Company Quick10K Filing
Motorola Solutions
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 176 $29,384
10-Q 2019-10-31 Quarter: 2019-09-28
10-Q 2019-08-02 Quarter: 2019-06-29
10-Q 2019-05-03 Quarter: 2019-03-30
10-K 2019-02-15 Annual: 2018-12-31
10-Q 2018-11-02 Quarter: 2018-09-29
10-Q 2018-08-03 Quarter: 2018-06-30
10-Q 2018-05-04 Quarter: 2018-03-31
10-K 2018-02-16 Annual: 2017-12-31
10-Q 2017-11-03 Quarter: 2017-09-30
10-Q 2017-08-04 Quarter: 2017-07-01
10-Q 2017-05-05 Quarter: 2017-04-01
10-K 2017-02-21 Annual: 2016-12-31
10-Q 2016-11-04 Quarter: 2016-10-01
10-Q 2016-08-05 Quarter: 2016-07-02
10-Q 2016-05-06 Quarter: 2016-04-02
10-K 2016-02-23 Annual: 2015-12-31
10-Q 2015-11-04 Quarter: 2015-10-03
10-Q 2014-08-05 Quarter: 2014-06-28
10-K 2014-02-13 Annual: 2013-12-31
10-Q 2013-10-23 Quarter: 2013-09-28
10-Q 2013-07-24 Quarter: 2013-06-29
10-Q 2013-04-24 Quarter: 2013-03-30
10-K 2013-02-12 Annual: 2012-12-31
10-Q 2012-10-24 Quarter: 2012-09-29
10-Q 2012-07-25 Quarter: 2012-06-30
10-Q 2012-04-25 Quarter: 2012-03-31
10-K 2012-02-15 Annual: 2011-12-31
10-Q 2011-10-27 Quarter: 2011-10-01
10-Q 2011-07-28 Quarter: 2011-07-02
10-Q 2011-05-02 Quarter: 2011-04-02
10-K 2011-02-18 Annual: 2010-12-31
10-Q 2010-11-02 Quarter: 2010-10-02
10-Q 2010-08-05 Quarter: 2010-07-03
10-Q 2010-05-04 Quarter: 2010-04-03
10-K 2010-02-16 Annual: 2009-12-31
8-K 2019-10-30 Earnings, Exhibits
8-K 2019-09-20 Other Events
8-K 2019-09-05 Other Events, Exhibits
8-K 2019-09-05 Enter Agreement, Exhibits
8-K 2019-09-05 Enter Agreement, Off-BS Arrangement, Sale of Shares, Officers, Other Events, Exhibits
8-K 2019-08-06 Other Events, Exhibits
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-05-23 Other Events, Exhibits
8-K 2019-05-13 Shareholder Vote, Other Events
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-03-14 Other Events
8-K 2019-02-07 Earnings, Exhibits
8-K 2019-01-07 Other Events, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-05 Other Events, Exhibits
8-K 2018-09-28 Other Events, Exhibits
8-K 2018-09-14 Other Events
8-K 2018-09-10 Officers
8-K 2018-09-05 Other Events, Exhibits
8-K 2018-08-28 Officers, Other Events
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-08-02 Regulation FD, Exhibits
8-K 2018-05-14 Accountant, Shareholder Vote, Exhibits
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-03-28 M&A, Other Events, Exhibits
8-K 2018-03-28 Officers
8-K 2018-02-23 Other Events, Exhibits
8-K 2018-02-01 Regulation FD, Other Events, Exhibits
8-K 2018-02-01 Earnings, Exhibits
MSI 2019-09-28
Part I-Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 msiex311q32019.htm
EX-31.2 msiex312q32019.htm
EX-32.1 msiex321q32019.htm
EX-32.2 msiex322q32019.htm

