Notes to
Condensed
Consolidated Financial Statements
(Dollars in millions, except as noted)
(Unaudited)
The condensed consolidated financial statements as of
June 29, 2019
and for the
three and six months ended
June 29, 2019
and
June 30, 2018
include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholders' Equity, and Statements of Cash Flows of Motorola Solutions, Inc. (“Motorola Solutions” or the “Company”) for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s
Form 10-K for the year ended December 31, 2018
. The results of operations for the
three and six months ended
June 29, 2019
are not necessarily indicative of the operating results to be expected for the full year.
The preparation of financial statements in conformity with U.S. 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.
Recent Acquisitions
On July 11, 2019, the Company acquired WatchGuard, Inc. ("WatchGuard"), a provider of in-car and body-worn video solutions for
$271 million
, inclusive of share-based compensation withheld at a fair value of
$16 million
that will be expensed over an average service period of
two years
. The acquisition was settled with
$250 million
of cash, net of cash acquired. The acquisition expands the Company's video security solutions platform.
On March 11, 2019, the Company announced that it acquired Avtec, Inc. ("Avtec"), a provider of dispatch communication equipment for U.S. public safety and commercial customers for a purchase price of
$136 million
in cash, net of cash acquired. This acquisition expands the Company's commercial portfolio with new capabilities, allowing it to offer an enhanced platform for customers to communicate, coordinate resources, and secure their facilities.
On
January 7, 2019, the Company announced that it acquired VaaS International Holdings
("VaaS"), a company that is a global provider of data and image analytics for vehicle location for
$445 million
, inclusive of share-based compensation withheld at a fair value of
$38 million
that will be expensed over an average service period of
one year
. The acquisition was settled with
$231 million
of cash, net of cash acquired, and
1.4 million
of shares issued at a fair value of
$160 million
for a purchase price of
$391 million
.
On March 7, 2018, the Company completed the acquisition of Plant Holdings, Inc. ("Plant"), the parent company of Airbus DS Communications for a purchase price of
$237 million
in cash, net of cash acquired. This acquisition expanded the Company's software portfolio in the command center with additional solutions for Next Generation 9-1-1.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for the defined benefit pension plans and other postretirement plans. The ASU is effective for the Company on January 1, 2021 with early adoption permitted. The ASU requires a retrospective adoption method. The Company does not believe the ASU will have a material impact on its financial statement disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” “ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, ” “Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” and “ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,” which provided additional implementation guidance on the previously issued ASU. The ASU is effective for the Company on January 1, 2020. The ASU requires a modified retrospective adoption method. The Company is still evaluating the impact of adoption on its financial statements and disclosures.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases," which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This was subsequently amended by ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic 842,” ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU No. 2018-11, “Targeted Improvements” (collectively "ASC 842"). ASC 842 establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with an initial term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and presentation of expense recognition in the income statement.
The Company adopted ASC 842 as of January 1, 2019 using a modified retrospective transition approach for all leases existing at January 1, 2019, the date of the initial application. Consequently, financial information will not be updated and disclosures required under ASC 842 will not be provided for dates and periods before January 1, 2019.
ASC 842 provides for a number of optional practical expedients in transition. The Company elected the practical expedients, which permit the Company to not reassess prior conclusions about lease identification, lease classification and initial direct costs under ASC 842
.
The Company did not elect the "use-of hindsight" practical expedient to determine the lease term or in assessing the likelihood that a lease purchase option will be exercised, allowing it to carry forward the lease term as determined prior to adoption of ASC 842. Finally, the Company also elected the practical expedient related to land easements, which enabled it to continue its accounting treatment for land easements on existing agreements as of January 1, 2019.
ASC 842 also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. A short-term lease is one with a term of 12 months or less, including any optional periods that are reasonably certain of exercise.
For those leases that qualify, the exemption allows the Company to not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases at transition. Short-term lease costs are recognized as rent expense on a straight-line basis over the lease term consistent with the Company’s prior accounting. The Company also elected the practical expedient to not separate lease and non-lease components for all current lease categories.
As of January 1, 2019, the Company recognized operating lease liabilities of
$648 million
based on the present value of the remaining minimum rental payments determined under prior lease accounting standards and corresponding ROU assets of
$588 million
. The $
60 million
difference between operating lease liabilities and ROU assets recognized is due to deferred rent and exit cost accruals recorded under prior lease accounting standards. ASC 842 requires such balances to be reclassified against ROU assets at transition.
For arrangements where the Company is the lessor, the adoption of ASC 842 did not have a material impact on its financial statements as the majority of its leases are operating leases embedded within managed services contracts. ASC 842 provides a practical expedient for lessors in which the lessor may elect, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for these components as a single component if both of the following are met: (i) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same and (ii) the lease component, if accounted for separately, would be classified as an operating lease. The accounting under the practical expedient depends on which component(s) is predominant in the contract. If the non-lease component is predominant, the single component is accounted under ASC Topic 606 "Revenue from Contracts with Customers"
and accounting and disclosure under ASC 842 is not applicable. The Company has elected the above practical expedient and determined that non-lease components are predominant and is accounting for the single components as managed service contracts under ASC Topic 606.
2. Revenue from Contracts with Customers
Disaggregation of Revenue
The following table summarizes the disaggregation of our revenue by segment, geography, major product and service type and customer type for the
three and six months ended
June 29, 2019
and
June 30, 2018
, consistent with the information reviewed by our chief operating decision maker for evaluating the financial performance of operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 29, 2019
|
|
June 30, 2018
|
|
|
Products and Systems Integration
|
|
Services and Software
|
|
Products and Systems Integration
|
|
Services and Software
|
|
Regions:
|
|
|
|
|
|
|
|
|
Americas
|
$
|
969
|
|
|
$
|
378
|
|
|
$
|
878
|
|
|
$
|
331
|
|
|
EMEA
|
152
|
|
|
204
|
