Basic:
 
 
 
 
 
Continuing operations
$
3.51

 
$
2.29

 
$
1.74

Discontinued operations
0.62

 
0.73

 
1.73

 
$
4.13

 
$
3.02

 
$
3.47

Diluted:
 
 
 
 
 
Continuing operations
$
3.45

 
$
2.25

 
$
1.71

Discontinued operations
0.61

 
0.71

 
1.70

 
$
4.06

 
$
2.96

 
$
3.41

Weighted average common shares outstanding:
 
 
 
 
 
Basic
266.0

 
292.1

 
333.8

Diluted
270.5

 
297.4

 
339.7

Dividends declared per share
$
1.14

 
$
0.96

 
$
0.22

See accompanying notes to consolidated financial statements.

1



Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
 
 
Years ended December 31
(In millions)
2013
 
2012
 
2011
Net earnings
$
1,105

 
$
881

 
$
1,152

Other comprehensive income (loss):
 
 
 
 
 
Amortization of retirement benefit adjustments, net of tax of $40, $99, and $73
70

 
177

 
132

Mid-year remeasurement of retirement benefit adjustments and other amendment, net of tax of $-, $52, and $9
—

 
87

 
(77
)
Remeasurement of retirement benefit adjustments, net of tax of $571, $(419), and $(332)
953

 
(707
)
 
(723
)
Foreign currency translation adjustment, net of tax of $(7), $(4), and $(8)
(4
)
 
14

 
19

Net gain (loss) on derivative hedging instruments, net of tax of $1, $(1), and $-
(2
)
 
4

 
(3
)
Net unrealized gain (loss) on securities, net of tax of $1, $1, and $(1)
(4
)
 
1

 
(2
)
Total other comprehensive income (loss)
1,013

 
(424
)
 
(654
)
Comprehensive income
2,118

 
457

 
498

Less: Earnings (loss) attributable to noncontrolling interest
6

 
—

 
(6
)
Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
$
2,112

 
$
457

 
$
504

See accompanying notes to consolidated financial statements.
Motorola Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets 
 
December 31
(In millions, except par value)
2013
 
2012
ASSETS
Cash and cash equivalents
$
3,225

 
$
1,468

Sigma Fund
—

 
2,133

Accounts receivable, net
1,369

 
1,358

Inventories, net
347

 
339

Deferred income taxes
451

 
465

Other current assets
635

 
666

Current assets held for disposition
993

 
973

Total current assets
7,020

 
7,402

Property, plant and equipment, net
695

 
730

Investments
232

 
224

Deferred income taxes
1,990

 
2,322

Goodwill
361

 
361

Other assets
89

 
139

Non-current assets held for disposition
1,464

 
1,501

Total assets
$
11,851

 
$
12,679

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
4

 
$
4

Accounts payable
583

 
525

Accrued liabilities
1,763

 
1,988

Current liabilities held for disposition
870

 
819

Total current liabilities
3,220

 
3,336

Long-term debt
2,457

 
1,859

Other liabilities
2,314

 
4,020

Non-current liabilities held for disposition
171

 
174

Stockholders’ Equity
 
 
 
Preferred stock, $100 par value
—

 
—

Common stock, $.01 par value:
3

 
3

Authorized shares: 600.0
 
 
 
Issued shares: 12/31/13—255.5; 12/31/12—277.3
 
 
 
Outstanding shares: 12/31/13—254.5; 12/31/12—276.1
 
 
 
Additional paid-in capital
3,518

 
4,937

Retained earnings
2,425

 
1,625

Accumulated other comprehensive loss
(2,287
)
 
(3,300
)
Total Motorola Solutions, Inc. stockholders’ equity
3,659

 
3,265

Noncontrolling interests
30

 
25

Total stockholders’ equity
3,689

 
3,290

Total liabilities and stockholders’ equity
$
11,851

 
$
12,679

See accompanying notes to consolidated financial statements.

2




Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In millions, except per share amounts)
Shares
 
Common Stock and Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Noncontrolling Interests
Balance as of January 1, 2011
337.2

 
$
8,647

 
$
(2,222
)
 
$
4,460

 
$
102

Net earnings (loss)

 

 


 
1,158

 
(6
)
Net unrealized loss on securities, net of tax of $(1)

 

 
(2
)
 

 

Foreign currency translation adjustments, net of tax of $(8)

 

 
19

 

 

Amortization of retirement benefit adjustments, net of tax of $73

 

 
132

 

 

Mid-year remeasurement of retirement benefits, net of tax of $9

 


 
(77
)
 

 

Year-end and other retirement adjustments, net of tax of $(332)

 


 
(723
)
 

 

Issuance of common stock and stock options exercised
9.4
 
152

 

 

 

Share repurchase program
(26.6
)
 
(1,110
)
 

 

 

Excess tax benefit from share-based compensation

 
42

 

 

 

Share-based compensation expense

 
181

 

 

 

Net loss on derivative hedging instruments, net of tax of $(0)

 

 
(3
)
 

 

Distribution of Motorola Mobility

 
(836
)
 

 
(4,460
)
 


Dividends paid to noncontrolling interest on subsidiary common stock

 

 

 

 
(8
)
Sale of noncontrolling interest in subsidiary common stock

 

 

 

 
(27
)
Purchase of noncontrolling interest in subsidiary

 

 

 

 
(1
)
Reclassification of share-based awards from liability to equity

 
(2
)
 

 

 


Dividends declared

 

 

 
(142
)
 


Balance as of December 31, 2011
320.0

 
$
7,074

 
$
(2,876
)
 
$
1,016

 
$
60

Net earnings

 

 


 
881

 
—

Net unrealized gain on securities, net of tax of $1

 

 
1

 

 

Foreign currency translation adjustments, net of tax benefit of $(4)

 

 
14

 

 

Amortization of retirement benefit adjustments, net of tax of $99

 

 
177

 

 

Remeasurement of retirement benefits, net of tax of $52

 

 
87

 

 

Year-end and other retirement adjustments, net of tax of $(419)

 

 
(707
)
 

 

Issuance of common stock and stock options exercised
6.9

 
80

 

 

 

Share repurchase program
(49.6
)
 
(2,438
)
 

 

 

Excess tax benefit from share-based compensation

 
20

 

 

 

Share-based compensation expense

 
184

 

 

 

Net gain on derivative hedging instruments, net of tax of $(1)

 

 
4

 

 

Acquisition of noncontrolling interest from Japanese subsidiary

 
20
 

 

 
(35
)
Dividends declared

 


 

 
(272
)
 

Balance as of December 31, 2012
277.3

 
$
4,940

 
$
(3,300
)
 
$
1,625

 
$
25

Net earnings

 

 

 
1,099

 
6

Net unrealized loss on securities, net of tax of $1

 

 
(4
)
 

 

Foreign currency translation adjustments, net of tax of $(7)

 

 
(4
)
 

 

Amortization of retirement benefit adjustments, net of tax of $40

 

 
70

 

 

Year-end and other retirement adjustments, net of tax of $571


 


 
953

 

 

Issuance of common stock and stock options exercised
6.8

 
100

 

 

 

Share repurchase program
(28.6
)
 
(1,694
)
 

 

 

Excess tax benefit from share-based compensation


 
25

 

 

 

Share-based compensation expense

 
153

 

 

 

Net loss on derivative hedging instruments, net of tax of $1


 


 
(2
)
 

 

Purchase of noncontrolling interest in subsidiary

 
(3
)
 

 

 
(1
)
Dividends declared


 


 

 
(299
)
 

Balance as of December 31, 2013
255.5

 
$
3,521

 
$
(2,287
)
 
$
2,425

 
$
30

See accompanying notes to consolidated financial statements.
Motorola Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows 
 
Years ended December 31
(In millions)
2013
 
2012
 
2011
Operating
 
 
 
 
 
Net earnings attributable to Motorola Solutions, Inc.
$
1,099

 
$
881

 
$
1,158

Earnings (loss) attributable to noncontrolling interests
6

 
—

 
(6
)
Net earnings
1,105

 
881

 
1,152

Earnings from discontinued operations, net of tax
166

 
211

 
576

Earnings from continuing operations, net of tax
939

 
670

 
576

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
158

 
151

 
133

Non-cash other charges (income)
(14
)
 
—

 
34

Share-based compensation expense
120

 
146

 
134

Gains on sales of investments and businesses, net
(37
)
 
(26
)
 
(23
)
Loss from the extinguishment of long term debt
—

 
6

 
81

Deferred income taxes
(334
)
 
114

 
(34
)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
 
 
 
 
 
Accounts receivable
(36
)
 
81

 
(233
)
Inventories
(8
)
 
(2
)
 
(5
)
Other current assets
50

 
(112
)
 
28

Accounts payable and accrued liabilities
(232
)
 
(106
)
 
(146
)
Other assets and liabilities
(51
)
 
(248
)
 
(179
)
Net cash provided by operating activities from continuing operations
555

 
674

 
366

Investing
 
 
 
 
 
Acquisitions and investments, net
(57
)
 
83

 
(4
)
Proceeds from (used for) sales of investments and businesses, net
61

 
(58
)
 
1,124

Capital expenditures
(169
)
 
(170
)
 
(165
)
Proceeds from sales of property, plant and equipment
66

 
40

 
6

Proceeds from sales of Sigma Fund investments and short-term investments, net
2,133

 
1,075

 
1,514

Net cash provided by investing activities from continuing operations
2,034

 
970

 
2,475

Financing
 
 
 
 
 
Repayment of debt
(4
)
 
(413
)
 
(1,219
)
Net proceeds from issuance of debt
593

 
747

 
—

Contributions to Motorola Mobility
—

 
(73
)
 
(3,425
)
Issuance of common stock
165

 
133

 
192

Purchase of common stock
(1,694
)
 
(2,438
)
 
(1,110
)
Excess tax benefit from share-based compensation
25

 
20

 
42

Payment of dividends
(292
)
 
(270
)
 
(72
)
Distributions from discontinued operations
365

 
217

 
492

Net cash used for financing activities from continuing operations
(842
)
 
(2,077
)
 
(5,100
)
Net cash provided by operating activities from discontinued operations
389

 
396

 
508

Net cash used for investing activities from discontinued operations
(24
)
 
(173
)
 
(57
)
Net cash used for financing activities from discontinued operations
(365
)
 
(217
)
 
(492
)
Effect of exchange rate changes on cash and cash equivalents from discontinued operations
—

 
(6
)
 
41

Net cash provided by discontinued operations
—

 
—

 
—

Effect of exchange rate changes on cash and cash equivalents from continuing operations
10

 
20

 
(68
)
Net increase (decrease) in cash and cash equivalents
1,757

 
(413
)
 
(2,327
)
Cash and cash equivalents, beginning of period
1,468

 
1,881

 
4,208

Cash and cash equivalents, end of period
$
3,225

 
$
1,468

 
$
1,881

Supplemental Cash Flow Information
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
Interest, net
$
122

 
$
109

 
$
166

Income and withholding taxes, net of refunds
246

 
127

 
107

See accompanying notes to consolidated financial statements.
Motorola Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except as noted)
1.    Summary of Significant Accounting Policies
Principles of Consolidation:    The consolidated financial statements include the accounts of Motorola Solutions, Inc. (the “Company” or “Motorola Solutions”) and all controlled subsidiaries. All intercompany transactions and balances have been eliminated.
The consolidated financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the Company's consolidated financial position, results of operations, statements of comprehensive income, statement of stockholder's equity, and cash flows for all periods presented.
The preparation of financial statements in conformity with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Revenue Recognition: Net sales consist of a wide range of activities including the delivery of stand-alone equipment or services, custom design and installation over a period of time, and bundled sales of equipment, software and services. The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services due to the needs of its customers. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability of the sales price is reasonably assured. The Company recognizes revenue from the sale of equipment, equipment containing both software and nonsoftware components that function together to deliver the equipment’s essential functionality, and services in accordance with general revenue recognition accounting principles. The Company recognizes revenue in accordance with software accounting guidance for the following types of sales transactions: (i) standalone sales of software products or software upgrades, (ii) standalone sales of software maintenance agreements, and (iii) sales of software bundled with hardware where the software is not essential to the functionality of that equipment.
Products
For equipment sales, in addition to the criteria mentioned above, revenue recognition occurs when title and risk of loss has transferred to the customer, objective evidence exists that customer acceptance provisions have been met, no significant obligations remain and allowances for discounts, price protection, returns and customer incentives can be reliably estimated. Recorded revenues are reduced by these allowances. The Company bases its estimates of these allowances on historical experience taking into consideration the type of products sold, the type of customer, and the specific type of transaction in each arrangement. Where customer incentives cannot be reliably estimated, the Company defers revenue until the incentive has been finalized with the customer. The Company includes shipping charges billed to customers in net revenue, and includes the related shipping costs in cost of sales.
The Company sells software and equipment obtained from other companies. The Company establishes its own pricing and retains related inventory risk, is the primary obligor in sales transactions with customers, and assumes the credit risk for amounts billed to customers. Accordingly, the Company generally recognizes revenue for the sale of products obtained from other companies based on the gross amount billed.
Long-Term Contracts
For long-term contracts that involve customization of equipment and/or software, the Company generally recognizes revenue using the percentage of completion method based on the percentage of costs incurred to date compared to the total estimated costs to complete the contract (“Estimated Costs at Completion”). The components of estimated costs to complete a contract and management’s process for reviewing Estimated Costs at Completion and progress toward completion is discussed further below. Contracts may be combined or segmented in accordance with the applicable criteria under contract accounting principles. In certain instances, when revenues or costs associated with long-term contracts cannot be reliably estimated or the contract contains other inherent uncertainties, revenues and costs are deferred until the project is complete and customer acceptance is obtained.
Total Estimated Costs at Completion include direct labor, material and subcontracting costs. Due to the nature of the work required to be performed under many of the Company’s long-term contracts, Estimated Costs at Completion is complex and subject to many variables. The Company has a standard and disciplined quarterly Estimated Costs at Completion process in which management reviews the progress and performance of open contracts. As part of this process, management reviews

