Motorola Solutions, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; quarterly figures below include the fourth quarter. Motorola Solutions supplies mission-critical communications products and services. Following the October 2014 sale of its Enterprise business to Zebra Technologies, the company reported two continuing segments: Products and Services.
Key financial results
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $5.881 billion | $6.227 billion |
| Gross margin | $2.831 billion; 48.1% of sales | $3.109 billion; 49.9% of sales |
| Operating earnings (loss) | ($1.006 billion); (17.1%) margin | $947 million; 15.2% margin |
| Continuing-operations earnings (loss), attributable to common shareholders | ($697 million); ($2.84) diluted EPS | $933 million; $3.45 diluted EPS |
| Net earnings, including discontinued operations | $1.299 billion; $5.29 diluted EPS | $1.099 billion; $4.06 diluted EPS |
| Cash from continuing operating activities | ($685 million) | $555 million |
| Cash and cash equivalents at year-end | $3.954 billion | $3.225 billion |
| Long-term debt at year-end | $3.400 billion | $2.461 billion |
2014 results included a $1.917 billion pension-settlement charge in continuing operations and $1.3 billion of pension contributions. The $1.996 billion of after-tax earnings from discontinued operations chiefly reflected the $1.888 billion gain on the Enterprise sale. Thus, reported net earnings do not represent the result from continuing operations alone.
Products sales fell 7% to $3.807 billion; Services sales fell 2% to $2.074 billion. Segment operating losses were $667 million for Products and $339 million for Services, largely reflecting allocated pension-settlement charges. Backlog rose 6% to $5.776 billion, including $1.194 billion in Products and $4.582 billion in Services; the company expected to recognize about 58% of Products backlog and 26% of Services backlog in 2015.
Material changes and capital position
- Consolidated sales declined 6%; gross margin contracted 1.8 percentage points. Management cited lower sales and adverse mix, partly offset by reduced SG&A and R&D spending.
- The Enterprise business was sold for $3.5 billion in cash; it is presented as discontinued operations for all periods shown. The company described the sale as part of a shift to a more focused mission-critical communications business.
- Cash from continuing operations swung from $555 million provided to $685 million used, principally reflecting the pension contributions. Investing activities provided $3.208 billion, primarily from the Enterprise sale.
- The company repurchased $2.546 billion of shares and paid $318 million in dividends in 2014. Year-end share-repurchase authority was approximately $4.2 billion. The quarterly dividend was raised to $0.34 per share during the year.
- Long-term debt increased to $3.4 billion after $1.4 billion of notes were issued; the company also redeemed $400 million principal of 2017 notes for approximately $456 million. It reported a $2.1 billion revolving credit facility, no borrowings under it at year-end, and compliance with its covenants.
- Current assets were $6.879 billion and current liabilities $2.250 billion at year-end. Cash was largely available, although $647 million was held outside the U.S.; the company also reported foreign repatriation constraints and tax considerations.
Outlook, commentary and risks
Management gave no specific full-year 2015 revenue or earnings forecast in the supplied filing text. It expected public-safety LTE contracts to begin generating revenue in 2015, continued demand for managed, lifecycle-support and smart public-safety services, and a decline in legacy iDEN revenue over the next two to three years. It planned an additional reduction of more than $100 million in SG&A and R&D expenses in 2015 and expected no U.S. pension-plan cash contributions and approximately $12 million of non-U.S. contributions.
- Management cited record fourth-quarter North American sales and orders, improving backlog, and 5% year-over-year growth in Europe and Africa. Fourth-quarter consolidated sales were $1.824 billion; operating loss was $1.458 billion, including $1.924 billion of other charges.
- The 2014 U.S. pension actions included a group annuity purchase covering about 30,000 retirees and $1.0 billion in lump-sum distributions. Management said the changes reduced future contribution needs and volatility; pension assumptions and remaining obligations remain material to results.
- Risks include uncertain timing and scope of the FirstNet public-safety broadband network; government budget, grant and contract cancellation exposure; foreign-exchange movements; customer financing and credit risk; single-source suppliers; and competition from broadband and telecom providers.
- The company was transitioning from ERP systems transferred to Zebra and expected to use shared systems under a transition-services arrangement through 2017 while planning a replacement. Cybersecurity, outsourcing and operational disruption were also identified risks.
- Management said pending ordinary-course legal matters were not expected to materially affect results, but noted an adverse resolution could be material. The independent auditor gave an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Reconcile continuing-operations performance with the pension-settlement charge and the Enterprise-sale gain; assess recurring earnings after these unusual items.
- Review the pension settlement’s effects on future funding, benefit obligations, and earnings volatility, including actuarial assumptions.
- Track conversion and profitability of the $5.8 billion backlog, especially Services contracts and expected 2015 LTE revenue.
- Assess cash generation excluding divestiture proceeds and pension contributions, alongside debt, planned shareholder returns, and the $293 million of outstanding long-term financing commitments.
- Monitor FirstNet procurement and ERP replacement progress, as well as currency, customer-funding, supply-chain and cybersecurity exposures.