Motorola Solutions Earnings 2019-09-28

MSI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NOK 31,730 39,517 24,146 0 0 0 0 31,730 0%
SGOC 31,573 191 23 0 0 0 0 31,558 0%
MSI 29,384 9,974 10,944 7,633 3,693 1,031 1,810 33,767 48% 18.7 10%
LLL 16,485 14,263 8,145 10,573 2,005 1,041 1,483 15,401 19% 10.4 7%
UBNT 9,395 876 777 1,162 538 323 403 9,654 46% 24.0 37%
ARRS 5,447 7,328 4,322 6,743 1,963 114 696 6,827 29% 9.8 2%
VSAT 4,957 4,262 2,289 2,166 0 -41 315 6,255 0% 19.9 -1%
SATS 4,132 7,950 3,707 2,541 0 -85 800 5,421 0% 6.8 -1%
COMM 3,077 15,937 13,512 5,874 1,877 -296 635 13,229 32% 20.8 -2%
LORL 1,191 394 33 0 0 123 94 933 10.0 31%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________ 
Form 10-Q
 ____________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 28, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission file number: 1-7221
___________________________________________ 
MOTOROLA SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________ 
Delaware
 
36-1115800
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
500 W. Monroe Street,
 
60661
Chicago,
 
Illinois
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(847576-5000
____________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock
$0.01
Par Value
 
MSI
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer

 
Accelerated filer 
 
Non-accelerated filer 
 
Smaller reporting company 
 
Emerging growth company
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 
The number of shares outstanding of each of the issuer’s classes of common stock as of the close of business on October 15, 2019 was 171,336,026.



 
Page    
 
Item 1 Financial Statements
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 28, 2019 and September 29, 2018
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 28, 2019 and September 29, 2018
Condensed Consolidated Balance Sheets as of September 28, 2019 (Unaudited) and December 31, 2018
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 28, 2019 and September 29, 2018
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 28, 2019 and September 29, 2018
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
Item 4 Mine Safety Disclosures



Part I—Financial Information
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(In millions, except per share amounts)
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Net sales from products
$
1,196

 
$
1,151

 
$
3,260

 
$
2,993

Net sales from services
798

 
711

 
2,251

 
2,096

Net sales
1,994

 
1,862

 
5,511

 
5,089

Costs of products sales
501

 
516

 
1,435

 
1,383

Costs of services sales
486

 
445

 
1,365

 
1,314

Costs of sales
987

 
961

 
2,800

 
2,697

Gross margin
1,007

 
901

 
2,711

 
2,392

Selling, general and administrative expenses
359

 
323

 
1,035

 
918

Research and development expenditures
172

 
158

 
505

 
472

Other charges
63

 
126

 
180

 
263

Operating earnings
413

 
294

 
991

 
739

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(54
)
 
(59
)
 
(165
)
 
(163
)
Gains on sales of investments and businesses, net

 
6

 
4

 
16

Other, net
(11
)
 
29

 
(22
)
 
45

Total other expense
(65
)
 
(24
)
 
(183
)
 
(102
)
Net earnings before income taxes
348

 
270

 
808

 
637

Income tax expense
80

 
22

 
180

 
91

Net earnings
268

 
248

 
628

 
546

Less: Earnings attributable to non-controlling interests
1

 
1

 
3

 
2

Net earnings attributable to Motorola Solutions, Inc.
$
267

 
$
247

 
$
625

 
$
544

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
1.60

 
$
1.52

 
$
3.78

 
$
3.36

Diluted
$
1.51

 
$
1.43

 
$
3.56

 
$
3.17

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
166.7

 
162.6

 
165.3

 
162.0

Diluted
176.4

 
172.6

 
175.7

 
171.6

See accompanying notes to condensed consolidated financial statements (unaudited).