3



information including, but not limited to, any outstanding key contract matters, progress towards completion, the project schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the project schedule, technical requirements, and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, and performance by subcontractors, among other variables. Based on this analysis, any quarterly adjustments to net sales, cost of sales, and the related impact to operating income are recorded as necessary in the period they become known. These adjustments may result from positive project performance, and may result in an increase in operating income during the performance of individual contracts. Likewise, these adjustments may result in a decrease in operating income if Estimated Costs at Completion increase. Changes in estimates of net sales or cost of sales could affect the profitability of one or more of our contracts. The impact on Operating earnings as a result of changes in Estimated Costs at Completion was not significant for the years 2013, 2012, and 2011. When estimates of total costs to be incurred on a contract exceed total estimates of revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.
Hardware and Software Services Support
Revenue under equipment and software maintenance agreements, which do not contain specified future software upgrades, is recognized ratably over the contract term as services are performed.
Software and Licenses
Revenue from pre-paid perpetual licenses is recognized at the inception of the arrangement, presuming all other relevant revenue recognition criteria are met. Revenue from non-perpetual licenses or term licenses is recognized ratably over the period that the licensee uses the license.
Multiple-Element Arrangements
Arrangements with customers may include multiple deliverables, including any combination of products, services and software. These multiple element arrangements could also include an element accounted for as a long-term contract coupled with other products, services and software. For multiple-element arrangements that include products containing software that functions together with the equipment to deliver its essential functionality, undelivered software elements that relate to the product's essential software, and undelivered non-software services deliverables are separated into more than one unit of accounting when: (i) the delivered element(s) have value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially in the control of the Company.
In these arrangements, the Company allocates revenue to all deliverables based on their relative selling prices. The Company uses the following hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of selling price (“ESP”).
The Company determines VSOE based on its normal pricing and discounting practices for the specific product or service when that same product or service is sold separately. In determining VSOE, the Company requires that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range, generally evidenced by the pricing rates of approximately 80% of such historical stand-alone transactions falling within plus or minus 15% of the median rate.
When VSOE does not exist, the Company attempts to determine TPE based on competitor prices for similar deliverables when sold separately. Generally, the Company's go-to-market strategy for many of its products differs from that of its competitors and its offerings contain a significant level of customization and differentiation such that the comparable pricing of products with similar functionality sold by other companies cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, the Company is typically not able to determine TPE.
When both VSOE and TPE are unavailable, the Company uses ESP. The Company determines ESP by: (i) collecting all reasonably available data points including sales, cost and margin analysis of the product, and other inputs based on its normal pricing and discounting practices, (ii) making any reasonably required adjustments to the data based on market and Company-specific factors, and (iii) stratifying the data points, when appropriate, based on customer, magnitude of the transaction and sales volume.
The Company also considers the geographies in which the products or services are sold, major product and service groups, customer classification, and other environmental or marketing variables in determining VSOE, TPE, and ESP.
Once elements of an arrangement are separated into more than one unit of accounting, revenue is recognized for each separate unit of accounting based on the nature of the revenue as described above.
The Company's arrangements with multiple deliverables may also contain one or more software deliverables that are subject to software revenue recognition guidance. The revenue for these multiple-element arrangements is allocated to the

4



software deliverable(s) and the non-software deliverable(s) based on the relative selling prices of all of the deliverables in the arrangement using the fair value hierarchy outlined above. In circumstances where the Company cannot determine VSOE or TPE of the selling price for any of the deliverables in the arrangement, ESP is used for the purpose of allocating the arrangement consideration between software and non software deliverables.
The Company accounts for multiple-element arrangements that consist entirely of software or software-related products, including the sale of software upgrades or software support agreements to previously sold software, in accordance with software accounting guidance. For such arrangements, revenue is allocated to the deliverables based on the relative fair value of each element, and fair value is determined using VSOE. Where VSOE does not exist for the undelivered software element, revenue is deferred until either the undelivered element is delivered or VSOE is established, whichever occurs first. When the final undelivered software element is post contract support, service revenue is recognized on a ratable basis over the remaining service period. When VSOE of a delivered element has not been established, but VSOE exists for the undelivered elements, the Company uses the residual method to recognize revenue when the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements and is recognized as revenue.
Cash Equivalents:    The Company considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. Restricted cash was $63 million at December 31, 2013 and $63 million at December 31, 2012.
Sigma Fund:    Prior to December 2013, the Company invested most of its U.S. dollar-denominated cash in a fund (the “Sigma Fund”) which was managed by independent investment management firms under specific investment guidelines restricting the type of investments held and their time to maturity. In December 2013, the Company completed the liquidation of the Sigma Fund and migrated the international U.S. dollar denominated cash to a U.S. dollar cash pool invested in U.S. dollar prime money market funds. These money market funds are classified as Cash and cash equivalents within the consolidated balance sheet as of December 31, 2013.
Prior to the liquidation of the Sigma Fund, investments in the Sigma Fund were carried at fair value primarily based on valuation pricing models and broker quotes.  These pricing models utilized observable inputs including, but not limited to: market quotations, yields, maturities, call features, and the security's terms and conditions. The fair value measurements of the Sigma Fund were deemed Level 2 fair value measures as of December 31, 2012. 
Investments:    Investments in equity and debt securities classified as available-for-sale are carried at fair value. When applicable, debt securities classified as held-to-maturity are carried at amortized cost. Equity securities that are restricted for more than one year or that are not publicly traded are carried at cost. Certain investments are accounted for using the equity method if the Company has significant influence over the issuing entity.
The Company assesses declines in the fair value of investments to determine whether such declines are other-than-temporary. This assessment is made considering all available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the fair value has been less than cost, the financial condition and the near-term prospects of the entity issuing the security, and the Company’s ability and intent to hold the investment until recovery. Other-than-temporary impairments of investments are recorded to Other within Other income (expense) in the Company’s consolidated statements of operations in the period in which they become impaired.
Inventories:    Inventories are valued at the lower of average cost (which approximates cost on a first-in, first-out basis) or market (net realizable value or replacement cost).
Property, Plant and Equipment:    Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis, based on the estimated useful lives of the assets (buildings and building equipment, five to forty years; machinery and equipment, two to ten years) and commences once the assets are ready for their intended use.
Goodwill and Intangible Assets:    Goodwill is assessed for impairment at least annually at the reporting unit level. The Company performs its annual assessment of goodwill for impairment in the fourth quarter of each year. The annual assessment is performed using the two-step goodwill test which may also include the optional qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.
If the two-step goodwill impairment test is performed, first, the fair value of each reporting unit is compared to its book value. If the fair value of the reporting unit is less than its book value, the Company performs a hypothetical purchase price allocation based on the reporting unit's fair value to determine the fair value of the reporting unit's goodwill. Fair value is determined using a combination of present value techniques and market prices of comparable businesses.

5



Intangible assets are amortized on a straight line basis over their respective estimated useful lives ranging from one to ten years. The Company has no intangible assets with indefinite useful lives.
Impairment of Long-Lived Assets: Long-lived assets, which include intangible assets, held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset (group) to future net undiscounted cash flows to be generated by the asset (group). If an asset (group) is considered to be impaired, the impairment to be recognized is equal to the amount by which the carrying amount of the asset (group) exceeds the asset's (group's) fair value calculated using a discounted future cash flows analysis or market comparables. Assets held for sale, if any, are reported at the lower of the carrying amount or fair value less cost to sell.
Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.
Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that all or some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred tax assets on a quarterly basis to determine if valuation allowances are required by considering available evidence. Deferred tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income, exclusive of reversing temporary differences and carryforwards, taxable income in carry-back years and tax planning strategies that are both prudent and feasible.
The Company recognizes the effect of income tax positions only if sustaining those positions is more-likely-than-not. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company records interest related to unrecognized tax benefits in Interest expense and penalties in Selling, general and administrative expenses in the Company’s consolidated statements of operations.
Sales and Use Taxes: The Company records taxes imposed on revenue-producing transactions, including sales, use, value added and excise taxes, on a net basis with such taxes excluded from revenue.
Long-term Receivables:    Long-term receivables include trade receivables where contractual terms of the note agreement are greater than one year. Long-term receivables are considered impaired when management determines collection of all amounts due according to the contractual terms of the note agreement, including principal and interest, is no longer probable. Impaired long-term receivables are valued based on the present value of expected future cash flows discounted at the receivable’s effective interest rate, or the fair value of the collateral if the receivable is collateral dependent. Interest income and late fees on impaired long-term receivables are recognized only when payments are received. Previously impaired long-term receivables are no longer considered impaired and are reclassified to performing when they have performed under a workout or restructuring for four consecutive quarters.
Foreign Currency:    Certain of the Company’s non-U.S. operations use their respective local currency as their functional currency. Those operations that do not have the U.S. dollar as their functional currency translate assets and liabilities at current rates of exchange in effect at the balance sheet date and revenues and expenses using rates that approximate those in effect during the period. The resulting translation adjustments are included as a component of Accumulated other comprehensive loss in the Company’s consolidated balance sheets. For those operations that have the U.S. dollar as their functional currency, transactions denominated in the local currency are measured in U.S. dollars using the current rates of exchange for monetary assets and liabilities and historical rates of exchange for nonmonetary assets. Gains and losses from remeasurement of monetary assets and liabilities are included in Other within Other income (expense) within the Company’s consolidated statements of operations.
Derivative Instruments:    Gains and losses on hedges of existing assets or liabilities are marked-to-market and the result is included in Other within Other income (expense) within the Company’s consolidated statements of operations. Certain financial instruments are used to hedge firm future commitments or forecasted transactions.  Gains and losses pertaining to those instruments that qualify for hedge accounting are deferred until such time as the underlying transactions are recognized and subsequently recognized in the same line within the consolidated statements of operations as the hedged item. Gains and losses pertaining to those instruments that do not qualify for hedge accounting are recorded immediately in Other income (expense) within the consolidated statements of operations.
Earnings Per Share:    The Company calculates its basic earnings per share based on the weighted-average effect of all common shares issued and outstanding. Net earnings attributable to Motorola Solutions, Inc. is divided by the weighted average common shares outstanding during the period to arrive at the basic earnings per share. Diluted earnings per share is

6



calculated by dividing net earnings attributable to Motorola Solutions, Inc. by the sum of the weighted average number of common shares used in the basic earnings per share calculation and the weighted average number of common shares that would be issued assuming exercise or conversion of all potentially dilutive securities, excluding those securities that would be anti-dilutive to the earnings per share calculation. Both basic and diluted earnings per share amounts are calculated for earnings from continuing operations and net earnings attributable to Motorola Solutions, Inc. for all periods presented.
Share-Based Compensation Costs:    The Company has incentive plans that reward employees with stock options, stock appreciation rights, restricted stock and restricted stock units, as well as an employee stock purchase plan. The amount of compensation cost for these share-based awards is generally measured based on the fair value of the awards as of the date that the share-based awards are issued and adjusted to the estimated number of awards that are expected to vest. The fair values of stock options and stock appreciation rights are generally determined using a Black-Scholes option pricing model which incorporates assumptions about expected volatility, risk free rate, dividend yield, and expected life. Compensation cost for share-based awards is recognized on a straight-line basis over the vesting period.
Retirement Benefits:    The Company records annual expenses relating to its pension benefit and postretirement plans based on calculations which include various actuarial assumptions, including discount rates, assumed asset rates of return, compensation increases, turnover rates and health care cost trend rates. The Company reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends. The effects of the gains, losses, and prior service costs and credits are amortized either over the average service life or over the average remaining lifetime of the participants, depending on the number of active employees in the plan. The funded status, or projected benefit obligation less plan assets, for each plan, is reflected in the Company’s consolidated balance sheets using a December 31 measurement date.
Advertising Expense:    Advertising expenses, which are the external costs of marketing the Company’s products, are expensed as incurred. Advertising expenses were $76 million, $80 million and $84 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Use of Estimates:    The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable and long term receivables, inventories, investments, goodwill, intangible and other long-lived assets, legal contingencies, guarantee obligations, indemnifications, and assumptions used in the calculation of income taxes, retirement and other post-employment benefits and allowances for discounts, price protection, product returns, and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, and energy markets together with declines in consumer spending have increased the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Recent Accounting Pronouncements:
In February 2013, the Financing Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date.” The standard addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. U.S. GAAP does not currently include specific guidance on accounting for such obligations with joint and several liability which has resulted in diversity in practice. The ASU requires an entity to measure these obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The ASU is to be applied retrospectively to all prior periods presented for those obligations resulting from joint and several liability arrangements within the scope of updates that exist within the Company's statement of financial position at the beginning of the year of adoption. This guidance will be effective for the Company beginning January 1, 2014. The Company anticipates that the adoption of this standard will not have a material impact on its consolidated financial statements or footnote disclosures.
In January 2014, the FASB issued ASU No. 2014-05, “Service Concession Arrangements.” The ASU clarifies that an operating entity should not account for a services concession arrangement with a public-sector grantor as a lease if:  (i) the grantor controls or has the ability to modify or approve the services the operating entity must provide, to whom it must provide them, and at what price and (ii) the grantor controls any residual interest in the infrastructure at the end of the arrangement. In addition, the infrastructure used in a service concession arrangement would not be recognized as property, plant and equipment of the operating entity. The ASU is to be applied on a modified retrospective basis to service concession arrangements outstanding upon adoption and will be effective for the Company beginning January 1, 2015. The Company is currently assessing the impact of this standard on its consolidated financial statements and footnote disclosures.

2.    Discontinued Operations
On April 14, 2014, the Company entered into a Master Acquisition Agreement (the “Acquisition Agreement”) with Zebra Technologies Corporation to sell the Company’s Enterprise business for $3.45 billion in cash. Certain assets of the Enterprise business will be excluded from the transaction and retained by the Company, including the Company’s iDEN business, and other assets and certain liabilities as specified in the Acquisition Agreement. The transaction is expected to close by the end of 2014. The historical financial results of the Enterprise business, excluding those assets and liabilities retained in the transaction, are reflected in the Company's consolidated financial statements and footnotes as discontinued operations for all periods presented.
On January 1, 2012, the Company completed a series of transactions which resulted in exiting the amateur, marine and airband radio businesses.  The operating results of the amateur, marine and airband radio businesses are reported as discontinued operations in the consolidated statements of operations for all periods presented. 
On October 28, 2011, the Company completed the sale of its wireless broadband businesses. During the year ended December 31, 2011, the Company recorded a pre-tax gain related to the sale of the wireless broadband businesses of $40 million, net of closing costs, in its results from discontinued operations. The operating results of the wireless broadband businesses are reported as discontinued operations in the statements of operations for all periods presented.
On April 29, 2011, the Company completed the sale of certain assets and liabilities of its Networks business to Nokia Siemens Networks ("NSN"). The results of operations of the portions of the Networks business sold are reported as discontinued operations for all periods presented. Based on the terms and conditions of the Networks business divestiture, the sale was subject to a purchase price adjustment that was contingent upon the review of final assets and liabilities transferred to NSN and was based on the change in net assets from the original agreed upon sale date. During the year ended December 31, 2011, the Company received approximately $1.0 billion of net proceeds and recorded a pre-tax gain related to the completion of this sale of $434 million, net of closing costs, and an agreed upon purchase price adjustment of $120 million in its results from discontinued operations.
On January 4, 2011, the distribution of Motorola Mobility was completed. The stockholders of record as of the close of business on December 21, 2010 received one share of Motorola Mobility common stock for each eight shares of the Company’s common stock held as of the record date. Immediately following the distribution, the Company changed its name to Motorola Solutions, Inc. The distribution was structured to be tax-free to Motorola Solutions and its stockholders for U.S. tax purposes (other than with respect to any cash received in lieu of fractional shares). The historical financial results of Motorola Mobility are reflected in the Company’s consolidated financial statements and footnotes as discontinued operations for all periods presented.
The following table displays summarized activity in the Company’s consolidated statements of operations for discontinued operations during the years ended December 31, 2013, 2012, and 2011.
Years ended December 31
2013
 
2012
 
2011
Net sales
$
2,469

 
$
2,429

 
$
3,812

Operating earnings
268

 
347

 
460

Gains on sales of investments and businesses, net
3

 
7

 
474

Earnings before income taxes
266

 
341

 
925

Income tax expense
100

 
130

 
349

Earnings from discontinued operations, net of tax
166

 
211

 
576


7



The following table displays a summary of the assets and liabilities held for sale as of December 31, 2013 and 2012:
  
2013
 
2012
Assets
 
 
 
Accounts receivable, net
$
551

 
$
523

Deferred income taxes
219

 
234

Inventories, net
175

 
174

Other current assets
134

 
136

Property, plant and equipment, net
115

 
108

Investments
19

 
16

Goodwill
1,149

 
1,149

Other assets
95

 
134

 
$
2,457

 
$
2,474

Liabilities
 
 
 
Accounts payable
$
231

 
$
180

Accrued liabilities
639

 
639

Other liabilities
171

 
174

 
$
1,041

 
$
993



3.    Other Financial Data
Statement of Operations Information
Other Charges (income)
Other charges included in Operating earnings consist of the following: 
Years ended December 31
2013
 
2012
 
2011
Other charges (income):
 
 
 
 
 
Intangibles amortization
$
1

 
$
1

 
$
5

Reorganization of businesses
70

 
27

 
35

Legal and related insurance matters, net
—

 
(16
)
 
88

Other
—

 
—

 
1

 
$
71

 
$
12

 
$
129

During 2012, the Company recorded a $16 million gain in connection with the settlement of a legal matter involving the legacy paging business.
During 2011, the Company recorded $88 million of net charges for legal matters. These charges primarily relate to: (i) a litigation settlement and (ii) legal matters related to the legacy paging business.


