Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This commentary should be read in conjunction with the condensed consolidated financial statements and related notes thereto of Motorola Solutions, Inc. (“Motorola Solutions,” the “Company,” “we,” “our,” or “us”) for the three and six months ended July 2, 2022 and July 3, 2021, as well as our consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2021 (the "Form 10-K").

Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q for the quarter ended July 2, 2022 (this “Form 10-Q”) which are not historical in nature are forward-looking statements within the meaning of applicable federal securities law. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “aims,” “estimates” and similar expressions. We can give no assurance that any future results or events discussed in these statements will be achieved. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Readers are cautioned that such forward-looking statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from the statements contained in this Form 10-Q. Some of these risks and uncertainties include, but are not limited to, those discussed in Part I, Item 1A “Risk Factors” of the Form 10-K, Part II, Item 1A "Risk Factors" of this Form 10-Q, and those described elsewhere in our other SEC filings. Forward-looking statements include, but are not limited to, statements included in: (1) “Management's Discussion and Analysis of Financial Condition and Results of Operations,” about: (a) the impact of the Russia-Ukraine conflict on our business, including the potential for broader economic disruption; (b) the continuing and future impact of COVID-19 on our business; (c) availability and costs of materials, components and labor (including inventory levels), and the impact of such availability and costs on our business (including our actions in response to such availability and costs); (d) the impact of inflation on our business, including the impact of the Federal Reserve's interest rate increases and the impact of our actions in response to such inflation; (e) the impact of the American Rescue Plan Act of 2021 on our business; (f) the impact of global economic and political conditions on our business; (g) the impact of acquisitions on our business; (h) market growth/contraction, demand, spending and resulting opportunities; (i) our continued ability to reduce our operating expenses; (j) the growth of technologies and sales opportunities in our Products and Systems Integration and Software and Services segments; (k) the success of our business strategy and portfolio; (l) future payments, charges, use of accruals and expected cost-saving benefits associated with our reorganization of business programs and employee separation costs; (m) our ability and cost to repatriate funds; (n) the liquidity of our investments and our ability to satisfy our liquidity requirements; (o) our ability to borrow and the amount available under our credit facilities; (p) the adequacy of internal resources to generate adequate amounts of cash to meet expected working capital, capital expenditure and cash requirements associated with our operations; (q) future cash flows generated from operations, and future uses of such cash; (r) ability to invest in existing products and technologies; and (s) the return of capital to shareholders through dividends and/or repurchasing shares; (2) the impact of recent accounting pronouncements issued by the Financial Accounting Standards Board on our financial statements; (3) “Quantitative and Qualitative Disclosures about Market Risk,” about the impact of interest rate risks and foreign currency exchange risks; and (4) “Legal Proceedings,” about the outcome and effect of pending legal matters. Motorola Solutions undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as legally required.

Executive Overview

Business Overview

The Company reports net sales in the following three major products and services (which we refer to as “technologies” in this Form 10-Q): Land Mobile Radio Communications (“LMR” or “LMR Communications”), Video Security and Access Control ("Video") and Command Center Software.

LMR Communications: Infrastructure, devices (two-way radio and broadband, including both for public safety and Professional Commercial Radio ("PCR")) and software that enable communications, inclusive of installation and integration, backed by services, to assure availability, security and resiliency.
Video Security and Access Control: Cameras (fixed, body-worn, in-vehicle), access control, infrastructure, video management, software and artificial intelligence-enabled analytics that enable visibility “on scene” and bring attention to what’s important.
Command Center Software: Software suite that enables collaboration and seamless information sharing through the public safety workflow from "911 call to case closure."

Second Quarter Financial Results

Net sales were $2.1 billion in the second quarter of 2022 compared to $2.0 billion in the second quarter of 2021.
Operating earnings were $358 million in the second quarter of 2022 compared to $370 million in the second quarter of 2021.
Net earnings attributable to Motorola Solutions, Inc. were $228 million, or $1.33 per diluted common share, in the second quarter of 2022, compared to $293 million, or $1.69 per diluted common share, in the second quarter of 2021.
Operating cash flow decreased $596 million to $162 million in the first half of 2022 compared to $758 million in the first half of 2021.
We repurchased $655 million of common stock and paid $266 million in dividends in the first half of 2022.