1


Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(In millions)
September 28,
2019
 
September 29,
2018
 
September 28,
2019
 
September 29,
2018
Net earnings
$
268

 
$
248

 
$
628

 
$
546

Other comprehensive income (loss), net of tax (Note 4):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(33
)
 
(4
)
 
(26
)
 
(42
)
Marketable securities

 

 

 
(6
)
Defined benefit plans
11

 
13

 
32

 
39

Total other comprehensive income (loss), net of tax
(22
)
 
9

 
6

 
(9
)
Comprehensive income
246

 
257

 
634

 
537

Less: Earnings attributable to non-controlling interests
1

 
1

 
3

 
2

Comprehensive income attributable to Motorola Solutions, Inc. common shareholders
$
245

 
$
256

 
$
631

 
$
535

See accompanying notes to condensed consolidated financial statements (unaudited).


2


Condensed Consolidated Balance Sheets
(In millions, except par value)
September 28,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
Cash and cash equivalents
$
1,138

 
$
1,246

Restricted cash
2

 
11

   Total cash and cash equivalents
1,140

 
1,257

Accounts receivable, net
1,295

 
1,293

Contract assets
921

 
1,012

Inventories, net
460

 
356

Other current assets
338

 
354

Total current assets
4,154

 
4,272

Property, plant and equipment, net
963

 
895

Operating lease assets
561

 

Investments
159

 
169

Deferred income taxes
866

 
985

Goodwill
2,006

 
1,514

Intangible assets, net
1,331

 
1,230

Other assets
333

 
344

Total assets
$
10,373

 
$
9,409

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt
$
617

 
$
31

Accounts payable
557

 
592

Contract liabilities
1,223

 
1,263

Accrued liabilities
1,259

 
1,210

Total current liabilities
3,656

 
3,096

Long-term debt
5,112

 
5,289

Operating lease liabilities
499

 

Other liabilities
2,190

 
2,300

Stockholders’ Equity
 
 
 
Common stock, $.01 par value:
2

 
2

Authorized shares: 600.0
 
 
 
Issued shares: 9/28/19—171.6; 12/31/18—164.0
 
 
 
Outstanding shares: 9/28/19—171.0; 12/31/18—163.5
 
 
 
Additional paid-in capital
436

 
419

Retained earnings
1,220

 
1,051

Accumulated other comprehensive loss
(2,759
)
 
(2,765
)
Total Motorola Solutions, Inc. stockholders’ equity (deficit)
(1,101
)
 
(1,293
)
Non-controlling interests
17

 
17

Total stockholders’ equity (deficit)
(1,084
)
 
(1,276
)
Total liabilities and stockholders’ equity
$
10,373

 
$
9,409

See accompanying notes to condensed consolidated financial statements (unaudited).


3


Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In millions)
Shares
 
Common Stock and Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interests
Balance as of December 31, 2018
164.0

 
$
421

 
$
(2,765
)
 
$
1,051

 
$
17

Net earnings


 


 


 
151

 
1

Other comprehensive income


 


 
41

 


 


Issuance of common stock and stock options exercised
1.2

 
45

 


 


 


Share repurchase program
(1.2
)
 


 


 
(145
)
 


Share-based compensation expense


 
27

 


 


 


Issuance of common stock for acquisition of VaaS
1.4

 
160

 
 
 


 
 
Dividends declared $0.57 per share


 


 


 
(94
)
 


Balance as of March 30, 2019
165.4

 
$
653

 
$
(2,724
)
 
$
963

 
$
18

Net earnings


 


 


 
207

 
1

Other comprehensive loss


 


 
(13
)
 


 


Issuance of common stock and stock options exercised
0.5

 
33

 


 


 


Share repurchase program
(0.2
)
 


 


 
(25
)
 


Share-based compensation expense


 
30

 


 


 


Dividends paid to non-controlling interest on subsidiary common stock


 


 


 


 
(3
)
Dividends declared $0.57 per share


 


 


 
(94
)
 

Balance as of June 29, 2019
165.7

 
$
716

 
$
(2,737
)
 
$
1,051

 
$
16

Net earnings


 


 


 
267

 
1

Other comprehensive loss


 


 
(22
)
 


 


Issuance of common stock and stock options exercised
0.4

 
12

 


 


 


Issuance of common stock for 2.00% senior convertible notes
5.5

 
988

 
 
 
 
 
 
Share-based compensation expense


 
30

 


 


 


Dividends declared $0.57 per share


 


 


 
(98
)
 


Equity component of 1.75% senior convertible notes
 
 
10

 
 
 
 
 
 
Repurchase of 2.00% senior convertible notes
 
 
(1,318
)
 
 
 
 
 
 
Balance as of September 28, 2019
171.6

 
$
438

 
$
(2,759
)
 
$
1,220

 
$
17

See accompanying notes to condensed consolidated financial statements (unaudited).