8



Other Income (Expense)
Interest expense, net, and Other both included in Other income (expense) consist of the following: 
Years ended December 31
2013
 
2012
 
2011
Interest income (expense), net:
 
 
 
 
 
Interest expense
$
(132
)
 
$
(108
)
 
$
(132
)
Interest income
19

 
42

 
58

 
$
(113
)
 
$
(66
)
 
$
(74
)
Other:
 
 
 
 
 
Loss from the extinguishment of long-term debt
$
—

 
$
(6
)
 
$
(81
)
Investment impairments
(3
)
 
(4
)
 
(4
)
Foreign currency gain (loss)
(9
)
 
(1
)
 
10

Gains on equity method investments
10

 
3

 
12

Other
11

 
9

 
(3
)
 
$
9

 
$
1

 
$
(66
)
Gains on Sales of Investments and Businesses, net
Gains on sales of investments and businesses, net, consists of the following: 
Years ended December 31
2013
 
2012
 
2011
Gains on sales of investments, net
$
37

 
$
26

 
$
17

Gains on sales of businesses, net
—

 
—

 
6

 
$
37

 
$
26

 
$
23

Earnings Per Common Share
Basic and diluted earnings per common share from both continuing operations and net earnings attributable to Motorola Solutions, Inc., including discontinued operations, is computed as follows: 
 
Amounts attributable to Motorola Solutions, Inc. common stockholders
 
Earnings from Continuing Operations
 
Net Earnings
Years ended December 31
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Basic earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Earnings
$
933

 
$
670

 
$
582

 
$
1,099

 
$
881

 
$
1,158

Weighted average common shares outstanding
266.0

 
292.1

 
333.8

 
266.0

 
292.1

 
333.8

Per share amount
$
3.51

 
$
2.29

 
$
1.74

 
$
4.13

 
$
3.02

 
$
3.47

Diluted earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Earnings
$
933

 
$
670

 
$
582

 
$
1,099

 
$
881

 
$
1,158

Weighted average common shares outstanding
266.0

 
292.1

 
333.8

 
266.0

 
292.1

 
333.8

Add effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Share-based awards
4.5

 
5.3

 
5.9

 
4.5

 
5.3

 
5.9

Diluted weighted average common shares outstanding
270.5

 
297.4

 
339.7

 
270.5

 
297.4

 
339.7

Per share amount
$
3.45

 
$
2.25

 
$
1.71

 
$
4.06

 
$
2.96

 
$
3.41

In the computation of diluted earnings per common share from both continuing operations and on a net earnings basis for the years ended December 31, 2013 and December 31, 2012, the assumed exercise of 5.6 million and 5.9 million stock options, respectively, were excluded because their inclusion would have been antidilutive. For the year ended December 31, 2011, the assumed exercise of 8.6 million stock options and vesting of 0.2 million restricted stock units were excluded because their inclusion would have been antidilutive.

9



Balance Sheet Information
Sigma Fund
During the fourth quarter of 2013, the Company exited the Sigma Fund. The balance of Sigma Fund as December 31, 2012 consisted of the following: 
Cash
$
149

Government, agency, and government-sponsored enterprise obligations
1,984

 
$
2,133

Investments
Investments consist of the following:
December 31, 2013
 
Available-for-sale securities:
 
Government, agency, and government-sponsored enterprise obligations
$
15

Corporate bonds
7

Mutual funds
11

Common stock and equivalents
2

 
35

Other investments, at cost
182

Equity method investments
15

 
$
232

 
Recorded Value
 
Less
 
 
December 31, 2012
Investments  
 
  Unrealized  
Gains
 
  Cost  
Basis
Available-for-sale securities:
 
 
 
 
 
Government, agency, and government-sponsored enterprise obligations
$
15

 
$
—

 
$
15

Corporate bonds
11

 
—

 
11

Mortgage-backed securities
2

 
—

 
2

Common stock and equivalents
10

 
3

 
7

 
38

 
3

 
35

Other investments, at cost
173

 
—

 
173

Equity method investments
13

 
—

 
13

 
$
224

 
$
3

 
$
221

The Company reclassified $96 million of cash surrender values of its split-dollar value life insurance plans as of December 31, 2012, from Other assets to Investments, to conform to the balance sheet presentation as of December 31, 2013. 
During the years ended December 31, 2013, 2012 and 2011, the Company recorded investment impairment charges of $3 million, $4 million and $4 million, respectively, representing other-than-temporary declines in the value of the Company’s equity investment portfolio. Investment impairment charges are included in Other within Other income (expense) in the Company’s consolidated statements of operations.

10



Accounts Receivable, Net
Accounts receivable, net, consist of the following: 
December 31
2013
 
2012
Accounts receivable
$
1,422

 
$
1,408

Less allowance for doubtful accounts
(53
)
 
(50
)
 
$
1,369

 
$
1,358

Inventories, Net
Inventories, net, consist of the following: 
December 31
2013
 
2012
Finished goods
$
157

 
$
168

Work-in-process and production materials
315

 
283

 
472

 
451

Less inventory reserves
(125
)
 
(112
)
 
$
347

 
$
339

Other Current Assets
Other current assets consist of the following:
December 31
2013
 
2012
Costs and earnings in excess of billings
$
390

 
$
416

Contract-related deferred costs
15

 
43

Tax-related deposits and refunds receivable
107

 
90

Other
123

 
117

 
$
635

 
$
666

Property, Plant and Equipment, Net
Property, plant and equipment, net, consist of the following: 
December 31
2013
 
2012
Land
$
22

 
$
23

Building
582

 
671

Machinery and equipment
1,760

 
1,776

 
2,364

 
2,470

Less accumulated depreciation
(1,669
)
 
(1,740
)
 
$
695

 
$
730

Depreciation expense for the years ended December 31, 2013, 2012 and 2011 was $157 million, $150 million and $128 million, respectively.

11



Other Assets
Other assets consist of the following: 
December 31
2013
 
2012
Intangible assets
$
6

 
$
4

Long-term receivables
1

 
42

Other
82

 
93

 
$
89

 
$
139

Accrued Liabilities
Accrued liabilities consist of the following: 
December 31
2013
 
2012
Deferred revenue
$
359

 
$
377

Compensation
315

 
406

Billings in excess of costs and earnings
295

 
387

Tax liabilities
85

 
74

Customer reserves
52

 
75

Dividend payable
79

 
72

Other
578

 
597

 
$
1,763

 
$
1,988

Other Liabilities
Other liabilities consist of the following: 
December 31
2013
 
2012
Defined benefit plans, including split dollar life insurance arrangements
$
1,751

 
$
3,379

Postretirement health care benefit plan
117

 
167

Deferred revenue
162

 
178

Unrecognized tax benefits
99

 
94

Other
185

 
202

 
$
2,314

 
$
4,020

Stockholders’ Equity Information
Share Repurchase Program: During 2013, the Company paid an aggregate of $1.7 billion, including transaction costs, to repurchase 28.6 million shares at an average price of $59.30 per share. During 2012, the Company paid an aggregate of $2.4 billion, including transaction costs, to repurchase 49.6 million shares at an average price of $49.14. During 2011, the Company paid an aggregate of $1.1 billion, including transaction costs, to repurchase 26.6 million shares at an average price of $41.77.
On July 24, 2013, the Company announced that its Board of Directors authorized up to $2.0 billion in additional funds for share repurchases, bringing the aggregate amount of the share repurchase program to $7.0 billion. As of December 31, 2013, the Company had used approximately $5.2 billion of the share repurchase authority, including transaction costs, to repurchase shares, leaving $1.8 billion of authority available for future repurchases.
Payment of Dividends:  On July 24, 2013, the Company announced that its Board of Directors approved an increase in the quarterly cash dividend from $0.26 per share to $0.31 per share of common stock. During the years ended December 31, 2013, 2012, and 2011 the Company paid $292 million, $270 million, and $72 million respectively, in cash dividends to holders of its common stock. During 2011, the Company paid $8 million of dividends to minority shareholders in connection with subsidiary common stock.
Motorola Mobility Distribution:  On January 4, 2011, the distribution of Motorola Mobility from Motorola Solutions was completed. On January 4, 2011, the stockholders of record as of the close of business on December 21, 2010 (the "Record Date") received one share of Motorola Mobility common stock for each eight shares of the Company's common stock held as of the Record Date. The distribution was completed pursuant to an Amended and Restated Master Separation and Distribution Agreement, effective as of July 31, 2010, among the Company, Motorola Mobility and Motorola Mobility, Inc.

12



Reverse Stock Split:  On January 4, 2011, immediately following the distribution of Motorola Mobility common stock, the Company completed a reverse stock split. All consolidated per share information presented gives effect to the distribution of Motorola Mobility and the reverse stock split.
Accumulated Other Comprehensive Loss
The following table displays the changes in Accumulated other comprehensive loss, net of tax, by component from January 1, 2013 to December 31, 2013:
 
Gains and Losses on Cash Flow Hedges
 
Unrealized Gains and Losses on Available-for-Sale Securities
 
Retirement Benefit Items
 
Foreign Currency Translation Adjustments
 
Total
Balance as of December 31, 2012
$
1

 
$
2

 
$
(3,211
)
 
$
(92
)
 
$
(3,300
)
Other comprehensive income (loss) before reclassifications
(1
)
 
(1
)
 
953

 
(4
)
 
947

Amounts reclassified from accumulated other comprehensive income (loss)
(1
)
 
(3
)
 
70

 
—

 
66

Net current-period other comprehensive income (loss)
(2
)
 
(4
)
 
1,023

 
(4
)
 
1,013

Balance as of December 31, 2013
$
(1
)
 
$
(2
)
 
$
(2,188
)
 
$
(96
)
 
$
(2,287
)
The following table displays the amounts reclassified from Accumulated other comprehensive loss and the affected line item in the consolidated statements of operations during 2013:
Year ended December 31
2013
 
 
Gains on cash flow hedges:
 
 
 
Foreign exchange contracts
$
(1
)
 
Cost of sales
 
$
(1
)
 
Net of tax
Unrealized Gains and Losses on Available-for-Sale Securities:
 
 
 
Realized gain
$
(4
)
 
Gains on sales of investments and businesses, net
 
1

 
Tax expense
 
$
(3
)
 
Net of tax
Amortization of Retirement Benefit Items:
 
 
 
Prior-service costs
$
(49
)
 
Selling, general, and administrative expenses
Actuarial net losses
159

 
Selling, general, and administrative expenses
 
110

 
Total before tax
 
(40
)
 
Tax benefit
 
$
70

 
Net of tax
Total reclassifications for the period, net of tax
$
66

 
 


13



4.    Debt and Credit Facilities
Long-Term Debt 
December 31
2013
 
2012
6.0% senior notes due 2017
399

 
399

3.75% senior notes due 2022
747

 
747

3.5% senior notes due 2023
593

 
—

6.5% debentures due 2025
118

 
118

7.5% debentures due 2025
346

 
346

6.5% debentures due 2028
36

 
36

6.625% senior notes due 2037
54

 
54

5.22% debentures due 2097
89

 
89

Other long-term debt
58

 
45

 
2,440

 
1,834

Adjustments, primarily unamortized gains on interest rate swap terminations
21

 
29

Less: current portion
(4
)
 
(4
)
Long-term debt
$
2,457

 
$
1,859

During the year ended December 31, 2013, the Company issued an aggregate face principal amount of $600 million of 3.50% Senior Notes due March 1, 2023, recognizing net proceeds of $588 million, after debt issuance costs and debt discounts.
During the year ended December 31, 2012, the Company issued an aggregate face principal amount of $750 million of 3.75% Senior Notes due 2022 (the “2022 Senior Notes”).  The Company also redeemed $400 million aggregate principal amount outstanding of its 5.375% Senior Notes due November 2012 for an aggregate purchase price of approximately $408 million.  After accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately $6 million related to this redemption within Other income (expense) in the consolidated statements of operations.  This debt was repurchased with a portion of the proceeds from the issuance of the 2022 Senior Notes.
Aggregate requirements for long-term debt maturities during the next five years are as follows: 2014—$20 million; 2015—$5 million; 2016—$6 million; 2017—$406 million; and 2018—$6 million.
Credit Facilities
As of December 31, 2013, the Company had a $1.5 billion unsecured syndicated revolving credit facility (the “2011 Motorola Solutions Credit Agreement”) scheduled to expire on June 30, 2014. The Company was in compliance with its financial covenants as of December 31, 2013. The Company has never borrowed under the 2011 Motorola Solutions Credit Agreement. At December 31, 2013, the commitment fee assessed against the daily average unused amount was 25 basis points.