|
|
188
|
|
|
194
|
|
|
Asia Pacific
|
117
|
|
|
40
|
|
|
123
|
|
|
46
|
|
|
|
$
|
1,238
|
|
|
$
|
622
|
|
|
$
|
1,189
|
|
|
$
|
571
|
|
|
|
|
|
|
|
|
|
|
|
Major Products and Services:
|
|
|
|
|
|
|
|
|
Devices
|
$
|
809
|
|
|
$
|
—
|
|
|
$
|
725
|
|
|
$
|
—
|
|
|
Systems and Systems Integration
|
429
|
|
|
—
|
|
|
464
|
|
|
—
|
|
|
Services
|
—
|
|
|
469
|
|
|
—
|
|
|
456
|
|
|
Software
|
—
|
|
|
153
|
|
|
—
|
|
|
115
|
|
|
|
$
|
1,238
|
|
|
$
|
622
|
|
|
$
|
1,189
|
|
|
$
|
571
|
|
|
|
|
|
|
|
|
|
|
|
Customer Type:
|
|
|
|
|
|
|
|
|
Direct
|
$
|
771
|
|
|
$
|
582
|
|
|
$
|
740
|
|
|
$
|
537
|
|
|
Indirect
|
467
|
|
|
40
|
|
|
449
|
|
|
34
|
|
|
|
$
|
1,238
|
|
|
$
|
622
|
|
|
$
|
1,189
|
|
|
$
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 29, 2019
|
|
June 30, 2018
|
|
|
Products and Systems Integration
|
|
Services and Software
|
|
Products and Systems Integration
|
|
Services and Software
|
|
Regions:
|
|
|
|
|
|
|
|
|
Americas
|
$
|
1,782
|
|
|
$
|
730
|
|
|
$
|
1,576
|
|
|
$
|
627
|
|
|
EMEA
|
317
|
|
|
402
|
|
|
345
|
|
|
375
|
|
|
Asia Pacific
|
208
|
|
|
78
|
|
|
220
|
|
|
84
|
|
|
|
$
|
2,307
|
|
|
$
|
1,210
|
|
|
$
|
2,141
|
|
|
$
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
Major Products and Services:
|
|
|
|
|
|
|
|
|
Devices
|
$
|
1,495
|
|
|
$
|
—
|
|
|
$
|
1,356
|
|
|
$
|
—
|
|
|
Systems and Systems Integration
|
812
|
|
|
—
|
|
|
785
|
|
|
—
|
|
|
Services
|
—
|
|
|
921
|
|
|
—
|
|
|
902
|
|
|
Software
|
—
|
|
|
289
|
|
|
—
|
|
|
184
|
|
|
|
$
|
2,307
|
|
|
$
|
1,210
|
|
|
$
|
2,141
|
|
|
$
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
Customer Type:
|
|
|
|
|
|
|
|
|
Direct
|
$
|
1,429
|
|
|
$
|
1,135
|
|
|
$
|
1,357
|
|
|
$
|
1,042
|
|
|
Indirect
|
878
|
|
|
75
|
|
|
784
|
|
|
44
|
|
|
|
$
|
2,307
|
|
|
$
|
1,210
|
|
|
$
|
2,141
|
|
|
$
|
1,086
|
|
Remaining Performance Obligations
Remaining performance obligations represent the revenue that is expected to be recognized in future periods related to performance obligations that are unsatisfied, or partially unsatisfied, as of the end of a period. The transaction price associated with remaining performance obligations which are not yet satisfied as of
June 29, 2019
is
$7.3 billion
. A total of
$3.1 billion
is from Products and Systems Integration performance obligations that are not yet satisfied, of which
$1.7 billion
is expected to be recognized in the next
12 months
. The remaining amounts will generally be satisfied over time as systems are implemented. A total of
$4.2 billion
is from Services and Software performance obligations that are not yet satisfied as of
June 29, 2019
. The determination of Services and Software performance obligations that are not satisfied takes into account a contract term that may be limited by the customer’s ability to terminate for convenience. Where termination for convenience exists in the Company's service contracts, its disclosure of the remaining performance obligations that are unsatisfied assumes the contract term is limited until renewal. The Company expects to recognize
$1.2 billion
from unsatisfied Services and Software performance obligations over the next
12 months
, with the remaining performance obligations to be recognized over time as services are performed and software is implemented.
Contract Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
December 31, 2018
|
|
Accounts receivable, net
|
$
|
1,206
|
|
|
$
|
1,293
|
|
|
Contract assets
|
913
|
|
|
1,012
|
|
|
Contract liabilities
|
1,187
|
|
|
1,263
|
|
|
Non-current contract liabilities
|
263
|
|
|
214
|
|
Revenue recognized during the three months ended
June 29, 2019
which was previously included in Contract liabilities as of March 30, 2019 is
$340 million
, compared to
$365 million
of revenue recognized during the three months ended
June 30, 2018
which was previously included in Contract liabilities as of April 1, 2018. Revenue recognized during the six months ended
June 29, 2019
which was previously included in Contract liabilities as of December 31, 2018 is
$600 million
, compared to
$541 million
of revenue recognized during the six months ended
June 30, 2018
which was previously included in Contract liabilities as of January 1, 2018. Adjustments to revenue for the
three and six months ended
June 29, 2019
and
June 30, 2018
driven by changes in the estimates of progress on system contracts was immaterial.
There were
no
material impairment losses recognized on contract assets during the
three and six months ended
June 29, 2019
and
June 30, 2018
.
Contract Cost Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
December 31, 2018
|
|
Current contract cost assets
|
$
|
37
|
|
|
$
|
30
|
|
|
Non-current contract cost assets
|
98
|
|
|
98
|
|
Amortization of contract cost assets was
$11 million
for the three months ended
June 29, 2019
and
June 30, 2018
, respectively, and
$22 million
and
$23 million
for the six months ended
June 29, 2019
and
June 30, 2018
, respectively.
3. Leases
The Company leases certain office, factory and warehouse space, land, and other equipment, principally under non-cancelable operating leases.
The Company determines if an arrangement is a lease at inception of the contract. The Company's key decisions in determining whether a contract is or contains a lease include establishing whether the supplier has the ability to use other assets to fulfill its service or whether the terms of the agreement enable the Company to control the use of a dedicated asset during the contract term. In the majority of the Company's contracts where it must identify whether a lease is present, it is readily determinable that the Company controls the use of the assets and obtains substantially all of the economic benefit during the term of the contract. In those contracts where identification is not readily determinable, the Company has determined that the supplier has either the ability to use another asset to provide the service or the terms of the contract give the supplier the rights to operate the asset at its discretion during the term of the contract.
ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company's lease payments are typically fixed or contain fixed escalators. The Company has elected to not separate lease and non-lease components for all of its current lease categories and therefore, all consideration is included in the lease liabilities. For the Company's leases consisting of both land and other equipment (i.e. "communication network sites"), future payments are subject to variability due to changes in indices or rates. The Company values its ROU assets and lease liabilities based on the index or rate in effect at lease commencement. Future changes in the indices or rates are accounted for as variable lease costs. Other variable lease costs also include items that are not fixed at lease commencement including property taxes, insurance, and operating charges that vary based on usage. ROU assets also include lease payments made in advance and are net of lease incentives.
As the majority of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rates based on the information available at the commencement date in determining the present value of future payments. The Company's incremental borrowing rates are based on the term of the lease, the economic environment of the lease, and the effect of collateralization.
The Company's lease terms range from
one
to
twenty-one years
and may include options to extend the lease by
one
to
ten years
or terminate the lease after the initial non-cancelable term. The Company does not include options in the determination of the lease term for the majority of leases as sufficient economic factors do not exist that would compel it to continue to use the underlying asset beyond the initial non-cancelable term. However, for the Company's communication network site leases that are necessary to provide services to customers under managed service arrangements, the Company includes options in the lease term to the extent of the customer contracts to which those leases relate.