4


(Unaudited)
(In millions)
Shares
 
Common Stock and Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained
Earnings
 
Noncontrolling
Interests
Balance as of December 31, 2017
161.6

 
$
353

 
$
(2,562
)
 
$
467

 
$
15

Net earnings
 
 
 
 
 
 
117

 
 
Other comprehensive income
 
 
 
 
54

 
 
 
 
Issuance of common stock and stock options exercised
1.7

 
53

 
 
 
 
 
 
Share repurchase program
(0.6
)
 
 
 
 
 
(66
)
 
 
Share-based compensation expense
 
 
17

 
 
 
 
 
 
ASU 2016-16 modified retrospective adoption
 
 
 
 
 
 
(30
)
 
 
ASU 2014-09 modified retrospective adoption
 
 
 
 
 
 
127

 
 
Dividends declared $0.52 per share
 
 
 
 
 
 
(84
)
 
 
Balance as of March 31, 2018
162.7

 
$
423

 
$
(2,508
)
 
$
531

 
$
15

Net earnings
 
 
 
 
 
 
180

 
1

Other comprehensive loss
 
 
 
 
(72
)
 
 
 
 
Issuance of common stock and stock options exercised
0.1

 
6

 
 
 
 
 
 
Share-based compensation expense
 
 
17

 
 
 
 
 
 
Dividends declared $0.52 per share
 
 
 
 
 
 
(84
)
 


Dividends paid to non-controlling interest on subsidiary common stock
 
 
 
 
 
 
 
 
(1
)
Balance as of June 30, 2018
162.8

 
$
446

 
$
(2,580
)
 
$
627

 
$
15

Net earnings
 
 
 
 
 
 
247

 
1

Other comprehensive income
 
 
 
 
9

 
 
 
 
Issuance of common stock and stock options exercised
1.2

 
80

 
 
 
 
 
 
Share-based compensation expense
 
 
19

 
 
 
 
 
 
ASU 2016-16 modified retrospective adoption
 
 
 
 
 
 
(1
)
 
 
Dividends declared $0.52 per share
 
 
 
 
 
 
(85
)
 
 
Repurchase of 2.00% senior convertible notes
 
 
(173
)
 
 
 
 
 
 
Balance as of September 29, 2018
164.0

 
$
372

 
$
(2,571
)
 
$
788

 
$
16

See accompanying notes to condensed consolidated financial statements (unaudited).


5


Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended
(In millions)
September 28,
2019
 
September 29,
2018
Operating
 
 
 
Net earnings attributable to Motorola Solutions, Inc.
$
625

 
$
544

Earnings attributable to non-controlling interests
3

 
2

Net earnings
628

 
546

Adjustments to reconcile Net earnings to Net cash provided by operating activities:
 
 
 
Depreciation and amortization
290

 
267

Non-cash other charges
27

 
56

Share-based compensation expense
87

 
53

Gains on sales of investments and businesses, net
(4
)
 
(16
)
Losses from the extinguishment of long term debt
50

 

Gain from the extinguishment of 2.00% senior convertible notes
(4
)
 
(6
)
Changes in assets and liabilities, net of effects of acquisitions, dispositions, and foreign currency translation adjustments:
 
 
 
Accounts receivable
30

 
186

Inventories
(88
)
 
61

Other current assets and contract assets
104

 
(137
)
Accounts payable, accrued liabilities, and contract liabilities
(143
)
 