5.    Risk Management
Derivative Financial Instruments
Foreign Currency Risk
The Company uses financial instruments to reduce its overall exposure to the effects of currency fluctuations on cash flows. The Company’s policy prohibits speculation in financial instruments for profit on exchange rate price fluctuations, trading in currencies for which there are no underlying exposures, or entering into transactions for any currency to intentionally increase the underlying exposure. Instruments that are designated as part of a hedging relationship must be effective at reducing the risk associated with the exposure being hedged and are designated as part of a hedging relationship at the

14



inception of the contract. Accordingly, changes in the market values of hedge instruments must be highly correlated with changes in market values of the underlying hedged items both at the inception of the hedge and over the life of the hedge contract.
The Company’s strategy related to foreign exchange exposure management is to offset the gains or losses on the financial instruments against gains or losses on the underlying operational cash flows or investments based on the Company's assessment of risk. The Company enters into derivative contracts for some of its non-functional currency cash, receivables, and payables, which are primarily denominated in major currencies that can be traded on open markets. The Company typically uses forward contracts and options to hedge these currency exposures. In addition, the Company enters into derivative contracts for some forecasted transactions, which are designated as part of a hedging relationship if it is determined that the transaction qualifies for hedge accounting under the provisions of the authoritative accounting guidance for derivative instruments and hedging activities. A portion of the Company’s exposure is from currencies that are not traded in liquid markets and these are addressed, to the extent reasonably possible, by managing net asset positions, product pricing and component sourcing.
At December 31, 2013, the Company had outstanding foreign exchange contracts totaling $837 million, compared to $523 million outstanding at December 31, 2012. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset losses and gains on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which is charged to Other within Other income (expense) in the Company’s consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of December 31, 2013 and the corresponding positions as of December 31, 2012:
 
Notional Amount
Net Buy (Sell) by Currency
2013
 
2012
British Pound
$
257

 
$
225

Chinese Renminbi
(181
)
 
(99
)
Euro
(132
)
 
(9
)
Norwegian Krone
(95
)
 
(48
)
Brazilian Real
(44
)
 
3

At December 31, 2013, the maximum term of derivative instruments that hedge forecasted transactions was seven months. The weighted average duration of the Company’s derivative instruments that hedge forecasted transactions was three months.
Interest Rate Risk
As part of its liability management program, one of the Company's European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to Euro-denominated loans. The interest on the Euro-denominated loans is variable. The Interest Agreements change the characteristics of interest rate payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company's consolidated statements of operations. The weighted average fixed rate payment on the Interest Agreements for the year ended December 31, 2013 was 4.44%. The fair value of the Interest Agreements resulted in a liability position of $3 million at December 31, 2013, compared to a liability position of $4 million at December 31, 2012.
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of nonperformance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. At present time, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of December 31, 2013, the Company was exposed to an aggregate credit risk of approximately $4 million with all counterparties.

15



The following tables summarize the fair values and location in the consolidated balance sheets of all derivative financial instruments held by the Company at December 31, 2013 and 2012: 
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
December 31, 2013
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$
—

 
Other assets
 
$
1

 
Other liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
4

 
Other assets
 
1

 
Other liabilities
Interest agreements
—

 
Other assets
 
3

 
Other liabilities
Total derivatives not designated as hedging instruments
4

 
 
 
4

 
 
Total derivatives
$
4

 
 
 
$
5

 
 
 
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
December 31, 2012
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
$
1

 
Other assets
 
$
—

 
Other liabilities
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
2

 
Other assets
 
3

 
Other liabilities
Interest agreements
—

 
Other assets
 
4

 
Other liabilities
Total derivatives not designated as hedging instruments
2

 
 
 
7

 
 
Total derivatives
$
3

 
 
 
$
7

 
 
The following table summarizes the effect of derivative instruments in the Company's consolidated statements of operations, including immaterial amounts related to discontinued operations, for the years ended December 31, 2013, 2012 and 2011: 
 
December 31,
Statement of
Operations Location
Gain (Loss) on Derivative Instruments
2013
 
2012
 
2011
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Interest rate contracts
$
2

 
$
(1
)
 
$
(1
)
Other income (expense)
Foreign exchange contracts
6

 
(13
)
 
(17
)
Other income (expense)
Total derivatives not designated as hedging instruments
$
8

 
$
(14
)
 
$
(18
)
 

16



The following table summarizes the gains and losses reclassified from Accumulated other comprehensive loss into Net earnings, including immaterial amounts related to discontinued operations, for the years ended December 31, 2013, 2012 and 2011: 
 
December 31,
Financial Statement
Location
Foreign Exchange Contracts
2013
 
2012
 
2011
Derivatives in cash flow hedging relationships
 
 
 
 
 
 
Other comprehensive gains (losses) before reclassifications
$
(1
)
 
$
3

 
$
(1
)
Accumulated other
comprehensive loss
Gains (losses) reclassified from Accumulated other comprehensive loss into Net earnings
1

 
(1
)
 
2

Cost of sales
Gain recognized in Net earnings on derivative (ineffective portion and amount excluded from effectiveness testing)
—

 
—

 
1

Other income (expense)
Stockholders’ Equity
Derivative instruments activity, net of tax, included in Accumulated other comprehensive loss within the consolidated statements of stockholders’ equity for the years ended December 31, 2013, 2012 and 2011 were as follows: 
 
2013
 
2012
 
2011
Balance at January 1
$
1

 
$
(3
)
 
$
—

Increase (decrease) in fair value
(1
)
 
3

 
(1
)
Reclassifications to earnings, net of tax
(1
)
 
1

 
(2
)
Balance at December 31
$
(1
)
 
$
1

 
$
(3
)

6.     Income Taxes
Components of earnings from continuing operations before income taxes are as follows:
Years ended December 31
2013
 
2012
 
2011
United States
$
585

 
$
566

 
$
268

Other nations
295

 
315

 
213

 
$
880

 
$
881

 
$
481

Components of income tax expense (benefit) are as follows:
Years ended December 31
2013
 
2012
 
2011
United States
$
29

 
$
5

 
$
2

Other nations
234

 
91

 
34

States (U.S.)
12

 
1

 
3

Current income tax expense
275

 
97

 
39

United States
(368
)
 
192

 
(184
)
Other nations
35

 
(29
)
 
86

States (U.S.)
(1
)
 
(49
)
 
(36
)
Deferred income tax expense (benefit)
(334
)
 
114

 
(134
)
Foreign tax credits
$
(59
)
 
$
211

 
$
(95
)
Deferred tax charges that were recorded within Accumulated other comprehensive loss in the Company’s consolidated balance sheets resulted from retirement benefit adjustments, currency translation adjustments, net gains (losses) on derivative instruments and fair value adjustments to available-for-sale securities. The adjustments were $606 million, $(272) million and $(259) million for the years ended December 31, 2013, 2012 and 2011, respectively.
The Company evaluates its permanent reinvestment assertions with respect to foreign earnings at each reporting period and, except for certain earnings that the Company intends to reinvest indefinitely due to the capital requirements of the foreign subsidiaries or due to local country restrictions, accrues for the U.S. federal and foreign income tax applicable to the earnings.

17



During the first quarter of 2013, the Company reassessed its unremitted earnings position and concluded that certain of its non-U.S. subsidiaries' earnings were permanently invested overseas. The Company intends to utilize the offshore earnings to fund foreign investments, such as potential acquisitions and capital expenditures. In the first quarter of 2013, the Company recorded a net tax benefit of $25 million related to reversals of deferred tax liabilities for undistributed foreign earnings due to the change in permanent reinvestment assertion.
Undistributed earnings that the Company intends to reinvest indefinitely, and for which no income taxes have been provided, aggregate to $1.4 billion, $1.0 billion and $1.0 billion at December 31, 2013, 2012 and 2011, respectively. The Company currently has no plans to repatriate the foreign earnings permanently reinvested and therefore, the time and manner of repatriation is uncertain.  If circumstances change and it becomes apparent that some or all of the permanently reinvested earnings will be remitted to the U.S. in the foreseeable future, an additional income tax charge may be necessary; however, given the uncertain repatriation time and manner at December 31, 2013, it is not practicable to estimate the amount of any additional income tax charge on permanently reinvested earnings.  On a cash basis, these repatriations from the Company's non-U.S. subsidiaries could require the payment of additional taxes. The portion of earnings not reinvested indefinitely may be distributed without an additional charge given the U.S. federal and foreign income tax accrued on undistributed earnings and the utilization of available foreign tax credits.
At December 31, 2013, the Company has approximately $450 million of foreign earnings not considered permanently reinvested and which may be repatriated without an additional tax charge, given the U.S. federal and foreign income tax accrued on the undistributed earnings and the utilization of available foreign tax credits. During 2013, the Company made an $87 million withholding tax payment associated with an intercompany foreign dividend, for which we expect to realize a foreign tax credit.
The Company recently reorganized certain of its non-U.S. subsidiaries under a holding company structure in order to facilitate the efficient movement of non-U.S. cash and provide a platform to fund foreign investments, such as potential acquisitions and capital expenditures. During 2013, the Company recognized a $337 million tax benefit associated with the excess tax credits relating to the earnings of certain non-U.S. subsidiaries reorganized under our holding company structure, which was implemented in 2013.
Differences between income tax expense computed at the U.S. federal statutory tax rate of 35% and income tax expense (benefit) as reflected in the consolidated statements of operations are as follows:
Years ended December 31
2013
 
2012
 
2011
Income tax expense at statutory rate
$
308

 
$
308

 
$
168

Tax on non-U.S. earnings
17

 
(10
)
 
(24
)
State income taxes
8

 
(32
)
 
(4
)
Tax law changes
6

 
—

 
—

Other provisions
(4
)
 
(10
)
 
(18
)
Valuation allowances
(3
)
 
(60
)
 
(237
)
Section 199 deduction
(14
)
 
(14
)
 
(22
)
Tax on undistributed non-U.S. earnings
(22
)
 
29

 
49

Research credits
(18
)
 
—

 
(7
)
Tax benefit of repatriated non-U.S. earnings
(337
)
 
—

 
—

 
$
(59
)
 
$
211

 
$
(95
)
Gross deferred tax assets were $3.7 billion and $4.3 billion at December 31, 2013 and 2012, respectively. Deferred tax assets, net of valuation allowances, were $3.5 billion and $4.1 billion at December 31, 2013 and 2012, respectively. Gross deferred tax liabilities were $1.1 billion and $1.3 billion at December 31, 2013 and 2012, respectively.

18



Significant components of deferred tax assets (liabilities) are as follows: 
December 31
2013
 
2012
Inventory
$
46

 
$
4

Accrued liabilities and allowances
129

 
124

Employee benefits
814

 
1,532

Capitalized items
144

 
210

Tax basis differences on investments
17

 
25

Depreciation tax basis differences on fixed assets
12

 
9

Undistributed non-U.S. earnings
(6
)
 
(141
)
Tax carryforwards
1,294

 
1,087

Business reorganization
39

 
12

Warranty and customer reserves
19

 
27

Deferred revenue and costs
159

 
197

Valuation allowances
(200
)
 
(260
)
Deferred charges
38

 
36

Other
(64
)
 
(75
)
 
$
2,441

 
$
2,787

At December 31, 2013 and 2012, the Company had valuation allowances of $200 million and $260 million, respectively, against its deferred tax assets, including $178 million and $234 million, respectively, relating to deferred tax assets for non-U.S. subsidiaries. The Company’s valuation allowances for its non-U.S. subsidiaries had a net decrease of $56 million and $102 million during 2013 and 2012, respectively. The decrease in the valuation allowance relating to deferred tax assets of non-U.S. subsidiaries during 2013 reflects current year deferred tax movements, expiration of loss carryforwards and exchange rate variances.
During 2012, we recorded $60 million of tax benefit related to the reversal of a significant portion of the valuation allowance established on certain foreign deferred tax assets. In the first quarter of 2011, the Company reassessed its valuation allowance requirements taking into consideration the distribution of Motorola Mobility. The Company evaluated all available evidence in its analysis, including the historical and projected pre-tax profits generated by the Company's U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. During 2011, the Company recorded $274 million of tax benefits related to the reversal of a significant portion of the valuation allowance established on U.S. deferred tax assets.
The U.S. valuation allowance as of December 31, 2013 relates to state tax carryforwards. The Company believes that the remaining deferred tax assets are more-likely-than-not to be realizable based on estimates of future taxable income and the implementation of tax planning strategies.

19



Tax carryforwards are as follows: 
December 31, 2013
Gross
Tax Loss
 
Tax
Effected
 
Expiration
Period
United States:
 
 
 
 
 
U.S. tax losses
58

 
$
20

 
2021-2031
Foreign tax credits
—

 
668

 
2018-2023
General business credits
—

 
197

 
2025-2033
Minimum tax credits
—

 
100

 
Unlimited
State tax losses
1,991

 
50

 
2014-2031
State tax credits
—

 
27

 
2018-2026
Non-U.S. Subsidiaries:
 
 
 
 
 
China tax losses
226

 
56

 
2014-2016
Japan tax losses
100

 
36

 
2017-2021
United Kingdom tax losses
162

 
32

 
Unlimited
Germany tax losses
150

 
44

 
Unlimited
Singapore tax losses
58

 
10

 
Unlimited
Other subsidiaries tax losses
73

 
18

 
Various
Spain tax credits
—

 
31

 
2017-2021
Other subsidiaries tax credits
—

 
5

 
Various
 
 
 
$
1,294

 
 
The Company had unrecognized tax benefits of $147 million and $157 million at December 31, 2013 and December 31, 2012, respectively, of which approximately $125 million and $134 million, respectively, if recognized, would affect the effective tax rate, net of resulting changes to valuation allowances.
A roll-forward of unrecognized tax benefits is as follows: 
 
2013
 
2012
Balance at January 1
$
157

 
$
186

Additions based on tax positions related to current year
13

 
11

Additions for tax positions of prior years
70

 
10

Reductions for tax positions of prior years
(10
)
 
(24
)
Settlements and agreements
(82
)
 
(22
)
Lapse of statute of limitations
(1
)
 
(4
)
Balance at December 31
$
147

 
$
157

During 2013, the Company recorded a net increase in unrecognized tax benefits related to prior year tax positions of $70 million, of which $63 million related to previously accrued non-U.S. income taxes. The Company recorded a net reduction in unrecognized tax benefits of $82 million for settlements with tax authorities, of which $63 million resulted in a cash tax payment and the remainder of which resulted in a reduction to tax carryforwards and prepaid tax assets.

20



The IRS is currently examining the Company's 2010 and 2011 tax years. The Company also has several state and non-U.S. audits pending. A summary of open tax years by major jurisdiction is presented below: 
Jurisdiction
Tax Years
United States
2008-2013
China
2002-2013
France
2009-2013
Germany
2008-2013
India
1997-2013
Israel
2012-2013
Japan
2009-2013
Malaysia
2008-2013
Singapore
2009-2013
United Kingdom
2007-2013
Although the final resolution of the Company’s global tax disputes is uncertain, based on current information, in the opinion of the Company’s management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations. However, an unfavorable resolution of the Company’s global tax disputes could have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations in the periods in which the matters are ultimately resolved.
Based on the potential outcome of the Company’s global tax examinations, the expiration of the statute of limitations for specific jurisdictions, or the continued ability to satisfy tax incentive obligations, it is reasonably possible that the unrecognized tax benefits will change within the next twelve months. The associated net tax impact on the effective tax rate, exclusive of valuation allowance changes, is estimated to be in the range of a $50 million tax charge to a $75 million tax benefit, with cash payments not to exceed $25 million.
At December 31, 2013, the Company had $25 million and $27 million accrued for interest and penalties, respectively, on unrecognized tax benefits. At December 31, 2012, the Company had $23 million and $29 million accrued for interest and penalties, respectively, on unrecognized tax benefits.