Macroeconomic Events

Recent macroeconomic events impacting our business are discussed below. During the second quarter of 2022, we continued to operate under challenging market conditions, influenced by events such as the Russia-Ukraine conflict, the continuing impact of the COVID-19 pandemic, disruption to our supply chain and the inflationary cost environment.

Russia-Ukraine Conflict

During the first quarter of 2022, in response to Russia's invasion of Ukraine, we suspended all sales, provision of services and shipments of our products to Russia and Belarus. Russia, Ukraine and Belarus do not constitute a material portion of our business. For the year ended December 31, 2021, our net sales in Russia and Belarus were less than $25 million. While we do not anticipate that the current posture of the Russia-Ukraine conflict will materially and adversely affect our results of operations, the conflict is still ongoing and future impacts are difficult to estimate. An escalation of the conflict’s current scope or expansion of the conflict’s economic disruption could materially and adversely affect our company and its operations. During the first half of 2022, we indirectly experienced impacts from the Russia-Ukraine conflict (as further described below). The conflict has and may continue to have a significant impact on the global macroeconomic and geopolitical environments, including increased volatility in capital and commodity markets, rapid changes to regulatory conditions (including the use of sanctions), supply chain and operational challenges for multinational corporations, inflationary pressures and an increased risk of cybersecurity incidents. For a more complete discussion of the risks we encounter in our business, please refer to Part I, Item 1A, "Risk Factors" in the Form 10-K and Part II, Item 1A, "Risk Factors" in this Form 10-Q.

COVID-19, Supply Chain Disruptions & Inflationary Cost Environment

As we have progressed throughout the first half of 2022, our supply chain has been impacted by global issues related to the effects of the COVID-19 pandemic, the Russia-Ukraine conflict and the inflationary cost environment, particularly with respect to materials in the semiconductor market, including part shortages, increased freight costs, diminished transportation capacity and labor constraints. This has resulted in disruptions in our supply chain, as well as difficulties and delays in procuring certain semiconductor components. Since the latter part of the fourth quarter of 2021, cost increases have been driven by elevated lead times and increased material costs, in particular the need to purchase semiconductor components from alternative sources, including brokers. We anticipate increased costs to procure materials within the semiconductor market to continue throughout 2022. Further, we anticipate the broader impact of inflationary pressures and increased material and supply chain costs and disruptions to continue throughout 2022. We are closely monitoring our supply chain, including impacts from manufacturing lockdowns related to the spread of COVID-19 in China which continue to disrupt the semiconductor supply market. Accordingly, in the first half of 2022 we focused on improving our supplier network, engineering alternative designs and working to reduce supply shortages. We are actively managing our inventory in an effort to minimize supply chain disruptions and enable continuity of supply and services to our customers, and we expect to maintain elevated levels of inventory until supply constraints have been remediated.

In order to combat rising inflation in the U.S., the Federal Reserve has raised interest rates multiple times since the beginning of 2022. The increase in U.S. dollar interest rates and overall market conditions have led to significant strengthening of the U.S. dollar against other global currencies in 2022. The strong U.S. dollar reduced the impact of cash generated from our foreign operations during the first half of 2022, driven by revenues and costs that are denominated in foreign currencies, which has impacted, and which we expect to continue to impact, our operating cash flows and net earnings throughout 2022.