(170
)
Other assets and liabilities
10

 
(596
)
Deferred income taxes
41

 
19

Net cash provided by operating activities
1,028

 
263

Investing
 
 
 
Acquisitions and investments, net
(623
)
 
(1,158
)
Proceeds from sales of investments and businesses, net
10

 
90

Capital expenditures
(189
)
 
(128
)
Net cash used for investing activities
(802
)
 
(1,196
)
Financing
 
 
 
Repayment of debt
(1,435
)
 
(412
)
Net proceeds from the issuances of debt
1,804

 
1,295

Issuances of common stock
82

 
139

Purchases of common stock
(170
)
 
(66
)
Payments of dividends
(281
)
 
(252
)
Payments of dividends to non-controlling interests
(3
)
 
(1
)
Settlements of conversion premium on 2.00% senior convertible notes
(326
)
 
(169
)
Net cash provided by (used for) financing activities
(329
)
 
534

Effect of exchange rate changes on total cash and cash equivalents
(14
)
 
(18
)
Net decrease in total cash and cash equivalents
(117
)
 
(417
)
Total cash and cash equivalents, beginning of period
1,257

 
1,268

Total cash and cash equivalents, end of period
$
1,140

 
$
851

Supplemental Cash Flow Information
 
 
 
Cash paid during the period for:
 
 
 
Interest paid
$
176

 
$
164

Income and withholding taxes, net of refunds
111

 
79

See accompanying notes to condensed consolidated financial statements (unaudited).

6


Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except as noted)
(Unaudited)

1.
Basis of Presentation
The condensed consolidated financial statements as of September 28, 2019 and for the three and nine months ended September 28, 2019 and September 29, 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 nine months ended September 28, 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 28, 2018, the Company completed the acquisition of Avigilon Corporation ("Avigilon"), a provider of advanced security and video solutions including video analytics, network video management hardware and software, video cameras and access control solutions for a purchase price of $974 million in cash, net of cash acquired, debt assumed, and transaction costs paid.
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 and requires a modified retrospective adoption method. The Company is still evaluating the impact of adoption on its financial statements and disclosures.


7



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.











8


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 nine months ended September 28, 2019 and September 29, 2018, consistent with the information reviewed by our chief operating decision maker for evaluating the financial performance of operating segments:
 
Three Months Ended
 
September 28,
2019
 
September 29,
2018
 
Products and Systems Integration
 
Services and Software
 
Products and Systems Integration
 
Services and Software
Regions:
 
 
 
 
 
 
 
Americas
$
1,050

 
$
403

 
$
957

 
$
343

EMEA
182

 
201

 
199

 
189

Asia Pacific
117

 
41

 
132

 
42

 
$
1,349

 
$
645

 
$
1,288

 
$
574

 
 
 
 
 
 
 
 
Major Products and Services:
 
 
 
 
 
 
 
Devices
$
896

 
$

 
$
828

 
$

Systems and Systems Integration
453

 

 
460

 

Services

 
479

 

 
455

Software

 
166

 

 
119

 
$
1,349

 
$
645

 
$
1,288

 
$
574

 
 
 
 
 
 
 
 
Customer Type:
 
 
 
 
 
 
 
Direct
$
860

 
$
602

 
$
811

 
$
543

Indirect
489

 
43

 
477

 
31

 
$
1,349

 
$
645

 
$
1,288

 
$
574



9


 
Nine Months Ended
 
September 28,
2019
 
September 29,
2018
 
Products and Systems Integration
 
Services and Software
 
Products and Systems Integration
 
Services and Software
Regions:
 
 
 
 
 
 
 
Americas
$
2,832

 
$
1,133

 
$
2,533

 
$
969

EMEA
499

 
603

 
543

 
565

Asia Pacific
325

 
119

 
353

 
126

 
$
3,656

 
$
1,855

 
$
3,429

 
$
1,660

 
 
 
 
 
 
 
 
Major Products and Services:
 
 
 
 
 
 
 
Devices