7.    Retirement Benefits
Pension and Postretirement Health Care Benefits Plans
The Company’s noncontributory pension plan (the “Regular Pension Plan”) covers U.S. employees hired prior to January 1, 2005, who became eligible after one year of service. The benefit formula is dependent upon employee earnings and years of service. The Company also provides defined benefit plans which cover non-U.S. employees in certain jurisdictions, principally the United Kingdom, Germany, and Japan (the “Non U.S. Pension Benefit Plans”). Other pension plans outside of the U.S. are not material to the Company either individually or in the aggregate.
The Company had a noncontributory supplemental retirement benefit plan (the “Officers’ Plan”) for its officers elected prior to December 31, 1999. The Officers’ Plan contained provisions for vesting and funding the participants’ expected retirement benefits when the participants met the minimum age and years of service requirements. Elected officers who were not yet vested in the Officers’ Plan as of December 31, 1999 had the option to remain in the Officers’ Plan or elect to have their benefit bought out in restricted stock units. Effective December 31, 1999, newly elected officers were not eligible to participate in the Officers’ Plan. Effective June 30, 2005, salaries were frozen for this plan. During 2013, the Company settled and terminated the Officers' Plan.
The Company has an additional noncontributory supplemental retirement benefit plan, the Motorola Supplemental Pension Plan (“MSPP”), which provides supplemental benefits to individuals by replacing the Regular Pension Plan benefits that are lost by such individuals under the retirement formula due to application of the limitations imposed by the Internal Revenue Code. However, elected officers who were covered under the Officers’ Plan were not eligible to participate in the

21



MSPP. Effective January 1, 2007, eligible compensation was capped at the IRS limit plus $175,000 (the “Cap”) or, for those already in excess of the Cap as of January 1, 2007, the eligible compensation used to compute such employee’s MSPP benefit for all future years is the greater of: (i) such employee’s eligible compensation as of January 1, 2007 (frozen at that amount) or (ii) the relevant Cap for the given year. Effective January 1, 2009, the MSPP was closed to new participants unless such participation was required under a prior contractual entitlement.
In February 2007, the Company amended the Regular Pension Plan and the MSPP, modifying the definition of average earnings. For the years ended prior to December 31, 2007, benefits were calculated using the rolling average of the highest annual earnings in any five years within the previous ten calendar year period. Beginning in January 2008, the benefit calculation was based on the set of the five highest years of earnings within the ten calendar years prior to December 31, 2007, averaged with earnings from each year after 2007. In addition, effective January 2008, the Company amended the Regular Pension Plan, modifying the vesting period from five years to three years.
In December 2008, the Company amended the Regular Pension Plan, the Officers’ Plan and the MSPP (collectively, the “U.S. Pension Benefit Plans”) such that, effective March 1, 2009: (i) no participant shall accrue any benefit or additional benefit on or after March 1, 2009, and (ii) no compensation increases earned by a participant on or after March 1, 2009 shall be used to compute any accrued benefit.
Certain health care benefits are available to eligible domestic employees meeting certain age and service requirements upon termination of employment (the “Postretirement Health Care Benefits Plan”). For eligible employees hired prior to January 1, 2002, the Company offsets a portion of the postretirement medical costs to the retired participant. As of January 1, 2005, the Postretirement Health Care Benefits Plan was closed to new participants. During 2012, the Postretirement Health Care Benefits Plan was amended. As of January 1, 2013, benefits under the Postretirement Health Care Benefits Plan, are paid to a retiree health reimbursement account instead of directly providing health insurance coverage to the participants.  Covered retirees are now able to use the annual subsidy they receive through this account toward the purchase of their own health care coverage from private insurance companies and for reimbursement of eligible health care expenses.
Net Periodic Cost
The net periodic costs (benefit) for pension and Postretirement Health Care Benefits plans were as follows:
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
Years ended December 31
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service cost
$
—

 
$
—

 
$
—

 
$
11

 
$
10

 
$
17

 
$
2

 
$
3

 
$
4

Interest cost
352

 
349

 
344

 
70

 
75

 
72

 
11

 
16

 
22

Expected return on plan assets
(364
)
 
(421
)
 
(390
)
 
(79
)
 
(78
)
 
(77
)
 
(10
)
 
(12
)
 
(16
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrecognized net loss
130

 
260

 
189

 
15

 
22

 
17

 
14

 
12

 
10

Unrecognized prior service benefit
—

 
—

 
—

 
(6
)
 
(3
)
 
(9
)
 
(43
)
 
(16
)
 
—

Settlement/curtailment loss (gain)
—

 
—

 
8

 
—

 
—

 
(9
)
 
—

 
—

 
—

Net periodic pension cost (benefit)
$
118

 
$
188

 
$
151

 
$
11

 
$
26

 
$
11

 
$
(26
)
 
$
3

 
$
20

The amendment to the Postretirement Health Care Benefits Plan effective January 1, 2013 resulted in a remeasurement of the plan generating an $87 million decrease in accumulated other comprehensive loss, net of taxes. The majority of that $87 million decrease will be recognized over approximately three years, or the period in which the remaining employees eligible for the plan will quality for benefits under the plan. During the year ended December 31, 2013, $43 million of prior service cost credit was recognized, including the amount associated with the 2012 amendment resulting in a net credit for periodic cost in 2013.

22



The status of the Company’s plans are as follows: 
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
  
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Change in benefit obligation:
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at January 1
$
8,288

 
$
6,986

 
$
1,787

 
$
1,588

 
$
322

 
$
450

Service cost
—

 
—

 
12

 
10

 
2

 
3

Interest cost
352

 
349

 
70

 
75

 
11

 
16

Plan amendments
—

 
—

 
—

 
—

 
—

 
(151
)
Actuarial loss (gain)
(1,012
)
 
1,277

 
95

 
103

 
(37
)
 
24

Foreign exchange valuation adjustment
—

 
—

 
30

 
48

 
—

 
—

Employee contributions
—

 
—

 
2

 
2

 
—

 
—

Benefit payments
(311
)
 
(324
)
 
(41
)
 
(39
)
 
(20
)
 
(20
)
Benefit obligation at December 31
7,317

 
8,288

 
1,955

 
1,787

 
278

 
322

Change in plan assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value at January 1
5,426

 
4,747

 
1,362

 
1,219

 
155

 
155

Return on plan assets
806

 
660

 
199

 
111

 
22

 
20

Company contributions
150

 
340

 
32

 
31

 
—

 
—

Employee contributions
—

 
—

 
2

 
2

 
—

 
—

Foreign exchange valuation adjustment
—

 
—

 
14

 
38

 
—

 
—

Benefit payments from plan assets
(311
)
 
(321
)
 
(41
)
 
(39
)
 
(16
)
 
(20
)
Fair value at December 31
6,071

 
5,426

 
1,568

 
1,362

 
161

 
155

Funded status of the plan
(1,246
)
 
(2,862
)
 
(387
)
 
(425
)
 
(117
)
 
(167
)
Unrecognized net loss
2,732

 
4,313

 
492

 
520

 
143

 
206

Unrecognized prior service benefit
—

 
—

 
(44
)
 
(51
)
 
(92
)
 
(135
)
Prepaid (accrued) pension cost
$
1,486

 
$
1,451

 
$
61

 
$
44

 
$
(66
)
 
$
(96
)
Components of prepaid (accrued) pension cost:
 
 
 
 
 
 
 
 
 
 
 
Non-current benefit liability
$
(1,246
)
 
$
(2,862
)
 
$
(387
)
 
$
(425
)
 
$
(117
)
 
$
(167
)
Deferred income taxes
1,002

 
1,592

 
33

 
41

 
19

 
26

Accumulated other comprehensive loss
1,730

 
2,721

 
415

 
428

 
32

 
45

Prepaid (accrued) pension cost
$
1,486

 
$
1,451

 
$
61

 
$
44

 
$
(66
)
 
$
(96
)
The benefit obligation and plan assets for the Company's plans are measured as of December 31, 2013. The Company utilizes a five-year, market-related asset value method of recognizing asset related gains and losses.
Prior to 2013, unrecognized gains and losses were amortized over periods ranging from three to thirteen years. At the close of fiscal 2012, the Company determined that the majority of the Company's plan participants in its Regular and United Kingdom pension plans were no longer actively employed by the Company due to significant employee exits as a result of the Company's recent divestitures.  Under relevant accounting rules, when almost all of the plan participants are considered inactive, the amortization period for certain unrecognized losses changes from the average remaining service period to the average remaining lifetime of the participant.  As such, beginning in 2013, and depending on the specific plan, the Company began amortizing gains and losses over periods ranging from five to twenty-eight years. Prior service costs are being amortized over periods ranging from ten to twelve years. Benefits under all pension plans are valued based on the projected unit credit cost method.
The net periodic cost for 2014 will include amortization of the unrecognized net loss and prior service costs for the U.S. Pension Benefit Plans and Non U.S. Pension Benefit Plans, currently included in Accumulated other comprehensive loss, of $91 million and $5 million, respectively.  It is estimated that the 2014 net periodic expense for the Postretirement Health Care Benefits Plan will include amortization of a net credit of $31 million, comprised of the unrecognized prior service gain and unrecognized actuarial loss, currently included in Accumulated other comprehensive loss.

23



Actuarial Assumptions
Certain actuarial assumptions such as the discount rate and the long-term rate of return on plan assets have a significant effect on the amounts reported for net periodic cost and benefit obligation. The assumed discount rates reflect the prevailing market rates of a universe of high-quality, non-callable, corporate bonds currently available that, if the obligation were settled at the measurement date, would provide the necessary future cash flows to pay the benefit obligation when due. The long-term rates of return on plan assets represent an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income, cash and other investments similar to the actual investment mix. In determining the long-term return on plan assets, the Company considers long-term rates of return on the asset classes (both historical and forecasted) in which the Company expects the plan funds to be invested.
Weighted average actuarial assumptions used to determine costs for the plans were as follows: 
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
December 31
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Discount rate
4.35
%
 
5.10
%
 
4.16
%
 
4.61
%
 
3.80
%
 
4.75
%
Investment return assumption
7.00
%
 
8.25
%
 
6.05
%
 
6.24
%
 
7.00
%
 
8.25
%
Weighted average actuarial assumptions used to determine benefit obligations for the plans were as follows: 
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
December 31
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Discount rate
5.15
%
 
4.35
%
 
4.14
%
 
4.11
%
 
4.65
%
 
3.80
%
Future compensation increase rate
n/a

 
n/a

 
2.57
%
 
2.58
%
 
n/a

 
n/a

The accumulated benefit obligations for the plans were as follows: 
 
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
December 31
2013
 
2012
 
2013
 
2012
Accumulated benefit obligation
$
7,317

 
$
8,288

 
$
1,950

 
$
1,770

The health care cost trend rate used to determine the December 31, 2013 accumulated postretirement benefit obligation for the Postretirement Health Care Benefits Plan was 8.50% for 2013, grading down to a rate of 5% in 2020.  The health care cost trend rate used to determine the December 31, 2012 accumulated postretirement benefit obligation was 7.25% for 2013, remaining flat at 7.25% through 2015, then grading down to a rate of 5% in 2019.
Changing the health care trend rate by one percentage point would change the accumulated postretirement benefit obligation and the net Postretirement Health Care Benefits Plan benefits as follows: 
 
1% Point
Increase
 
1% Point
Decrease
Increase (decrease) in:
 
 
 
Accumulated postretirement benefit obligation
$
1

 
$
(1
)
Net Postretirement Health Care Benefit Plan benefit
—

 
—

The Company maintains a lifetime cap on postretirement health care costs, which reduces the liability duration of the plan. A result of this lower duration is a decreased sensitivity to a change in the discount rate trend assumption with respect to the liability and related expense.

24



Investment Policy
The Company has adopted an investment policy designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the plans retain professional investment managers that invest plan assets in equity, fixed income securities, and cash equivalents. In addition, some plans invest in insurance contracts. The Company uses long-term historical actual return experience with consideration of the expected investment mix of the plans’ assets, as well as future estimates of long-term investment returns, to develop its expected rate of return assumption used in calculating the net periodic cost. The Company has target mixes for these asset classes for all plans, which are readjusted periodically when an asset class weighting deviates from the target mix, with the goal of achieving the required return at a reasonable risk level.
The weighted-average asset allocations by asset categories for all pension and the Postretirement Health Care Benefits Plans were as follows:
 
All Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
December 31
2013
 
2012
 
2013
 
2012
Target Mix:
 
 
 
 
 
 
 
Equity securities
55
%
 
64
%
 
57
%
 
65
%
Fixed income securities
43
%
 
35
%
 
42
%
 
34
%
Cash and other investments
2
%
 
1
%
 
1
%
 
1
%
Actual Mix:
 
 
 
 
 
 
 
Equity securities
55
%
 
64
%
 
58
%
 
64
%
Fixed income securities
42
%
 
34
%
 
40
%
 
32
%
Cash and other investments
3
%
 
2
%
 
2
%
 
4
%
Within the equity securities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and foreign equities. Within the fixed income securities asset class, the investment policy provides for investments in a broad range of publicly-traded debt securities including U.S. Treasury issues, corporate debt securities, mortgage and asset-backed securities, as well as foreign debt securities. In the cash and other investments asset class, investments may be in cash, cash equivalents or insurance contracts.
Cash Funding
The Company contributed $150 million to its U.S. Pension Benefit Plans during 2013, compared to $340 million contributed in 2012. The Company expects to make cash contributions of approximately $300 million to its U.S. Pension Benefit Plans and approximately $35 million to its Non-U.S. Pension Benefit Plans in 2014. The Company does not expect to make cash contributions to the Postretirement Health Care Benefits Plan in 2014.
Expected Future Benefit Payments
The following benefit payments are expected to be paid: 
Year
U.S. Pension Benefit Plans
 
Non U.S. Pension Benefit Plans
 
Postretirement Health Care Benefits Plan
2014
$
286

 
$
41

 
$
25

2015
298

 
42

 
24

2016
312

 
43

 
23

2017
328

 
44

 
22

2018
347

 
46

 
21

2019-2023
2,097

 
245

 
96

Other Benefit Plans
Split-Dollar Life Insurance Arrangements
The Company maintains a number of endorsement split-dollar life insurance policies that were taken out on now-retired officers under a plan that was frozen prior to December 31, 2004. The Company had purchased the life insurance policies to insure the lives of employees and then entered into a separate agreement with the employees that split the policy benefits between the Company and the employee. Motorola Solutions owns the policies, controls all rights of ownership, and may terminate the insurance policies. To effect the split-dollar arrangement, Motorola Solutions endorsed a portion of the death benefits to the employee and upon the death of the employee, the employee’s beneficiary typically receives the designated

25



portion of the death benefits directly from the insurance company and the Company receives the remainder of the death benefits. It is currently expected that minimal cash payments will be required to fund these policies.
The net periodic pension cost for these split-dollar life insurance arrangements was $5 million for the years ended December 31, 2013, 2012 and 2011. The Company has recorded a liability representing the actuarial present value of the future death benefits as of the employees’ expected retirement date of $51 million and $58 million as of December 31, 2013 and December 31, 2012, respectively.
Deferred Compensation Plan
The Company amended and reinstated its deferred compensation plan (“the Plan”) effective June 1, 2013 to reopen the Plan to certain participants.  Under the Plan, participating executives may elect to defer base salary and cash incentive compensation in excess of 401(k) plan limitations.  Participants under the Plan may choose to invest their deferred amounts in the same investment alternatives available under the Company's 401(k) plan.  The Plan also allows for Company matching contributions for the following: (i) the first 4% of compensation deferred under the Plan, subject to a maximum of $50,000 for board officers, (ii) lost matching amounts that would have been made under the 401(k) plan if participants had not participated in the Plan, and (iii) discretionary amounts as approved by the Compensation and Leadership Committee of the Board of Directors.
Defined Contribution Plan
The Company and certain subsidiaries have various defined contribution plans, in which all eligible employees may participate. In the U.S., the 401(k) plan is a contributory plan. Matching contributions are based upon the amount of the employees’ contributions. The Company’s expenses for material defined contribution plans for the years ended December 31, 2013, 2012 and 2011 were $32 million, $30 million and $35 million, respectively.
Beginning January 1, 2012, the Company may make an additional discretionary 401(k) plan matching contribution to eligible employees. For the years ended December 31, 2013 and 2012, the Company made no discretionary matching contributions.