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Lease expense:
|
|
|
|
|
|
Operating lease cost
|
|
$
|
33
|
|
|
$
|
65
|
|
|
Finance lease cost
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
3
|
|
|
6
|
|
|
Interest on lease liabilities
|
|
—
|
|
|
1
|
|
|
Total finance lease cost
|
|
3
|
|
|
7
|
|
|
Short-term lease cost
|
|
1
|
|
|
3
|
|
|
Variable cost
|
|
8
|
|
|
17
|
|
|
Sublease income
|
|
(1
|
)
|
|
(2
|
)
|
|
Net lease expense
|
|
$
|
44
|
|
|
$
|
90
|
|
Lease assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement Line Classification
|
|
June 29, 2019
|
|
Assets:
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease assets
|
|
$
|
567
|
|
|
Finance lease assets
|
|
Property, plant, and equipment, net
|
|
50
|
|
|
|
|
|
|
$
|
617
|
|
|
Current liabilities:
|
|
|
|
|
|
Operating lease liabilities
|
|
Accrued liabilities
|
|
$
|
118
|
|
|
Finance lease liabilities
|
|
Current portion of long-term debt
|
|
14
|
|
|
|
|
|
|
$
|
132
|
|
|
Non-current liabilities:
|
|
|
|
|
|
Operating lease liabilities
|
|
Operating lease liabilities
|
|
$
|
504
|
|
|
Finance lease liabilities
|
|
Long-term debt
|
|
22
|
|
|
|
|
|
|
$
|
526
|
|
Other information related to leases is as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 29, 2019
|
|
Supplemental cash flow information:
|
|
|
Net cash used for operating activities related to operating leases
|
$
|
80
|
|
|
Net cash used for operating activities related to finance leases
|
1
|
|
|
Net cash used for financing activities related to finance leases
|
8
|
|
|
Assets obtained in exchange for lease liabilities:
|
|
|
Operating leases
|
$
|
45
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
Weighted average remaining lease terms (years):
|
|
|
Operating leases
|
8
|
|
|
Finance leases
|
3
|
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
3.76
|
%
|
|
Finance leases
|
4.97
|
%
|
Future lease payments as of
June 29, 2019
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
|
2019
|
$
|
58
|
|
|
$
|
8
|
|
|
$
|
66
|
|
|
2020
|
136
|
|
|
14
|
|
|
150
|
|
|
2021
|
121
|
|
|
12
|
|
|
133
|
|
|
2022
|
105
|
|
|
5
|
|
|
110
|
|
|
2023
|
55
|
|
|
—
|
|
|
55
|
|
|
Thereafter
|
247
|
|
|
—
|
|
|
247
|
|
|
Total lease payments
|
722
|
|
|
39
|
|
|
761
|
|
|
Less: Interest
|
100
|
|
|
3
|
|
|
103
|
|
|
Present value of lease liabilities
|
$
|
622
|
|
|
$
|
36
|
|
|
$
|
658
|
|
Rental expense, net of sublease income, for the year ended December 31, 2018 was
$108 million
.
At December 31, 2018, future minimum lease obligations, net of minimum sublease rentals, for the next five years and beyond were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Beyond
|
|
|
$
|
131
|
|
$
|
120
|
|
$
|
112
|
|
$
|
101
|
|
$
|
54
|
|
$
|
204
|
|
4. Other Financial Data
Statements of Operations Information
Other Charges (Income)
Other charges (income) included in Operating earnings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Other charges:
|
|
|
|
|
|
|
|
|
Intangibles amortization (Note 15)
|
$
|
52
|
|
|
$
|
53
|
|
|
$
|
102
|
|
|
$
|
94
|
|
|
Reorganization of business (Note 14)
|
8
|
|
|
18
|
|
|
12
|
|
|
26
|
|
|
Legal settlements
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Acquisition-related transaction fees
|
—
|
|
|
—
|
|
|
2
|
|
|
17
|
|
|
|
$
|
61
|
|
|
$
|
71
|
|
|
$
|
116
|
|
|
$
|
138
|
|
During the
six months ended
June 29, 2019
, the Company recognized
$2 million
of acquisition-related transaction fees for the VaaS and Avtec acquisitions and
$17 million
for the Avigilon and Plant acquisitions during the
six months ended
June 30, 2018
.
Other Income (Expense)
Interest expense, net, and Other, both included in Other income (expense), consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Interest income (expense), net:
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
(59
|
)
|
|
$
|
(63
|
)
|
|
$
|
(119
|
)
|
|
$
|
(117
|
)
|
|
Interest income
|
3
|
|
|
5
|
|
|
8
|
|
|
13
|
|
|
|
$
|
(56
|
)
|
|
$
|
(58
|
)
|
|
$
|
(111
|
)
|
|
$
|
(104
|
)
|
|
Other,net:
|
|
|
|
|
|
|
|
|
Net periodic pension and postretirement benefit (Note 8)
|
$
|
17
|
|
|
$
|
20
|
|
|
$
|
33
|
|
|
$
|
40
|
|
|
Loss from the extinguishment of long-term debt (Note 5)
|
(43
|
)
|
|
—
|
|
|
(43
|
)
|
|
—
|
|
|
Investment impairments
|
(3
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
Foreign currency gain (loss)
|
(7
|
)
|
|
11
|
|
|
(11
|
)
|
|
—
|
|
|
Loss on derivative instruments
|
(3
|
)
|
|
(19
|
)
|
|
(7
|
)
|
|
(23
|
)
|
|
Gains on equity method investments
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Fair value adjustments to equity investments
|
16
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
Other
|
2
|
|
|
1
|
|
|
11
|
|
|
(2
|
)
|
|
|
$
|
(21
|
)
|
|
$
|
13
|
|
|
$
|
(12
|
)
|
|
$
|
16
|
|
During the
three months ended
June 29, 2019
, the Company recognized a foreign currency loss of
$7 million
, primarily driven by the Pakistani rupee, the Euro, and the Israeli Shekel, and a loss of
$3 million
on derivative instruments put in place to minimize the foreign exchange risk related to currency fluctuations. During the
six months ended
June 29, 2019
, the Company recognized a foreign currency loss of
$11 million
, primarily related to the British pound, Pakistani rupee, the Euro, and the Israeli Shekel, and a loss of
$7 million
on derivative instruments put in place to minimize the foreign exchange risk related to currency fluctuations.
During the
three months ended
June 30, 2018
, the Company recognized a foreign currency gain of
$11 million
, primarily driven by the Euro and British pound, and a loss of
$19 million
on derivative instruments put in place to minimize the foreign exchange risk related to currency fluctuations. During the
six months ended
June 30, 2018
, the Company recognized a loss of
$23 million
on derivative instruments put in place to minimize the foreign exchange risk related to currency fluctuations, which included a loss of
$14 million
on foreign currency derivatives put in place to minimize the exposure to the Canadian dollar related to the acquisition of Avigilon.
Earnings Per Common Share
The computation of basic and diluted earnings per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Motorola Solutions, Inc. common stockholders
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
Earnings
|
$
|
207
|
|
|
$
|
180
|
|
|
$
|
358
|
|
|
$
|
297
|
|
|
Weighted average common shares outstanding
|
164.9
|
|
|
162.2
|
|
|
164.4
|
|
|
161.7
|
|
|
Per share amount
|
$
|
1.25
|
|
|
$
|
1.11
|
|
|
$
|
2.18
|
|
|
$
|
1.83
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Earnings
|
$
|
207
|
|
|
$
|
180
|
|
|
$
|
358
|
|
|
$
|
297
|
|
|
Weighted average common shares outstanding
|
164.9
|
|
|
162.2
|
|
|
164.4
|
|
|
161.7
|
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Share-based awards
|
4.6
|
|
|
3.8
|
|
|
4.7
|
|
|
4.0
|
|
|
Senior Convertible Notes
|
6.6
|
|
|
5.7
|
|
|
6.2
|
|
|
5.4
|
|
|
Diluted weighted average common shares outstanding
|
176.1
|
|
|
171.7
|
|
|
175.3
|
|
|
171.1
|
|
|
Per share amount
|
$
|
1.18
|
|
|
$
|
1.05
|
|
|
$
|
2.04
|
|
|
$
|
1.73
|
|
In the computation of diluted earnings per common share for the
three and six months ended
June 29, 2019
, the assumed exercise of
0.5 million
options, including
0.3 million
subject to market-based contingent option agreements, were excluded because their inclusion would have been antidilutive.
For the
three months ended
June 30, 2018
, the assumed exercise of
1.4 million
options, including
1.2 million
subject to market-based contingent option agreements, were excluded because their inclusion would have been antidilutive. For the
six months ended
June 30, 2018
, the assumed exercise of
2.9 million
options, including
2.4 million
subject to market-based contingent stock agreements, were excluded because their inclusion would have been antidilutive.