Although the macroeconomic environment continued to introduce challenges in the first half of 2022, we are encouraged by customer demand for our products and services. Specifically, in our Software and Services segment, with the largely recurring nature of the business and our strong backlog position, we continue to expect that the impact to operating margin will be limited throughout 2022. While we are encouraged by strong backlog and growth in our Products and Systems Integration segment in the first half of 2022, which we expect to continue to grow for the remainder of 2022, supply constraints continue to impact our business and we expect demand for our products will continue to out-pace our ability to obtain semiconductor component supply throughout 2022. Where appropriate, we have taken pricing actions around our product and service offerings to mitigate our exposure to inflationary pressures on our businesses and expect to benefit from these adjustments in the second half of 2022. Further, demand continues to be supported with ongoing sources of government funding. In March 2021, the President of the United States signed into law the American Rescue Plan Act of 2021 ("ARPA"), which is intended to provide economic stimulus, specifically additional funding to state and local governments, education and healthcare, as well as other funding relief provisions, in order to address the impact of the COVID-19 pandemic. We experienced the positive impact of the ARPA funding on our business and results of operations during the first half of 2022 and anticipate that the ARPA will continue to have a positive impact throughout the remainder of 2022.

We believe our existing balances of cash and cash equivalents, along with other short-term liquidity arrangements, will continue to be sufficient to satisfy our liquidity requirements associated with our existing operations. We were in compliance with all applicable covenants in the 2021 unsecured revolving credit facility as of July 2, 2022. Additionally, we have no bond maturities until 2024. We continue to assess our operating expenses and identify cost reducing initiatives, including lower travel costs, contractor spend and reducing our real estate footprint.

Lastly, we evaluated whether there were any impairment indicators as of July 2, 2022, which included a review of our receivables and contract assets, inventory, right-of-use lease assets, long-lived assets, investments, goodwill and intangible assets. As of the end of the second quarter of 2022, we concluded our assets were fairly stated and recoverable.

Recent Acquisitions


Technology	Segment	Acquisition	Description	Purchase Price	Date of Acquisition
Video Security and Access Control	Products and Systems Integration	Videotec S.p.A.	Provider of ruggedized video security solutions.	$22 million and share-based compensation of $4 million	May 12, 2022
Video Security and Access Control	Software and Services	Calipsa, Inc.	Provider of cloud-native advanced video analytics.	$40 million and share-based compensation of $4 million	April 19, 2022
LMR Communications	Software and Services	TETRA Ireland Communications Limited	Provider of Ireland's National Digital Radio Service.	$120 million	March 23, 2022
Video Security and Access Control	Products and Systems Integration Software and Services	Ava Security Limited	Provider of cloud-native video security and analytics.	$388 million and share-based awards of $7 million	March 3, 2022
Command Center Software	Software and Services	911 Datamaster, Inc.	Provider of Next Generation 911 data solutions that help to ensure emergency calls are accurately located and routed based on the caller's location.	$35 million and share-based compensation of $3 million	December 16, 2021
Video Security and Access Control	Products and Systems Integration Software and Services	Envysion, Inc.	Provider of enterprise video security and business analytics.	$124 million and share-based compensation of $1 million	October 29, 2021
Video Security and Access Control	Products and Systems Integration Software and Services	Openpath Security, Inc.	Provider of cloud-based mobile access control.	$298 million and share-based compensation of $29 million	July 15, 2021