8.    Share-Based Compensation Plans and Other Incentive Plans
Stock Options, Stock Appreciation Rights and Employee Stock Purchase Plan
The Company grants options to acquire shares of common stock to certain employees and to existing option holders of acquired companies in connection with the merging of option plans following an acquisition. Each option granted and stock appreciation right has an exercise price of no less than 100% of the fair market value of the common stock on the date of the grant. The awards have a contractual life of five to fifteen years and vest over two to four years. Stock options and stock appreciation rights assumed or replaced with comparable stock options or stock appreciation rights in conjunction with a change in control of the Company only become exercisable if the holder is also involuntarily terminated (for a reason other than cause) or quits for good reason within 24 months of a change in control.
The employee stock purchase plan allows eligible participants to purchase shares of the Company’s common stock through payroll deductions of up to 20% of eligible compensation on an after-tax basis. Plan participants cannot purchase more than $25,000 of stock in any calendar year. The price an employee pays per share is 85% of the lower of the fair market value of the Company’s stock on the close of the first trading day or last trading day of the purchase period. The plan has two purchase periods, the first from October 1 through March 31 and the second from April 1 through September 30. For the years ended December 31, 2013, 2012 and 2011, employees purchased 1.5 million, 1.4 million and 2.2 million shares, respectively, at purchase prices of $43.02 and $50.47, $34.52 and $42.96, and $30.56 and $35.61, respectively.
The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model. The weighted-average estimated fair value of employee stock options granted during 2013, 2012 and 2011 was $9.52, $9.60 and $13.25, respectively, using the following weighted-average assumptions:
 
2013
 
2012
 
2011
Expected volatility
22.1
%
 
24.0
%
 
28.8
%
Risk-free interest rate
0.9
%
 
0.8
%
 
2.1
%
Dividend yield
2.4
%
 
2.2
%
 
0.0
%
Expected life (years)
5.9

 
6.1

 
6.0

The Company uses the implied volatility for traded options on the Company’s stock as the expected volatility assumption required in the Black-Scholes model. The selection of the implied volatility approach was based upon the availability of

26



actively traded options on the Company’s stock and the Company’s assessment that implied volatility is more representative of future stock price trends than historical volatility.
The risk-free interest rate assumption is based upon the average daily closing rates during the year for U.S. Treasury notes that have a life which approximates the expected life of the option. The dividend yield assumption is based on the Company’s future expectation of dividend payouts. The expected life of employee stock options represents the average of the contractual term of the options and the weighted-average vesting period for all option tranches.
The Company has applied forfeiture rates, estimated based on historical data, of 10%-50% to the option fair values calculated by the Black-Scholes option pricing model. These estimated forfeiture rates are applied to grants based on their remaining vesting term and may be revised in subsequent periods if actual forfeitures differ from these estimates.
Stock option activity was as follows (in thousands, except exercise price and employee data): 
 
2013
 
2012
 
2011
Years ended December 31
Shares
Subject to
Options
 
Wtd. Avg.
Exercise
Price
 
Shares
Subject to
Options
 
Wtd. Avg.
Exercise
Price
 
Shares
Subject to
Options
 
Wtd. Avg.
Exercise
Price
Options outstanding at January 1
13,132

 
$
70

 
15,729

 
$
63

 
19,614

 
$
81

Options granted
1,652

 
57

 
1,286

 
51

 
3,155

 
39

Options exercised
(2,950
)
 
31

 
(2,831
)
 
29

 
(4,475
)
 
27

Adjustments to options outstanding to reflect Mobility spin-off
—

 
—

 
—

 
—

 
7,756

 
39

Options terminated, cancelled or expired
(897
)
 
65

 
(1,052
)
 
60

 
(10,321
)
 
59

Options outstanding at December 31
10,937

 
79

 
13,132

 
70

 
15,729

 
63

Options exercisable at December 31
7,628

 
91

 
9,242

 
81

 
11,184

 
74

Approx. number of employees granted options
123

 
 
 
115

 
 
 
270

 
 
At December 31, 2013, the Company had $23 million of total unrecognized compensation expense, including unrecognized compensation expense for awards to employees of the Enterprise business, net of estimated forfeitures, related to stock option plans and the employee stock purchase plan that will be recognized over the weighted average period of approximately two years. Cash received from stock option exercises and the employee stock purchase plan was $165 million, $133 million and $192 million for the years ended December 31, 2013, 2012 and 2011, respectively. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $85 million, $59 million and $73 million, respectively. The aggregate intrinsic value for options outstanding and exercisable as of December 31, 2013 was $170 million and $116 million, respectively, based on a December 31, 2013 stock price of $67.50 per share.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2013 (in thousands, except exercise price and years):
 
Options Outstanding
 
Options
Exercisable
Exercise price range
No. of
options
 
Wtd. avg.
Exercise
Price
 
Wtd. avg.
contractual
life (in yrs.)
 
No. of
options
 
Wtd. avg.
Exercise
Price
Under $30
1,416

 
$
27

 
6
 
1,416

 
$
27

$30-$40
2,515

 
39

 
6
 
1,828

 
39

$41-$50
401

 
45

 
7
 
188

 
45

$51-$60
2,467

 
54

 
9
 
173

 
52

$61-$70
783

 
67

 
2
 
668

 
67

$71-$80
219

 
74

 
3
 
219

 
74

$81 and over
3,136

 
161

 
1
 
3,136

 
161

 
10,937

 
 
 
 
 
7,628

 
 

27



As of December 31, 2013, the weighted average contractual life for options outstanding and exercisable was five and four years, respectively.
Restricted Stock and Restricted Stock Units
Restricted stock (“RS”) and restricted stock unit (“RSU”) grants consist of shares or the rights to shares of the Company’s common stock which are awarded to employees and non-employee directors. The grants are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee. Shares of RS and RSUs assumed or replaced with comparable shares of RS or RSUs in conjunction with a change in control will only have the restrictions lapse if the holder is also involuntarily terminated (for a reason other than cause) or quits for good reason within 24 months of a change in control.
Restricted stock and restricted stock unit activity was as follows (in thousands, except fair value and employee data): 
 
2013
 
2012
 
2011
Years ended December 31
RS and RSU
 
Wtd. Avg.
Grant
Date Fair
Value
 
RS and RSU
 
Wtd Avg.
Grant
Date Fair
Value
 
RS and RSU
 
Wtd Avg.
Grant
Date Fair
Value
RS and RSU outstanding at January 1
6,299

 
$
41

 
8,990

 
$
40

 
9,559

 
$
51

Granted
1,558

 
54

 
1,657

 
49

 
5,150

 
44

Adjustments to RSUs outstanding to reflect Mobility spin-off
—

 
—

 
—

 
—

 
3,638

 
20

Vested
(3,610
)
 
38

 
(3,845
)
 
41

 
(3,230
)
 
31

Terminated, canceled or expired
(519
)
 
45

 
(503
)
 
33

 
(6,127
)
 
44

RS and RSU outstanding at December 31
3,728

 
49

 
6,299

 
41

 
8,990

 
40

Approx. number of employees granted RSUs
2,295

 
 
 
2,355

 
 
 
12,351

 
 
At December 31, 2013, the Company had unrecognized compensation expense related to RS and RSUs of $107 million, including unrecognized compensation expense for awards to employees of the Enterprise business, net of estimated forfeitures, expected to be recognized over the weighted average period of approximately two years. The total fair value of RS and RSU shares vested during the years ended December 31, 2013, 2012 and 2011 was $138 million, $144 million and $146 million, respectively. The aggregate fair value of outstanding RS and RSUs as of December 31, 2013 was $252 million. Pursuant to the completion of the distribution of Motorola Mobility on January 4, 2011, approximately 3.8 million unvested RSUs held by the employees of Motorola Mobility were cancelled. Upon the completed divestiture of the Networks business on April 29, 2011, approximately 1.4 million unvested RSUs were cancelled.
Total Share-Based Compensation Expense
Compensation expense for the Company’s employee stock options, stock appreciation rights, employee stock purchase plans, RS and RSUs was as follows: 
Years ended December 31
2013
 
2012
 
2011
Share-based compensation expense included in:
 
 
 
 
 
Costs of sales
$
16

 
$
20

 
$
15

Selling, general and administrative expenses
73

 
88

 
90

Research and development expenditures
31

 
38

 
29

Share-based compensation expense included in Operating earnings
120

 
146

 
134

Tax benefit
37

 
49

 
37

Share-based compensation expense, net of tax
$
83

 
$
97

 
$
97

Decrease in basic earnings per share
$
(0.31
)
 
$
(0.33
)
 
$
(0.29
)
Decrease in diluted earnings per share
$
(0.31
)
 
$
(0.33
)
 
$
(0.29
)
Share-based compensation expense in discontinued operations
$
33

 
$
38

 
$
47


28



At December 31, 2013 and 2012, 20.4 million shares and 22.2 million shares, respectively, were available for future share-based award grants under the current share-based compensation plan, covering all equity awards to employees and non-employee directors.
Motorola Solutions Incentive Plans
The Company's incentive plans provide eligible employees with an annual payment, calculated as a percentage of an employee’s eligible earnings, in the year after the close of the current calendar year if specified business goals and individual performance targets are met. The expense for awards under these incentive plans for the years ended December 31, 2013, 2012 and 2011 was $87 million, $145 million and $146 million, respectively.
Long-Range Incentive Plan
The Long-Range Incentive Plan (“LRIP”) rewards participating elected officers for the Company’s achievement of specified business goals during the period, based on a single performance objective measured over a three year period. The expense for LRIP for the years ended December 31, 2013, 2012 and 2011 was $4 million, $9 million and $2 million, respectively.

9.    Fair Value Measurements
The Company holds certain fixed income securities, equity securities and derivatives, which are recognized and disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation methodologies as defined in the authoritative literature. This guidance specifies a hierarchy of valuation techniques based on whether the inputs to each measurement are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions about current market conditions. The prescribed fair value hierarchy and related valuation methodologies are as follows:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques, in which one or more significant inputs are unobservable.
Sigma Fund, Investments, and Derivatives
The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of December 31, 2013 and 2012 were as follows: 
December 31, 2013
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Foreign exchange derivative contracts
$
—

 
$
4

 
$
4

Available-for-sale securities:
 
 
 
 
 
Government, agency, and government-sponsored enterprise obligations
—

 
15

 
15

Corporate bonds
—

 
7

 
7

Mutual funds
—

 
11

 
11

Common stock and equivalents
2

 
—

 
2

Liabilities:
 
 
 
 
 
Foreign exchange derivative contracts
$
—

 
$
2

 
$
2

Interest agreement derivative contracts
—

 
3

 
3


29



December 31, 2012
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Sigma Fund securities:
 
 
 
 
 
Government, agency, and government-sponsored enterprise obligations
$
—

 
$
1,984

 
$
1,984

Foreign exchange derivative contracts
—

 
3

 
3

Available-for-sale securities:
 
 
 
 
 
Government, agency, and government-sponsored enterprise obligations
—

 
15

 
15

Corporate bonds
—

 
11

 
11

Mortgage-backed securities
—

 
2

 
2

Common stock and equivalents
3

 
7

 
10

Liabilities:
 
 
 
 
 
Foreign exchange derivative contracts
$
—

 
$
3

 
$
3

Interest agreement derivative contracts
—

 
4

 
4

There were no significant transfers between Level 1 and Level 2 during 2013 or 2012.
Pension and Postretirement Health Care Benefits Plan Assets
The fair values of the various pension and postretirement health care benefits plans’ assets by level in the fair value hierarchy as of December 31, 2013 and 2012 were as follows:
U.S. Pension Benefit Plans
December 31, 2013
Level 1
 
Level 2
 
Total
Common stock and equivalents
$
1,424

 
$
—

 
$
1,424

Commingled equity funds
—

 
2,045

 
2,045

Preferred stock
6

 
—

 
6

Government, agency and government-sponsored enterprise obligations
—

 
238

 
238

Other government bonds
—

 
42

 
42

Corporate bonds
—

 
336

 
336

Mortgage-backed bonds
—

 
15

 
15

Commingled bond funds
—

 
1,862

 
1,862

Commingled short-term investment funds
—

 
96

 
96

Total investment securities
$
1,430

 
$
4,634

 
$
6,064

Accrued income receivable
 
 
 
 
7

Fair value plan assets
 
 
 
 
$
6,071

The table above includes securities on loan as part of a securities lending arrangement of $125 million of common stock and equivalents, $199 million of government, agency, and government-sponsored enterprise obligations, and $19 million of corporate bonds. All securities on loan are fully cash collateralized.