As of
June 29, 2019
, the Company had
$800 million
of
2.0%
Senior Convertible Notes outstanding which mature in September 2020 (the "Senior Convertible Notes"), and are fully convertible. In the event of a conversion, the Company intends to settle the principal amount of the Senior Convertible Notes in cash and accordingly, only the number of shares that would be issuable (under the treasury stock method of accounting for share dilution) are included in our computation of diluted earnings per share. The conversion price is adjusted for dividends declared through the date of settlement. Diluted earnings per share has been calculated based upon the amount by which the average stock price exceeds the conversion price.
Balance Sheet Information
Accounts Receivable, Net
Accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Accounts receivable
|
$
|
1,264
|
|
|
$
|
1,344
|
|
|
Less allowance for doubtful accounts
|
(58
|
)
|
|
(51
|
)
|
|
|
$
|
1,206
|
|
|
$
|
1,293
|
|
Inventories, Net
Inventories, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Finished goods
|
$
|
233
|
|
|
$
|
206
|
|
|
Work-in-process and production materials
|
335
|
|
|
293
|
|
|
|
568
|
|
|
499
|
|
|
Less inventory reserves
|
(144
|
)
|
|
(143
|
)
|
|
|
$
|
424
|
|
|
$
|
356
|
|
Other Current Assets
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Current contract cost assets (Note 2)
|
$
|
37
|
|
|
$
|
30
|
|
|
Tax-related deposits
|
106
|
|
|
138
|
|
|
Other
|
181
|
|
|
186
|
|
|
|
$
|
324
|
|
|
$
|
354
|
|
Property, Plant and Equipment, Net
Property, plant and equipment, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Land
|
$
|
10
|
|
|
$
|
10
|
|
|
Leasehold improvements
|
377
|
|
|
362
|
|
|
Machinery and equipment
|
1,938
|
|
|
1,886
|
|
|
|
2,325
|
|
|
2,258
|
|
|
Less accumulated depreciation
|
(1,385
|
)
|
|
(1,363
|
)
|
|
|
$
|
940
|
|
|
$
|
895
|
|
Depreciation expense for the
three months ended
June 29, 2019
and
June 30, 2018
was
$44 million
and
$43 million
, respectively. Depreciation expense for the
six months ended
June 29, 2019
and
June 30, 2018
was
$89 million
and
$84 million
, respectively.
Investments
Investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31, 2018
|
|
Corporate bonds
|
$
|
—
|
|
|
$
|
1
|
|
|
Common stock
|
42
|
|
|
19
|
|
|
Strategic investments, at cost
|
40
|
|
|
62
|
|
|
Company-owned life insurance policies
|
76
|
|
|
75
|
|
|
Equity method investments
|
17
|
|
|
12
|
|
|
|
$
|
175
|
|
|
$
|
169
|
|
Strategic investments include investments in non-public technology-driven startup companies. Strategic investments do not have a readily determinable fair value and are recorded at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. The Company did not recognize any significant adjustments to the recorded cost basis during the six months ended
June 29, 2019
, with the exception of one company becoming publicly-traded during the second quarter, which required the investment to be reclassified to common stock.
The Company’s common stock portfolio reflects investments in publicly-traded companies within the communications services sector and is valued utilizing active market prices for similar instruments. During the
three and six months ended
June 29, 2019
, the Company recognized
$15 million
and
$14 million
, respectively, in Other income (expense) related to an increase in the fair value of the investments.
During the
three months ended
June 29, 2019
, Gains on the sale of investments and businesses, net were
$3 million
, related to the sale of a business, compared to losses of
$1 million
, related to the sale of various strategic investments during the
three months ended
June 30, 2018
. During the
three months ended
June 29, 2019
, the Company received
$6 million
in cash for the sale of
$3 million
of net assets related to a two-way communications rental business, resulting in the gain on the sale of a business of
$3 million
.
During the
six months ended
June 29, 2019
, Gains on the sale of investments and businesses, net were
$4 million
, related to the sale of the two-way communications rental business and various equity method investments, compared to
$10 million
, related to the sale of various strategic and equity method investments during the
six months ended
June 30, 2018
.
During the
three months ended
and
six months ended
June 29, 2019
, the Company recorded investment impairment charges of
$3 million
and
$11 million
, respectively, representing other-than-temporary declines in the value of the Company’s strategic investments portfolio. There were
no
investment impairments recorded during the
three months ended
and
six months ended
June 30, 2018
. Investment impairment charges are included in Other within Other income (expense) in the Company’s Condensed Consolidated Statements of Operations.
Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Defined benefit plan assets (Note 8)
|
$
|
163
|
|
|
$
|
135
|
|
|
Tax receivable
|
39
|
|
|
39
|
|
|
Non-current contract cost assets (Note 2)
|
98
|
|
|
98
|
|
|
Other
|
64
|
|
|
72
|
|
|
|
$
|
364
|
|
|
$
|
344
|
|
Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Compensation
|
$
|
224
|
|
|
$
|
324
|
|
|
Tax liabilities
|
91
|
|
|
111
|
|
|
Dividend payable
|
94
|
|
|
93
|
|
|
Trade liabilities
|
146
|
|
|
185
|
|
|
Operating lease liabilities (Note 3)
|
118
|
|
|
—
|
|
|
Other
|
444
|
|
|
497
|
|
|
|
$
|
1,117
|
|
|
$
|
1,210
|
|
Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Defined benefit plans (Note 8)
|
$
|
1,509
|
|
|
$
|
1,557
|
|
|
Non-current contract liabilities (Note 2)
|
263
|
|
|
214
|
|
|
Unrecognized tax benefits
|
52
|
|
|
51
|
|
|
Deferred income taxes
|
180
|
|
|
201
|
|
|
Other
|
229
|
|
|
277
|
|
|
|
$
|
2,233
|
|
|
$
|
2,300
|
|
Stockholders’ Equity
Share Repurchase Program:
During the
three and six months ended
June 29, 2019
, the Company paid an aggregate of
$25 million
and
$170 million
, including transaction costs, to repurchase approximately
0.2 million
and
1.4 million
shares at an average price of
$146.65
and
$122.31
per share, respectively. As of
June 29, 2019
, the Company had used approximately
$12.6 billion
of the share repurchase authority, including transaction costs, to repurchase shares, leaving
$1.4 billion
of authority available for future repurchases.
Payment of Dividends:
During the
three months ended
June 29, 2019
and
June 30, 2018
, the Company paid
$94 million
and
$84 million
, respectively, in cash dividends to holders of its common stock. During the
six months ended
June 29, 2019
and
June 30, 2018
, the Company paid
$187 million
and
$168 million
, respectively, in cash dividends to holders of its common stock.
Accumulated Other Comprehensive Loss
The following table displays the changes in Accumulated other comprehensive loss, including amounts reclassified into income, and the affected line items in the Condensed Consolidated Statements of Operations during the
three and six months ended
June 29, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Foreign Currency Translation Adjustments:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(414
|
)
|
|
$
|
(305
|
)
|
|
$
|
(444
|
)
|
|
$
|
(353
|
)
|
|
Other comprehensive income (loss) before reclassification adjustment
|
(24
|
)
|
|
(81
|
)
|
|
10
|
|
|
(30
|
)
|
|
Tax benefit (expense)
|
1
|
|
|
(5
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
Other comprehensive income (loss), net of tax
|
(23
|
)
|
|
(86
|
)
|
|
7
|
|
|
(38
|
)
|
|
Balance at end of period
|
$
|
(437
|
)
|
|
$
|
(391
|
)
|
|
$
|
(437
|
)
|
|
$
|
(391
|
)
|
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
Reclassification adjustment into Gains on sales of investments and businesses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
Balance at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Defined Benefit Plans:
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(2,310
|
)
|
|
$
|
(2,203
|
)
|
|
$
|
(2,321
|
)
|
|
$
|
(2,215
|
)
|
|
Reclassification adjustment - Actuarial net losses into Other income (expense)
|
17
|
|
|
18
|
|
|
33
|
|
|
36
|
|
|
Reclassification adjustment - Prior service benefits into Other income (expense)
|
(4
|
)
|
|
(4
|
)
|
|
(7
|
)
|
|
(7
|
)
|
|
Tax expense
|
(3
|
)
|
|
—
|
|
|
(5
|
)
|
|
(3
|
)
|
|
Other comprehensive income, net of tax
|
10
|
|
|
14
|
|
|
21
|
|
|
26
|
|
|
Balance at end of period
|
$
|
(2,300
|
)
|
|
$
|
(2,189
|
)
|
|
$
|
(2,300
|
)
|
|
$
|
(2,189
|
)
|
|
Total Accumulated other comprehensive loss
|
$
|
(2,737
|
)
|
|
$
|
(2,580
|
)
|
|
$
|
(2,737
|
)
|
|
$
|
(2,580
|
)
|
5. Debt and Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
2.0% Senior Convertible Notes due 2020
|
$
|
800
|
|
|
$
|
800
|
|
|
Term Loan due 2021
|
399
|
|
|
399
|
|
|
3.5% senior notes due 2021
|
149
|
|
|
397
|
|
|
3.75% senior notes due 2022
|
550
|
|
|
748
|
|
|
3.5% senior notes due 2023
|
596
|
|
|
596
|
|
|
4.0% senior notes due 2024
|
592
|
|
|
591
|
|
|
6.5% debentures due 2025
|
72
|
|
|
118
|
|
|
7.5% debentures due 2025
|
254
|
|
|
346
|
|
|
4.6% senior notes due 2028
|
690
|
|
|
690
|
|
|
6.5% debentures due 2028
|
24
|
|
|
36
|
|
|
4.6% senior notes due 2029
|
645
|
|
|
—
|
|
|
6.625% senior notes due 2037
|
37
|
|
|
54
|
|
|
5.5% senior notes due 2044
|
396
|
|
|
396
|
|
|
5.22% debentures due 2097
|
91
|
|
|
91
|
|
|
Other long-term debt
|
52
|
|
|
62
|
|
|
|
5,347
|
|
|
5,324
|
|
|
Adjustments for unamortized gains on interest rate swap terminations
|
(4
|
)
|
|
(4
|
)
|
|
Less: current portion
|
(28
|
)
|
|
(31
|
)
|
|
Long-term debt
|
$
|
5,315
|
|
|
$
|
5,289
|
|
As of
June 29, 2019
, the Company had a
$2.2 billion
syndicated, unsecured revolving credit facility scheduled to mature in April 2022 (the "
2017 Motorola Solutions Credit Agreement
"). The
2017 Motorola Solutions Credit Agreement
includes a
$500 million
letter of credit sub-limit with
$450 million
of fronting commitments. Borrowings under the facility bear interest at the prime rate plus the applicable margin, or at a spread above the London Interbank Offered Rate ("LIBOR"), at the Company's option. An annual facility fee is payable on the undrawn amount of the credit line. The interest rate and facility fee are subject to adjustment if the Company's credit rating changes. The Company must comply with certain customary covenants including a maximum leverage ratio, as defined in the
2017 Motorola Solutions Credit Agreement
. The Company was in compliance with its financial covenants as of
June 29, 2019
. During the first quarter of 2018, the Company borrowed
$400 million
to facilitate the Avigilon acquisition which was re-paid by
December 31, 2018
. There were no borrowings outstanding or letters of credit issued under the revolving credit facility as of
December 31, 2018
and
June 29, 2019
.
In February of 2018, the Company issued
$500 million
of
4.60%
Senior notes due 2028. The Company recognized net proceeds of
$497 million
after debt issuance costs and debt discounts. These proceeds were then used to make a
$500 million
contribution to the Company's U.S. pension plan. During the second half of 2018, the Company issued an additional
$200 million
on the outstanding notes. The Company recognized net proceeds of
$196 million
after debt issuance costs and debt discounts.
In conjunction with the Avigilon acquisition in the first quarter of 2018, the Company entered into a term loan for
$400 million
with a maturity date of March 26, 2021 (the “Term Loan”). Interest on the Term Loan is variable, indexed to LIBOR, and paid monthly. The weighted average borrowing rate for amounts outstanding during the
three and six months ended
June 29, 2019
were
3.72%
and
3.74%
, respectively.
No
additional borrowings are permitted and amounts borrowed and repaid or prepaid may not be re-borrowed.
In May of 2019, the Company issued
$650 million
of
4.60%
Senior notes due 2029. The Company recognized net proceeds of
$645 million
after debt issuance costs and debt discounts. These proceeds were then used to fund a tender offer which resulted in the repurchase of
$614 million
in principal amount of its outstanding long-term debt for a purchase price of
$654 million
, excluding approximately
$3 million
of accrued interest, all of which occurred during the three months ended June 29, 2019. After accelerating the amortization of debt issuance costs and debt discounts, the Company recognized a loss of approximately
$43 million
related to this debt tender in Other within Other income (expense) in the Condensed Consolidated Statements of Operations.
As of
June 29, 2019
, the Company had
$800 million
of
2.0%
Senior Convertible Notes outstanding with Silver Lake Partners which mature in September 2020 and are fully convertible. The notes are convertible based on a conversion rate of 14.8968, as may be adjusted for dividends declared, per $1,000 principal amount (which is currently equal to a conversion price of
$67.13
per share). The exercise price adjusts automatically for dividends. The value by which the Senior Convertible Notes exceeded their principal amount if converted as of
June 29, 2019
was $
1.1 billion
. In the event of a conversion, the Company intends to settle the principal amount of the Senior Convertible Notes in cash.
6. Risk Management
Foreign Currency Risk
As of
June 29, 2019
, the Company had outstanding foreign exchange contracts with notional amounts totaling
$1.0 billion
, compared to
$819 million
outstanding at
December 31, 2018
. The Company does not believe these financial instruments should subject it to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset gains and losses on the underlying assets, liabilities and transactions.
The following table shows the
five
largest net notional amounts of the positions to buy or sell foreign currency as of
June 29, 2019
, and the corresponding positions as of
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Net Buy (Sell) by Currency
|
June 29,
2019
|
|
December 31,
2018
|
|
Euro
|
$
|
155
|
|
|
$
|
89
|
|
|
British pound
|
46
|
|
|
139
|
|
|
Canadian dollar
|
42
|
|
|
(39
|
)
|
|
Australian dollar
|
(107
|
)
|
|
(105
|
)
|
|
Chinese renminbi
|
(55
|
)
|
|
(55
|
)
|
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of non-performance 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. As of
June 29, 2019
, all of the counterparties have investment grade credit ratings. As of
June 29, 2019
, the Company had
$12 million
of exposure to aggregate credit risk with all counterparties.