30



December 31, 2012
Level 1
 
Level 2
 
Total
Common stock and equivalents
$
1,592

 
$
3

 
$
1,595

Commingled equity funds
—

 
1,965

 
1,965

Preferred stock
9

 
—

 
9

Government, agency, and government-sponsored enterprise obligations
—

 
317

 
317

Other government bonds
—

 
49

 
49

Corporate bonds
—

 
327

 
327

Mortgage-backed bonds
—

 
14

 
14

Commingled bond funds
—

 
1,082

 
1,082

Commingled short-term investment funds
—

 
58

 
58

Invested cash
—

 
—

 
—

Total investment securities
$
1,601

 
$
3,815

 
$
5,416

Accrued income receivable
 
 
 
 
10

Fair value plan assets
 
 
 
 
$
5,426

The table above includes securities on loan as part of a securities lending arrangement of $117 million of common stock and equivalents, $260 million of government, agency, and government-sponsored enterprise obligations, and $17 million of corporate bonds. All securities on loan are fully cash collateralized.
There were no significant transfers between Level 1 and Level 2 during 2013 or 2012.
Non-U.S. Pension Benefit Plans
December 31, 2013
Level 1
 
Level 2
 
Level 3
 
Total
Common stock and equivalents
$
208

 
$
—

 
$
—

 
$
208

Commingled equity funds
—

 
558

 
—

 
558

Government, agency, and government-sponsored enterprise obligations
—

 
21

 
3

 
24

Corporate bonds
—

 
308

 
23

 
331

Commingled bond funds
—

 
361

 
—

 
361

Commingled short-term investment funds
—

 
11

 
—

 
11

Total investment securities
$
208

 
$
1,259

 
$
26

 
$
1,493

Accrued income receivable
 
 
 
 
 
 
61

Insurance contracts*
 
 
 
 
 
 
14

Fair value plan assets
 
 
 
 
 
 
$
1,568

* Comprised of annuity contracts issued by life insurance companies for one of the Company's non-U.S. pension plans
The table above includes securities on loan as part of a securities lending arrangement of $8 million of common stock and equivalents and $13 million of corporate bonds. All securities on loan are fully collateralized.
The following table summarizes the changes in fair value of the Level 3 assets:
 
2013
Balance at January 1
$
—

Transfers from Level 2
14

Transfers to Level 2
(2
)
Loss on assets held
(2
)
Payments received for securities sold
(4
)
Purchases
21

Other
(1
)
Balance at December 31
$
26


31



The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of December 31, 2012 were as follows: 
December 31, 2012
Level 1
 
Level 2
 
Total
Common stock and equivalents
$
346

 
$
—

 
$
346

Commingled equity funds
—

 
434

 
434

Corporate bonds
—

 
18

 
18

Government, agency, and government-sponsored enterprise obligations
—

 
233

 
233

Commingled bond funds
—

 
257

 
257

Commingled short-term investment funds
—

 
7

 
7

Total investment securities
$
346

 
$
949

 
$
1,295

Cash
 
 
 
 
8

Accrued income receivable
 
 
 
 
—

Insurance contracts*
 
 
 
 
59

Fair value plan assets
 
 
 
 
$
1,362

* Comprised of annuity contracts issued by life insurance companies for one of the Company's non-U.S. pension plans
The table above includes securities on loan as part of a securities lending arrangement of $29 million of common stock and equivalents, $2 million of government, agency, and government-sponsored enterprise obligations, and $27 million of corporate bonds. All securities on loan are fully collateralized.
There were no significant transfers between Level 1 and Level 2 during 2013 or 2012.
Postretirement Health Care Benefits Plan 
December 31, 2013
Level 1
 
Level 2
 
Total
Common stock and equivalents
$
38

 
$
—

 
$
38

Commingled equity funds
—

 
55

 
55

Government, agency, and government-sponsored enterprise obligations
—

 
6

 
6

Other government bonds
—

 
1

 
1

Corporate bonds
—

 
9

 
9

Commingled bond funds
—

 
49

 
49

Commingled short-term investment funds
—

 
3

 
3

Fair value plan assets
$
38

 
$
123

 
$
161

The table above includes securities on loan as part of a securities lending arrangement of $3 million of common stock and equivalents, $5 million of government, agency, and government-sponsored enterprise obligations, and $1 million of corporate bonds. All securities on loan are fully cash collateralized.
December 31, 2012
Level 1
 
Level 2
 
Total
Common stock and equivalents
$
44

 
$
—

 
$
44

Commingled equity funds
—

 
56

 
56

Government, agency, and government-sponsored enterprise obligations
—

 
9

 
9

Corporate bonds
—

 
9

 
9

Mortgage-backed bonds
—

 
1

 
1

Commingled bond funds
—

 
30

 
30

Commingled short-term investment funds
—

 
6

 
6

Fair value plan assets
$
44

 
$
111

 
$
155

The table above includes securities on loan as part of a securities lending arrangement of $4 million of common stock and equivalents and $7 million of government, agency, and government-sponsored enterprise obligations. All securities on loan are fully cash collateralized.
There were no significant transfers between Level 1 and Level 2 during 2013 or 2012.

32



Valuation Methodologies
Level 1 - Quoted market prices in active markets are available for investments in common and preferred stock and common stock equivalents. As such, these investments are classified within Level 1.
Level 2 - The securities classified as Level 2 are comprised primarily of corporate, government, agency, and government
sponsored enterprise fixed income securities. Our pension plan assets also include commingled equities classified as Level 2.
These securities are priced using pricing services, bid/offer, and last trade. Prices may also be obtained from brokers,
counterparties, fund administrators, online securities data services, or investment managers. Fixed income securities and
commingled equities, including short-term instruments, may be priced using pricing models comprised of observable inputs
which include, but are not limited to, market quotations, yields, maturities, call features, and the security's terms and conditions. 
In determining the fair value of the Company's foreign currency derivatives, the Company uses forward contract and option valuation models employing market observable inputs, such as spot currency rates, time value and option volatilities. Since the Company primarily uses observable inputs in its valuation of its derivative assets and liabilities, they are classified as Level 2 assets.
Level 3 - The securities classified as Level 3 primarily consist of corporate bonds held in one of our non-U.S. pension plans. These corporate bonds are valued using pricing models which contain unobservable inputs and have limited liquidity. Determining the fair value of these securities requires the use of unobservable inputs, such as indicative quotes from dealers, extrapolated data, proprietary models and qualitative input from investment advisors. The Company had no Level 3 assets at December 31, 2012.
At December 31, 2013, the Company had $2.1 billion of investments in money market funds (Level 2) classified as Cash and cash equivalents in its condensed consolidated balance sheet, compared to $422 million at December 31, 2012. The money market funds had quoted market prices that are equivalent to par.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term
debt at December 31, 2013 was $2.5 billion (Level 2), compared to a face value of $2.5 billion. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.
All other financial instruments are carried at cost, which is not materially different from the instruments’ fair
values.

10.    Long-term Customer Financing and Sales of Receivables
Long-term Customer Financing
Long-term receivables consist of trade receivables with payment terms greater than twelve months, long-term loans and lease receivables under sales-type leases. Long-term receivables consist of the following: 
December 31
2013
 
2012
Long-term receivables
$
27

 
$
73

Less current portion
(26
)
 
(31
)
Non-current long-term receivables, net
$
1

 
$
42

The current portion of long-term receivables is included in Accounts receivable and the non-current portion of long-term receivables is included in Other assets in the Company’s consolidated balance sheets. There was no Interest income recognized on long-term receivables for the year ended December 31, 2013. Interest income recognized on long-term receivables for the years ended 2012 and 2011 was $5 million and $15 million, respectively.
Certain purchasers of the Company's products and services may request that the Company provide long-term financing (defined as financing with a term greater than one year) in connection with the sale of products and services. These requests may include all or a portion of the purchase price of the products and services. The Company's obligation to provide long-term financing may be conditioned on the issuance of a letter of credit in favor of the Company by a reputable bank to support the purchaser's credit or a pre-existing commitment from a reputable bank to purchase the long-term receivables from the Company. The Company had outstanding commitments to provide long-term financing to third-parties totaling $50 million at December 31, 2013, compared to $41 million at December 31, 2012.
Sales of Receivables
From time to time, the Company sells accounts receivable and long-term receivables to third-parties under one-time arrangements while others are sold to third-parties under committed facilities. The Company may or may not retain the obligation to service the sold accounts receivable and long-term receivables.

33



The following table summarizes the proceeds received from sales of accounts receivable and long-term receivables for the years ended December 31, 2013, 2012 and 2011. 
Years ended December 31
2013
 
2012
 
2011
Cumulative annual proceeds received from sales:
 
 
 
 
 
Accounts receivable sales proceeds
$
14

 
$
12

 
$
8

Long-term receivables sales proceeds
131

 
178

 
224

Total proceeds from receivable sales
$
145

 
$
190

 
$
232

At December 31, 2013, the Company had retained servicing obligations for $434 million of long-term receivables, compared to $375 million of long-term receivables at December 31, 2012. Servicing obligations are limited to collection activities of the sales of accounts receivables and long-term receivables.
Credit Quality of Customer Financing Receivables and Allowance for Credit Losses
An aging analysis of financing receivables at December 31, 2013 and December 31, 2012 is as follows: 
December 31, 2013
Total
Long-term
Receivable
 
Current Billed
Due
 
Past Due Under 90 Days
 
Past Due Over 90 Days
Municipal leases secured tax exempt
$
1

 
$
—

 
$
—

 
$
—

Commercial loans and leases secured
26

 
10

 
2

 
10

Total gross long-term receivables, including current portion
$
27

 
$
10

 
$
2

 
$
10


December 31, 2012
Total
Long-term
Receivable
 
Current Billed
Due
 
Past Due Under 90 Days
 
Past Due Over 90 Days
Municipal leases secured tax exempt
$
23

 
$
—

 
$
—

 
$
—

Commercial loans and leases secured
50

 
—

 
2

 
4

Total gross long-term receivables, including current portion
$
73

 
$
—

 
$
2

 
$
4

The Company uses an internally developed credit risk rating system for establishing customer credit limits. This system is aligned and comparable to the rating systems utilized by independent rating agencies.
The Company’s policy for valuing the allowance for credit losses is to review all customer financing receivables for collectability on an individual receivable basis. For those receivables where collection risk is probable, the Company calculates the value of impairment based on the net present value of expected future cash flows from the customer.
The Company had a total of $10 million of financing receivables past due over 90 days as of December 31, 2013 in relation to two loans. The Company is not accruing interest on these loans as of December 31, 2013, which are adequately reserved.

11.    Commitments and Contingencies
Lease Obligations
The Company leases certain office, factory and warehouse space, land, and information technology and other equipment under principally non-cancelable operating leases. Rental expense, net of sublease income, for the years ended December 31, 2013, 2012 and 2011 was $51 million, $45 million, and $69 million, respectively.
At December 31, 2013, future minimum lease obligations, net of minimum sublease rentals, for the next five years and beyond are as follows:
Year
 
2014
$
89

2015
64

2016
49

2017
38

2018
30

Beyond
175

Purchase Obligations
During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by the Company or establish the parameters defining the Company’s requirements. In addition, we have entered into software license agreements which are firm commitments and are not cancelable. As of December 31, 2013, the Company had entered into firm, noncancelable, and unconditional commitments under such arrangements through 2016. The Company expects to make total payments of $24 million under these arrangements as follows: $18 million in 2014, $4 million in 2015, and $2 million in 2016.
The Company outsources certain corporate functions, such as benefit administration and information technology related services. These contracts are expected to expire in 2017. The remaining payments under these contracts are approximately $485 million over the remaining life of the contracts; however, these contracts can be terminated. Termination would result in a penalty substantially less than the remaining annual contract payments. The Company would also be required to find another source for these services, including the possibility of performing them in-house.
Legal
The Company is a defendant in various suits, claims and investigations that arise in the normal course of business. While the outcome of these matters is currently not determinable, the Company does not expect the ultimate disposition of these matters will have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations.
Indemnifications
The Company is a party to a variety of agreements pursuant to which it is obligated to indemnify the other party with respect to certain matters. In indemnification cases, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claims. In some instances, the Company may have recourse against third-parties for certain payments made by the Company.
Some of these obligations arise as a result of divestitures of the Company's assets or businesses and require the Company to indemnify the other party against losses arising from breaches of representations and warranties and covenants and, in some cases, the settlement of pending obligations. The Company's obligations under divestiture agreements for indemnification based on breaches of representations and warranties are generally limited in terms of duration, and for amounts for breaches of such representation and warranties in connection with prior divestitures not in excess of a percentage of the contract value. The Company had no potential claims at December 31, 2013.
In addition, the Company may provide indemnifications for losses that result from the breach of general warranties contained in certain commercial and intellectual property agreements. Historically, the Company has not made significant payments under these agreements.
In addition, pursuant to the Master Separation and Distribution Agreement and certain other agreements with Motorola Mobility, Motorola Mobility agreed to indemnify the Company for certain liabilities, and the Company agreed to indemnify Motorola Mobility for certain liabilities, in each case for uncapped amounts.

12.    Information by Segment and Geographic Region
The Company conducts their businesses globally and manages them within the following two segments:
Products: The Products segment offers an extensive portfolio of network infrastructure, devices, system software and applications for the public safety, hospitality, education, manufacturing, transportation, utilities, mining and retail

34



industries, including: (i) “ASTRO” products, which meet the Association of Public Safety Communications Officials Project 25 standard, (ii) “Dimetra” products which meet the European Telecommunications Standards Institute Terrestrial Trunked Radio “TETRA” standard, (iii) Professional and Commercial Radio (“PCR”) products, (iv) integrated digital enhanced network (“iDEN”) products, and (v) broadband technology products, such as Long-Term Evolution (“LTE”). In addition, the Products segment offers smart public safety solutions including computer-aided dispatch, records systems, data management systems and Real Time Crime Center solutions.
Services: The Services segment has a full breadth of service offerings for both public safety and private communication networks including: (i) Integration services, (ii) Lifecycle Management and Support services, (iii) Managed services, and (iv) Solutions services. Integration services includes implementation, optimization, and integration of networks, devices, and applications.  Lifecycle Management and Support services includes lifecycle planning, upgrades, call center, network monitoring, and repair services.  Managed services includes managing customer networks at defined services levels. Solutions services includes integration of hardware and software to meet customer needs.
For the years ended December 31, 2013 and 2012, no single customer accounted for more than 10% of the Company's net sales. In 2011, the Company's largest customer, the U.S. government (through multiple contracts with its various branches and agencies, including the armed services), was approximately 12% of the Company's net sales.
Segment Information
 
Net Sales
 
Operating Earnings (Loss)
Years ended December 31
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Products
$
4,109

 
$
4,236

 
$
3,901

 
$
639

 
$
656

 
$
338

Services
2,118

 
2,033

 
1,837

 
308

 
264

 
260

 
$
6,227

 
$
6,269

 
$
5,738

 
947

 
920

 
598

Total other expense
 
 
 
 
 
 
(67
)
 
(39
)
 
(117
)
Earnings from continuing operations before income taxes
 
 
 
 
 
 
$
880

 
$
881

 
$
481

 
Capital Expenditures
 
Depreciation Expense
Years ended December 31
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Products
$
90