The following tables summarize the fair values and locations in the Condensed Consolidated Balance Sheets of all derivative financial instruments held by the Company as of
June 29, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
June 29, 2019
|
Other Current Assets
|
Accrued Liabilities
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
Foreign exchange contracts
|
$
|
8
|
|
|
$
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign exchange contracts
|
$
|
4
|
|
|
$
|
3
|
|
|
Total derivatives
|
$
|
12
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
December 31, 2018
|
Other Current Assets
|
Accrued Liabilities
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign exchange contracts
|
$
|
5
|
|
|
$
|
4
|
|
The following table summarizes the effect of derivatives on the Company's condensed consolidated financial statements for the
three and six months ended
June 29, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Financial Statement Location
|
|
Foreign Exchange Contracts
|
June 29, 2019
|
|
June 30, 2018
|
|
June 29, 2019
|
|
June 30, 2018
|
|
|
Effective portion
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
Accumulated other
comprehensive income
|
|
Forward points recognized
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Other income
|
|
Undesignated derivatives recognized
|
(3
|
)
|
|
(19
|
)
|
|
(7
|
)
|
|
(23
|
)
|
|
Other expense
|
Net Investment Hedges
The Company uses foreign exchange forward contracts with contract terms of
12
to
15
months to hedge against the effect of the British pound and the Euro exchange rate fluctuations against the U.S. dollar on a portion of its net investment in certain European operations. The Company recognizes changes in the fair value of the net investment hedges as a component of foreign currency translation adjustments within other comprehensive income to offset a portion of the change in translated value of the net investment being hedged, until the investment is sold or liquidated. In accordance with ASU 2017-02, the Company has elected to exclude the difference between the spot rate and the forward rate of the forward contract from its assessment of hedge effectiveness. The effect of the excluded components will be amortized on a straight line basis and recognized through interest expense. As of
June 29, 2019
, the Company had
€95 million
of net investment hedges in certain Euro functional subsidiaries and
£100 million
of net investment hedges in certain British pound functional subsidiaries. During the
three and six months ended
June 29, 2019
, the Company amortized
$2 million
and
$3 million
, respectively, of income from the excluded components through interest expense.
7. Income Taxes
At the end of each interim reporting period, the Company makes an estimate of its annual effective income tax rate. Tax expense in interim periods is calculated at the estimated annual effective tax rate plus or minus the tax effects of items of income and expense that are discrete to the period. The estimate used in providing for income taxes on a year-to-date basis may change in subsequent interim periods.
The following table provides details of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Net earnings before income taxes
|
$
|
275
|
|
|
$
|
227
|
|
|
$
|
460
|
|
|
$
|
367
|
|
|
Income tax expense
|
67
|
|
|
46
|
|
|
100
|
|
|
69
|
|
|
Effective tax rate
|
24
|
%
|
|
20
|
%
|
|
22
|
%
|
|
19
|
%
|
During the
three and six months ended
June 29, 2019
, the Company recorded
$67 million
and
$100 million
of net tax expense, resulting in effective tax rates of
24%
and
22%
, respectively. During the
three and six months ended
June 30, 2018
, the Company recorded
$46 million
and
$69 million
of net tax expense, resulting in effective tax rates of
20%
and
19%
, respectively. The
three and six months ended
June 29, 2019
effective tax rates include state tax expense, offset by excess tax benefits on share-based compensation. The effective tax rates for the
three and six months ended
June 29, 2019
of
24%
and
22%
, respectively, is higher than the effective tax rates for the
three and six months ended
June 30, 2018
of
20%
and
19%
, respectively, primarily due to a favorable settlement of a state audit in 2018.
8. Retirement and Other Employee Benefits
Pension and Postretirement Health Care Benefits Plans
The net periodic benefits 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
|
|
Three Months Ended
|
June 29, 2019
|
|
June 30, 2018
|
|
June 29, 2019
|
|
June 30, 2018
|
|
June 29, 2019
|
|
June 30, 2018
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
51
|
|
|
46
|
|
|
10
|
|
|
10
|
|
|
1
|
|
|
1
|
|
|
Expected return on plan assets
|
(69
|
)
|
|
(68
|
)
|
|
(21
|
)
|
|
(24
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
12
|
|
|
14
|
|
|
4
|
|
|
3
|
|
|
1
|
|
|
1
|
|
|
Unrecognized prior service benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
|
Net periodic pension benefits
|
$
|
(6
|
)
|
|
$
|
(8
|
)
|
|
$
|
(6
|
)
|
|
$
|
(10
|
)
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefit Plans
|
|
Non-U.S. Pension Benefit Plans
|
|
Postretirement Health Care Benefits Plan
|
|
Six Months Ended
|
June 29, 2019
|
|
June 30, 2018
|
|
June 29, 2019
|
|
June 30, 2018
|
|
June 29, 2019
|
|
June 30, 2018
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
102
|
|
|
92
|
|
|
20
|
|
|
20
|
|
|
1
|
|
|
1
|
|
|
Expected return on plan assets
|
(138
|
)
|
|
(136
|
)
|
|
(42
|
)
|
|
(48
|
)
|
|
(5
|
)
|
|
(5
|
)
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
23
|
|
|
28
|
|
|
8
|
|
|
6
|
|
|
2
|
|
|
2
|
|
|
Unrecognized prior service benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
|
Net periodic pension benefits
|
$
|
(13
|
)
|
|
$
|
(16
|
)
|
|
$
|
(12
|
)
|
|
$
|
(20
|
)
|
|
$
|
(9
|
)
|
|
$
|
(9
|
)
|
9. Share-Based Compensation Plans
Compensation expense for the Company’s share-based plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Share-based compensation expense included in:
|
|
|
|
|
|
|
|
|
Costs of sales
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
5
|
|
|
Selling, general and administrative expenses
|
15
|
|
|
11
|
|
|
31
|
|
|
21
|
|
|
Research and development expenditures
|
12
|
|
|
4
|
|
|
19
|
|
|
8
|
|
|
Share-based compensation expense included in Operating earnings
|
30
|
|
|
17
|
|
|
57
|
|
|
34
|
|
|
Tax benefit
|
(5
|
)
|
|
(4
|
)
|
|
(10
|
)
|
|
(8
|
)
|
|
Share-based compensation expense, net of tax
|
$
|
25
|
|
|
$
|
13
|
|
|
$
|
47
|
|
|
$
|
26
|
|
|
Decrease in basic earnings per share
|
$
|
(0.15
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.16
|
)
|
|
Decrease in diluted earnings per share
|
$
|
(0.14
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.15
|
)
|
During the
six months ended
June 29, 2019
, the Company granted
0.5 million
restricted stock units ("RSUs") and
0.1 million
market stock units ("MSUs") with an aggregate grant-date fair value of
$64 million
and
$7 million
, respectively, and
0.2 million
stock options and
0.2 million
performance options ("POs") with an aggregate grant-date fair value of
$6 million
and
$7 million
, respectively. The share-based compensation expense will generally be recognized over the vesting period of three years.
During the
six months ended
June 29, 2019
, the Company granted an additional
0.4 million
of restricted stock in connection with the acquisition of VaaS, with an aggregate grant-date fair value of
$38 million
related to compensation withheld from the purchase price that will be expensed over an average service period of one year.
During the
three months ended
June 29, 2019
, the Company approved the grant of performance stock units ("PSUs") as a portion of the Long Range Incentive Plan ("LRIP") awards issued to certain Company executive officers with an aggregate grant-date fair value of
$5.5 million
. The 2019 PSUs have a three-year performance period and were granted at a target number of units subject to adjustment based on company performance. The number of PSUs earned will be based on the actual total shareholder return ("TSR") compared to the S&P 500 over the three-year performance period.