 
$
90

 
$
92

 
$
93

 
$
87

 
$
80

Services
79

 
80

 
73

 
64

 
63

 
48

 
$
169

 
$
170

 
$
165

 
$
157

 
$
150

 
$
128

Geographic Area Information 
 
Net Sales
 
Assets
Years ended December 31
2013
 
2012
 
2011
 
2013
 
2012
 
2011
United States
$
3,648

 
$
3,685

 
$
3,245

 
$
6,201

 
$
6,268

 
$
6,699

China
203

 
198

 
188

 
420

 
552

 
844

United Kingdom
112

 
118

 
121

 
1,607

 
1,323

 
521

Israel
94

 
107

 
121

 
186

 
797

 
1,097

Japan
49

 
60

 
73

 
60

 
123

 
611

Other, net of eliminations
2,121

 
2,101

 
1,990

 
920

 
1,142

 
1,860

 
$
6,227

 
$
6,269

 
$
5,738

 
$
9,394

 
$
10,205

 
$
11,632


13.     Reorganization of Businesses
The Company maintains a formal Involuntary Severance Plan (the “Severance Plan”), which permits the Company to offer eligible employees severance benefits based on years of service and employment grade level in the event that employment is involuntarily terminated as a result of a reduction-in-force or restructuring. The Severance Plan includes defined formulas to calculate employees’ termination benefits.  In addition to the Involuntary Severance Plan, during the year ended December 31,

35



2013, the Company accepted voluntary applications to its Severance Plan from a defined subset of employees within the United States.  Voluntary applicants received termination benefits based on the formulas defined in the Severance Plan; however, termination benefits, which are normally capped at six months of salary, were capped at a full year’s salary.
The Company recognizes termination benefits based on formulas per the Severance Plan at the point in time that future settlement is probable and can be reasonably estimated based on estimates prepared at the time a restructuring plan is approved by management. Exit costs consist of future minimum lease payments on vacated facilities and other contractual terminations. At each reporting date, the Company evaluates its accruals for employee separation and exit costs to ensure the accruals are still appropriate. In certain circumstances, accruals are no longer needed because of efficiencies in carrying out the plans or because employees previously identified for separation resigned from the Company and did not receive severance, or were redeployed due to circumstances not foreseen when the original plans were approved. In these cases, the Company reverses accruals through the consolidated statements of operations where the original charges were recorded when it is determined they are no longer needed.
2013 Charges
During 2013, the Company continued to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. Both of the Company’s segments were impacted by these plans. The employees affected were located in all geographic regions.
During 2013, the Company recorded net reorganization of business charges of $86 million, including $16 million of charges in Costs of sales and $70 million of charges under Other charges in the Company’s consolidated statements of operations. Included in the aggregate $86 million are charges of $94 million for employee separation costs, $2 million for exit costs, partially offset by $10 million of reversals for accruals no longer needed. Of the total employee separation costs recognized during the year, including costs related to discontinued operations, $52 million related to approximately 450 voluntary applicants.
The following table displays the net charges incurred by segment: 
Years ended December 31
2013
Products
$
57

Services
29

 
$
86

The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs, including those related to discontinued operations which will be maintained by the Company after the sale of the Enterprise business, from January 1, 2013 to December 31, 2013:
2013
Accruals at
January 1
 
Additional
Charges
 
Adjustments
 
Amount
Used
 
Accruals at
December 31
Exit costs
$
4

 
$
3

 
$
—

 
$
(1
)
 
$
6

Employee separation costs
31

 
146

 
(16
)
 
(58
)
 
103

 
$
35

 
$
149

 
$
(16
)
 
$
(59
)
 
$
109

Exit Costs
At January 1, 2013, the Company had an accrual of $4 million for exit costs attributable to lease terminations. There were $3 million of additional charges in 2013. The $1 million used in 2013 reflects cash payments. The remaining accrual of $6 million, which is included in Accrued liabilities in the Company’s consolidated balance sheets at December 31, 2013, primarily represents future cash payments for lease termination obligations that are expected to be paid over a number of years.
Employee Separation Costs
At January 1, 2013, the Company had an accrual of $31 million for employee separation costs, representing the severance costs for: (i) severed employees who began receiving payments in 2012 and (ii) approximately 400 employees who began receiving payments in 2013. The 2013 additional charges of $146 million represent severance costs for approximately an additional 2,200 employees, of which 800 were direct employees and 1,400 were indirect employees. The adjustments of $16 million reflect reversals of accruals no longer needed.
During 2013, approximately 1,100 employees, of which 700 were indirect employees and 400 were direct employees, were separated from the Company. The $58 million used in 2013 reflects cash payments to separated employees, including $20 million related to employees of the Enterprise business and included in discontinued operations. The remaining accrual of $103 million, which is included in Accrued liabilities in the Company’s consolidated balance sheet at December 31, 2013, is

36



expected to be paid, generally, within one year to: (i) severed employees who have already begun to receive payments and (ii) approximately 1,200 employees to be separated in 2014.
2012 Charges
During 2012, the Company continued to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. Both of the Company’s segments were impacted by these plans. The employees affected were located in all geographic regions.
During 2012, the Company recorded net reorganization of business charges of $33 million, including $6 million of charges in Costs of sales and $27 million of charges under Other charges in the Company’s consolidated statements of operations. Included in the aggregate $33 million are charges of (i) $35 million for employee separation costs, and (ii) $5 million for building impairments, partially offset by $7 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment: 
Years ended December 31
2012
Products
$
22

Services
11

 
$
33

The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs, including those related to discontinued operations which will be maintained by the Company after the sale of the Enterprise business, from January 1, 2012 to December 31, 2012:
2012
Accruals at
January 1
 
Additional
Charges
 
Adjustments
 
Amount
Used
 
Accruals at
December 31
Exit costs
$
14

 
$
—

 
$
1

 
$
(11
)
 
$
4

Employee separation costs
30

 
54

 
(9
)
 
(44
)
 
31

 
$
44

 
$
54

 
$
(8
)
 
$
(55
)
 
$
35

Exit Costs
At January 1, 2012, the Company had an accrual of $14 million for exit costs attributable to lease terminations. There were no additional charges in 2012. The net adjustments of $1 million reflect $2 million of reversals of accruals no longer needed, offset by $3 million of other adjustments. The $11 million used in 2012 reflects cash payments. The remaining accrual of $4 million, which was included in Accrued liabilities in the Company’s consolidated balance sheet at December 31, 2012, represents future cash payments, primarily for lease termination obligations.
Employee Separation Costs
At January 1, 2012, the Company had an accrual of $30 million for employee separation costs, representing the severance costs for approximately 700 employees. The additional 2012 charges of $54 million represent severance costs for approximately an additional 1,000 employees, of which 300 are direct employees and 700 are indirect employees. The adjustments of $9 million reflect accruals no longer required.
During 2012, approximately 1,000 employees, of which 700 were indirect employees and 300 were direct employees, were separated from the Company. The $44 million used in 2012 reflects cash payments to these separated employees, including $20 million related to employees of the Enterprise business and included in discontinued operations. The remaining accrual of $31 million was included in Accrued liabilities in the Company’s consolidated balance sheet at December 31, 2012.
2011 Charges
During 2011, the Company continued to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. Both of the Company’s segments were impacted by these plans. The employees affected were located in all geographic regions.
The Company recorded net reorganization of business charges of $40 million, including $5 million of charges in Costs of sales and $35 million of charges under Other charges in the Company’s consolidated statements of operations. Included in the aggregate $40 million are charges of $28 million for employee separation costs and $13 million for exit costs, partially offset by $1 million of reversals for accruals no longer needed.

37



The following table displays the net charges incurred by segment:
Years ended December 31
2011
Products
$
27

Services
13

 
$
40

The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs, including those related to discontinued operations which will be maintained by the Company after the sale of the Enterprise business, from January 1, 2011 to December 31, 2011: 
2011
Accruals at
January 1
 
Additional
Charges
 
Adjustments
 
Amount
Used
 
Accruals at
December 31
Exit costs
$
17

 
$
19

 
$
1

 
$
(23
)
 
$
14

Employee separation costs
50

 
41

 
(3
)
 
(58
)
 
30

 
$
67

 
$
60

 
$
(2
)
 
$
(81
)
 
$
44

Exit Costs
At January 1, 2011, the Company had an accrual of $17 million for exit costs attributable to lease terminations. The 2011 additional charges of $19 million were primarily related to the exit of leased facilities and contractual termination costs. The adjustments of $1 million reflect and adjustment to accruals needed. The $23 million used in 2011 reflected cash payments. The remaining accrual of $14 million, which was included in Accrued liabilities in the Company’s consolidated balance sheets at December 31, 2011, represented future cash payments, primarily for lease termination obligations.
Employee Separation Costs
At January 1, 2011, the Company had an accrual of $50 million for employee separation costs, representing the severance costs for approximately 1,000 employees. The additional 2011 charges of $41 million were severance costs for approximately an additional 900 employees, of which 300 were direct employees and 600 were indirect employees. The adjustments of $3 million reflect accruals no longer required.
During 2011, approximately 1,300 employees, of which 800 were direct employees and 500 were indirect employees, were separated from the Company. The $58 million used in 2011 reflected cash payments to these separated employees, including $28 million related to employees of the Enterprise business and included in discontinued operations. The remaining accrual of $30 million was included in Accrued liabilities in the Company’s consolidated balance sheet at December 31, 2011.

14.      Intangible Assets and Goodwill
The Company accounts for acquisitions using purchase accounting with the results of operations for each acquiree included in the Company’s consolidated financial statements for the period subsequent to the date of acquisition. The pro forma effects of the acquisitions completed in 2013, 2012, and 2011 were not significant individually or in the aggregate. The Company did not have any significant acquisitions during the years ended December 31, 2013, 2012 and 2011.
Intangible Assets
Amortized intangible assets were comprised of the following: 
 
2013
 
2012
December 31,
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Intangible assets:
 
 
 
 
 
 
 
Completed technology
$
24

 
$
24

 
$
24

 
$
24

Patents
8

 
3

 
3

 
3

Customer-related
6

 
6

 
6

 
6

Other intangibles
15

 
14

 
20

 
16

 
$
53

 
$
47

 
$
53

 
$
49

Amortization expense on intangible assets, which is included within Other charges in the consolidated statements of operations, was $1 million, $1 million and $5 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, future amortization expense is estimated to be $2 million in 2014, 2015, and 2016, and $1 million in 2017 and 2018.
As of both December 31, 2013, and December 31, 2012, all of the Company's amortized intangible assets, excluding goodwill, were aligned with the Products segment. 
Goodwill
The following table displays a rollforward of the carrying amount of goodwill by segment from January 1, 2012 to December 31, 2013: 
 
Products
 
Services
 
Total
Balance as of January 1, 2012
 
 
 
 
 
Aggregate goodwill acquired
$
250

 
$
112

 
$
362

Accumulated impairment losses
—

 
—

 
—

Goodwill, net of impairment losses
250

 
112

 
362

Goodwill divested
(1
)
 
—

 
(1
)
Balance as of December 31, 2012
 
 
 
 
 
Aggregate goodwill acquired/disposed
249

 
112

 
361

Accumulated impairment losses
—

 
—

 
—

Goodwill, net of impairment losses
249

 
112

 
361

 
 
 
 
 
 
Balance as of December 31, 2013
 
 
 
 
 
Aggregate goodwill acquired
249

 
112

 
361

Accumulated impairment losses
—

 
—

 
—

Goodwill, net of impairment losses
$
249

 
$
112

 
$
361

The Company conducts its annual assessment of goodwill for impairment in the fourth quarter of each year. The goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment. The Company has determined that the Products segment and Services segment each meet the definition of a reporting unit.
The Company performed a qualitative assessment to determine whether it was more-likely-than-not that the fair value of each reporting unit was less than its carrying amount for both the fiscal years 2012 and 2013. In performing this qualitative assessment the Company assessed relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in share price, and entity-specific events. In addition, the Company considered the estimated fair value of each reporting unit derived from a discounted cashflow analysis using the most recent long-range plan, or forecast, for each reporting unit. For both fiscal years 2012 and 2013, the Company concluded it was more-likely-than-not that the fair value of each reporting unit exceeded its carrying value. Therefore, the two-step goodwill impairment test was not required and there was no impairment of goodwill.

15.    Valuation and Qualifying Accounts
The following table presents the valuation and qualifying account activity for the years ended December 31, 2013, 2012 and 2011: 
 
Balance at
January 1
 
Charged to
Earnings
 
Used
 
Adjustments*
 
Balance at
December 31
2013
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
$
50

 
$
13

 
$
(8
)
 
$
(2
)
 
$
53

Inventory reserves
112

 
25

 
(14
)
 
2

 
125

Customer reserves
75

 
247

 
(267
)
 
(3
)
 
52

2012
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
44

 
7

 
(3
)
 
2

 
50

Inventory reserves
126

 
17

 
(31
)
 
—

 
112

Customer reserves
64

 
233

 
(213
)
 
(9
)
 
75

2011
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
47

 
6

 
(3
)
 
(6
)
 
44

Inventory reserves
111

 
25

 
(19
)
 
9

 
126

Customer reserves
60

 
297

 
(290
)
 
(3
)
 
64

* Adjustments include translation adjustments


38



16.    Quarterly and Other Financial Data (unaudited)
 
2013
 
2012
  
1st
 
2nd
 
3rd
 
4th
 
1st
 
2nd
 
3rd
 
4th
Operating Results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
1,396

 
$
1,497

 
$
1,517

 
$
1,817

 
$
1,387

 
$
1,537

 
$
1,580

 
$
1,765

Costs of sales
703

 
747

 
752

 
916

 
690

 
771

 
760

 
854

Gross margin
693

 
750

 
765

 
901

 
697

 
766

 
820

 
911

Selling, general and administrative expenses
325

 
339

 
319

 
347

 
351

 
371

 
370

 
380

Research and development expenditures
187

 
195

 
183

 
196

 
188

 
198

 
192

 
212

Other charges
7

 
13

 
17

 
34

 
6

 
7

 
6

 
(7
)
Operating earnings
174

 
203

 
246

 
324

 
152

 
190

 
252

 
326

Earnings from continuing operations*
157

 
223

 
261

 
292

 
110

 
129

 
156

 
275

Net earnings*
192

 
258

 
307

 
342

 
157

 
182

 
206

 
336

Per Share Data (in dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings from Continuing operations*:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.57

 
$
0.83

 
$
1.00

 
$
1.13

 
$
0.35

 
$
0.44

 
$
0.55

 
$
0.98

Diluted earnings per common share
0.56

 
0.81

 
0.98

 
1.12

 
0.35

 
0.44

 
0.54

 
0.97

Net earnings*:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.70

 
$
0.96

 
$
1.17

 
$
1.33

 
$
0.50

 
$
0.63

 
$
0.73

 
$
1.20

Diluted earnings per common share
0.68

 
0.94

 
1.16

 
1.31

 
0.49

 
0.61

 
0.72

 
1.18

Dividends declared
$
0.26

 
$
0.26

 
$
0.31

 
$
0.31

 
$
0.22

 
$
0.22

 
$
0.26

 
$
0.26

Dividends paid
0.26

 
0.26

 
0.26

 
0.31

 
0.22

 
0.22

 
0.22

 
0.26

Stock prices
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
$
64.03

 
$
64.69

 
$
60.39

 
$
67.50

 
$
51.76

 
$
51.46

 
$
51.79

 
$
55.68

Low
$
55.94

 
$
55.50

 
$
54.01

 
$
59.38

 
$
44.94

 
$
46.73

 
$
45.18

 
$
49.77

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



39
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msi-20140807.xsd
Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

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