The Company calculates the value of each PSU using the Monte Carlo simulation, estimated on the date of grant. Each PSU was granted with a fair value of
$203.61
. The following assumptions were used for the calculations.
|
|
|
|
|
|
|
|
2019 PSUs
|
|
Expected volatility of common stock
|
20.6
|
%
|
|
Expected volatility of the S&P 500
|
25.0
|
%
|
|
Risk-free interest rate
|
2.2
|
%
|
|
Dividend yield
|
1.6
|
%
|
Subsequent to the
six months ended
June 29, 2019
, the Company granted restricted stock and restricted stock units in connection with the acquisition of WatchGuard for an aggregate grant date fair value of
$16 million
that will be expensed over an average service period of two years.
10. 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. 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 and is measured using the fair value hierarchy. This hierarchy prescribes 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.
The fair values of the Company’s financial assets and liabilities by level in the fair value hierarchy as of
June 29, 2019
and
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
Level 1
|
|
Level 2
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
12
|
|
|
Common stock
|
42
|
|
|
—
|
|
|
42
|
|
|
Liabilities:
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Level 1
|
|
Level 2
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
Corporate bonds
|
1
|
|
|
—
|
|
|
1
|
|
|
Common stock
|
19
|
|
|
—
|
|
|
19
|
|
|
Liabilities:
|
|
|
|
|
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
4
|
|
The Company had no Level 3 holdings as of
June 29, 2019
or
December 31, 2018
.
At
June 29, 2019
and
December 31, 2018
, the Company had
$419 million
and
$734 million
, respectively, of investments in money market prime and government funds (Level 1) classified as Cash and cash equivalents in its Condensed Consolidated Balance Sheets. 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
June 29, 2019
and
December 31, 2018
was
$5.6 billion
and
$5.4 billion
(Level 2), respectively.
All other financial instruments are carried at cost, which is not materially different from the instruments’ fair values.
11. Long-term Financing and Sales of Receivables
Long-term Financing
Long-term receivables consist of receivables with payment terms greater than twelve months and long-term loans. Long-term receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
2019
|
|
December 31,
2018
|
|
Long-term receivables, gross
|
$
|
28
|
|
|
$
|
33
|
|
|
Less allowance for losses
|
(2
|
)
|
|
(2
|
)
|
|
Long-term receivables
|
26
|
|
|
31
|
|
|
Less current portion
|
(10
|
)
|
|
(7
|
)
|
|
Non-current long-term receivables
|
$
|
16
|
|
|
$
|
24
|
|
The current portion of long-term receivables is included in Accounts receivable, net and the non-current portion of long-term receivables is included in Other assets in the Company’s Condensed Consolidated Balance Sheets. The Company had outstanding commitments to provide long-term financing to third parties totaling
$53 million
at
June 29, 2019
, compared to
$62 million
at
December 31, 2018
.
Sales of Receivables
The following table summarizes the proceeds received from sales of accounts receivable and long-term receivables for the
three and six months ended
June 29, 2019
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Accounts receivable sales proceeds
|
$
|
3
|
|
|
$
|
22
|
|
|
$
|
27
|
|
|
$
|
76
|
|
|
Long-term receivables sales proceeds
|
55
|
|
|
15
|
|
|
76
|
|
|
28
|
|
|
Total proceeds from receivable sales
|
$
|
58
|
|
|
$
|
37
|
|
|
$
|
103
|
|
|
$
|
104
|
|
At
June 29, 2019
, the Company had retained servicing obligations for
$971 million
of long-term receivables, compared to
$970 million
at
December 31, 2018
. Servicing obligations are limited to collection activities related to the sales of accounts receivables and long-term receivables.
12. Commitments and Contingencies
Legal Matters
The Company is 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 the Company's condensed consolidated financial position, liquidity, or results of operations. However, an unfavorable resolution could have a material adverse effect on the Company's condensed consolidated financial position, liquidity, or results of operations in the periods in which the matters are ultimately resolved, or in the periods in which more information is obtained that changes management's opinion of the ultimate disposition.
Other 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 to amounts not in excess of a percentage of the contract value. The Company had
no
accruals for any such obligations at
June 29, 2019
.
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.
13. Segment Information
The following table summarizes Net sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Products and Systems Integration
|
$
|
1,238
|
|
|
$
|
1,189
|
|
|
$
|
2,307
|
|
|
$
|
2,141
|
|
|
Services and Software
|
622
|
|
|
571
|
|
|
1,210
|
|
|
1,086
|
|
|
|
$
|
1,860
|
|
|
$
|
1,760
|
|
|
$
|
3,517
|
|
|
$
|
3,227
|
|
The following table summarizes the Operating earnings by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 29,
2019
|
|
June 30,
2018
|
|
June 29,
2019
|
|
June 30,
2018
|
|
Products and Systems Integration
|
$
|
201
|
|
|
$
|
175
|
|
|
$
|
310
|
|
|
$
|
265
|
|
|
Services and Software
|
148
|
|
|
98
|
|
|
269
|
|
|
180
|
|
|
Operating earnings
|
349
|
|
|
273
|
|
|
579
|
|
|
445
|
|
|
Total other expense
|
(74
|
)
|
|
(46
|
)
|
|
(119
|
)
|
|
(78
|
)
|
|
Earnings before income taxes
|
$
|
275
|
|
|
$
|
227
|
|
|
$
|
460
|
|
|
$
|
367
|
|
14. Reorganization of Business
2019
Charges
During the
three months ended
June 29, 2019
, the Company recorded net reorganization of business charges of
$12 million
including
$8 million
of charges in Other charges and
$4 million
of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the
$12 million
were charges of
$18 million
related to employee separation, partially offset by
$6 million
of reversals for accruals no longer needed.
During the
six months ended
June 29, 2019
, the Company recorded net reorganization of business charges of
$20 million
including
$12 million
of charges in Other charges and
$8 million
of charges in Costs of sales in the Company's Condensed
Consolidated Statements of Operations. Included in the
$20 million
were charges of
$30 million
related to employee separation, partially offset by
$10 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
Three Months Ended
|
|
Six Months Ended
|
|
Products and Systems Integration
|
$
|
9
|
|
|
$
|
16
|
|
|
Services and Software
|
3
|
|
|
4
|
|
|
|
$
|
12
|
|
|
$
|
20
|
|
The following table displays a rollforward of the reorganization of business accruals established for employee separation costs from
January 1, 2019
to
June 29, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2019
|
|
Additional
Charges
|
|
Adjustments
|
|
Amount
Used
|
|
June 29, 2019
|
|
Employee separation costs
|
$
|
84
|
|
|
$
|
30
|
|
|
$
|
(10
|
)
|
|
$
|
(28
|
)
|
|
$
|
76
|
|
Employee Separation Costs
At
January 1, 2019
, the Company had an accrual of
$84 million
for employee separation costs. The
2019
additional charges of
$30 million
represent severance costs for approximately
300
employees. The adjustment of
$10 million
reflects reversals for accruals no longer needed. The
$28 million
used reflects cash payments to severed employees. The remaining accrual of
$76 million
, which is included in Accrued liabilities in the Company’s Condensed Consolidated Balance Sheets at
June 29, 2019
, is expected to be paid, primarily within one year, to approximately
900
employees, who have either been severed or have been notified of their severance and have begun or will begin receiving payments.
As of January 1, 2019, accruals for exit costs are included in Operating lease liabilities with an offsetting impairment to the Company's ROU assets; all within its Condensed Consolidated Balance Sheets (see Note 3).
2018
Charges
During the
three months ended
June 30, 2018
, the Company recorded net reorganization of business charges of
$25 million
including
$18 million
of charges in Other charges and
$7 million
of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the
$25 million
were charges of
$27 million
related to employee separation costs and
$1 million
related to exit costs, partially offset by
$3 million
of reversals for accruals no longer needed.
During the
six months ended
June 30, 2018
, the Company recorded net reorganization of business charges of
$38 million
including
$26 million
of charges in Other charges and
$12 million
of charges in Costs of sales in the Company's Condensed Consolidated Statements of Operations. Included in the
$38 million
were charges of
$49 million
related to employee separation costs and
$3 million
related to exit costs, partially offset by
$14 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by segment:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
Three Months Ended
|
|
Six Months Ended
|
|
Products and Systems Integration
|
$
|
19
|
|
|
$
|
28
|
|
|
Services and Software
|
6
|
|
|
10
|
|
|
|
$
|
25
|
|
|
$
|
38
|
|
15. 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 condensed consolidated financial statements for the period subsequent to the date of acquisition.
Recent Acquisitions
On July 11, 2019, the Company acquired WatchGuard, Inc. ("WatchGuard"), a provider of in-car and body-worn video solutions for
$271 million
, inclusive of share-based compensation withheld at a fair value of
$16 million
that will be expensed over an average service period of
two years
. The acquisition was settled with
$250 million
, net of cash acquired. The acquisition expands the Company's video security solutions platform. The business will be part of both the Products and Systems Integration and Services and Software segments. The purchase accounting for this acquisition will commence in the third quarter of 2019.
On March 11, 2019, the Company announced that it acquired Avtec, Inc. ("Avtec"), a provider of dispatch communication equipment for U.S. public safety and commercial customers for a purchase price of
$136 million
in cash, net of cash acquired. This acquisition expands the Company's commercial portfolio with new capabilities, allowing it to offer an enhanced platform for customers to communicate, coordinate resources, and secure their facilities. The business will be part of both the Products and Systems Integration and Services and Software segments. The Company recognized
$68 million
of goodwill,
$64 million
of identifiable intangible assets, and
$4 million
of net assets. The goodwill is deductible for tax purposes. The identifiable intangible assets were classified as
$43 million
of completed technology and
$21 million
of customer relationship intangibles and will be amortized over a period of
15 years
. The purchase accounting is not yet complete and as such the final allocation between goodwill and net assets may be subject to change based on the finalization of working capital considerations.
On
January 7, 2019, the Company announced that it acquired VaaS International Holdings
("VaaS"), a company that is a global provider of data and image analytics for vehicle location for
$445 million
, inclusive of share-based compensation withheld at a fair value of
$38 million
that will be expensed over an average service period of
one year
. The acquisition was settled with
$231 million
of cash, net of cash acquired, and
1.4 million
of shares issued at a fair value of
$160 million
for a purchase price of
$391 million
to be utilized in the purchase price allocation. The business will be part of both the Products and Systems Integration and Services and Software segments. The Company recognized
$261 million
of goodwill,
$141 million
of identifiable intangible assets, and
$11 million
of net liabilities. The goodwill is not deductible for tax purposes. The identifiable intangible assets were classified as
$99 million
of completed technology that will be amortized over a period of
ten years
and
$42 million
of customer relationship intangibles that will be amortized over a period of
15 years
. The purchase accounting is not yet complete and as such the final allocation between deferred income tax accounts, goodwill, and net liabilities may be subject to change based on the settlement of working capital considerations.
On
March 28, 2018, the Company completed the acquisition of Avigilon Corporation
, a provider of advanced security and video solutions including video analytics, network video management hardware and software, video cameras and access control solutions. The purchase price of
$974 million
, consisted of cash payments of
$980 million
for outstanding common stock, restricted stock units and employee held stock options, net of cash acquired of
$107 million
, debt assumed of
$75 million
and transaction costs of
$26 million
. Prior to the end of the first quarter of 2018,
$35 million
of the assumed debt was repaid with the remaining
$40 million
repaid during the second quarter of 2018. The Company recognized
$498 million
of identifiable intangible assets,
$434 million
of goodwill, and
$42 million
of net assets. Acquired intangible assets consist of
$110 million
of customer relationships,
$380 million
of developed technology and
$8 million
of trade names and will have useful lives of
two
to
twenty years
. The fair values of all intangible assets were estimated using the income approach. Customer relationships and developed technology were valued under the excess earnings method which assumes that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable specifically to the intangible asset. Trade names were valued under the relief from royalty method, which assumes value to the extent that the acquired company is relieved of the obligation to pay royalties for the benefits received from them. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. The goodwill is not deductible for tax purposes.
On March 7, 2018, the Company completed the acquisition of Plant Holdings, Inc., the parent company of Airbus DS Communications for a purchase price of
$237 million
in cash, net cash acquired. This acquisition expanded the Company's software portfolio in the command center with additional solutions for Next Generation 9-1-1. The Company recognized
$160 million
of goodwill,
$80 million
of identifiable intangible assets, and
$3 million
of net liabilities. The goodwill is
no
t deductible for tax purposes. The identifiable intangible assets were classified as
$41 million
of customer-related intangibles,
$27 million
of completed technology and
$12 million
of trade names. The identifiable intangible assets will be amortized over a period of
ten
to
twenty years
.
The pro forma effects of these acquisitions are not significant.
Any devices from these acquisitions are included within the Products and Systems Integration segment and services and software offerings from these acquisitions are included in the Services and Software segment.
Intangible Assets
Amortized intangible assets were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
December 31, 2018
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Completed technology
|
$
|
701
|
|
|
$
|
119
|
|
|
$
|
558
|
|
|
$
|
92
|
|
|
Customer-related
|
1,147
|
|
|
434
|
|
|
1,085
|
|
|
364
|
|
|
Other intangibles
|
76
|
|
|
39
|
|
|
76
|
|
|
33
|
|
|
|
$
|
1,924
|
|
|
$
|
592
|
|
|
$
|
1,719
|
|
|
$
|
489
|
|
Amortization expense on intangible assets was
$52 million
for the
three months ended
June 29, 2019
and
$102 million
for the
six months ended
June 29, 2019
. Amortization expense on intangible assets was
$53 million
for the
three months ended
June 30, 2018
and
$94 million
for the
six months ended
June 30, 2018
. As of
June 29, 2019
, annual amortization expense is
estimated to be
$204 million
in
2019
,
$200 million
2020
,
$198 million
in
2021
,
$195 million
in
2022
,
$98 million
in
2023
, and
$73 million
in
2024
.
Amortized intangible assets were comprised of the following by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
December 31, 2018
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Products and Systems Integration
|
$
|
610
|
|
|
$
|
59
|
|
|
$
|
510
|
|
|
$
|
38
|
|
|
Services and Software
|
1,314
|
|
|
533
|
|
|
1,209
|
|
|
451
|
|
|
|
$
|
1,924
|
|
|
$
|
592
|
|
|
$
|
1,719
|
|
|
$
|
489
|
|
Goodwill
The following table displays a rollforward of the carrying amount of goodwill by segment from
January 1, 2019
to
June 29, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and Systems Integration
|
|
Services and Software
|
|
Total
|
|
Balance as of January 1, 2019
|
$
|
722
|
|
|
$
|
792
|
|
|
$
|
1,514
|
|
|
Goodwill acquired
|
146
|
|
|
183
|
|
|
329
|
|
|
Purchase accounting adjustments
|
—
|
|
|
9
|
|
|
9
|
|
|
Balance as of June 29, 2019
|
$
|
868
|
|
|
$
|
984
|
|
|
$
|
1,852
|
|