Results of Operations


	Three Months Ended								Six Months Ended
(Dollars in millions, except per share amounts)	July 2, 2022		% of Sales*		July 3, 2021		% of Sales*		July 2, 2022		% of Sales*		July 3, 2021		% of Sales*
Net sales from products	$	1,212			$	1,094			$	2,258			$	2,027
Net sales from services	928				877				1,774				1,717
Net sales	2,140				1,971				4,032				3,744
Costs of products sales	637		52.6	%	511		46.7	%	1,185		52.5	%	952		47.0	%
Costs of services sales	513		55.3	%	508		57.9	%	1,001		56.4	%	980		57.1	%
Costs of sales	1,150				1,019				2,186				1,932
Gross margin	990		46.3	%	952		48.3	%	1,846		45.8	%	1,812		48.4	%
Selling, general and administrative expenses	356		16.6	%	331		16.8	%	692		17.2	%	633		16.9	%
Research and development expenditures	191		8.9	%	181		9.2	%	380		9.4	%	361		9.6	%
Other charges	85		4.0	%	70		3.5	%	177		4.4	%	150		4.0	%
Operating earnings	358		16.7	%	370		18.8	%	597		14.8	%	668		17.8	%
Other income (expense):
Interest expense, net	(56)		(2.6)	%	(44)		(2.2)	%	(112)		(2.8)	%	(98)		(2.6)	%
Gains on sales of investments and businesses, net	—		—	%	—		—	%	2		—	%	—		—	%
Other, net	(2)		(0.1)	%	14		0.7	%	33		0.8	%	60		1.6	%
Total other expense	(58)		(2.7)	%	(30)		(1.5)	%	(77)		(1.9)	%	(38)		(1.0)	%
Net earnings before income taxes	300		14.0	%	340		17.3	%	520		12.9	%	630		16.8	%
Income tax expense	71		3.3	%	46		2.3	%	23		0.6	%	90		2.4	%
Net earnings	229		10.7	%	294		14.9	%	497		12.3	%	540		14.4	%
Less: Earnings attributable to non-controlling interests	1		—	%	1		0.1	%	2		—	%	3		0.1	%


Net earnings attributable to Motorola Solutions, Inc.	$	228	10.7	%	$	293	14.9	%	$	495	12.3	%	$	537	14.3	%



Earnings per diluted common share	$	1.33			$	1.69			$	2.88			$	3.10

** Percentages may not add due to rounding*

Results of Operations—Three months ended July 2, 2022 compared to three months ended July 3, 2021

The results of operations for the second quarter of 2022 are not necessarily indicative of the operating results to be expected for the full year. Historically, we have experienced higher revenues in the fourth quarter as compared to the rest of the quarters of our fiscal year as a result of the purchasing patterns of our customers.

We use the following U.S. GAAP key financial performance measures to manage our business on a consolidated basis and by reporting segment, and to monitor and assess our results of operations:

Net sales: a measure of our revenue for the current period.
Operating earnings: a measure of our earnings from operations, before non-operating expenses and income taxes.
Operating margins: a measure of our operating earnings as a percentage of total net sales.

Considered together, we believe these measures are strong indicators of our overall performance and our ability to create shareholder value. A discussion of our results of operations and financial condition follows.


	Three Months Ended
	July 2, 2022									July 3, 2021
(In millions)	Products and Systems Integration			Software and Services			Total			Products and Systems Integration			Software and Services			Total
Net sales by region
North America	$	963		$	521		$	1,484		$	869		$	443		$	1,312
International	322			334			656			329			330			659
	$	1,285		$	855		$	2,140		$	1,198		$	773		$	1,971
Net sales by major products and services
LMR Communications	$	1,038		$	570		$	1,608		$	986		$	545		$	1,531
Video Security and Access Control	247			123			370			212			94			306
Command Center Software	—			162			162			—			134			134
Total	$	1,285		$	855		$	2,140		$	1,198		$	773		$	1,971

Operating earnings	$	118		$	240		$	358		$	139		$	231		$	370
Operating margins	9.2		%	28.1		%	16.7		%	11.6		%	29.9		%	18.8		%

Net Sales

The Products and Systems Integration segment’s net sales represented 60% of our net sales in the second quarter of 2022 and 61% in the second quarter of 2021. The Software and Services segment’s net sales represented 40% of our net sales in the second quarter of 2022 and 39% in the second quarter of 2021.

Net sales increased $169 million, or 9%, in the second quarter of 2022 compared to the second quarter of 2021. The $87 million, or 7%, increase in net sales within the Products and Systems Integration segment was driven by an increase of 11% in the North America region, partially offset by a decrease of 2% in the International region. The $82 million, or 11%, increase in net sales within the Software and Services segment was driven by an increase of 18% in the North America region and an increase of 1% in the International region. Net sales includes:

an increase in the Products and Systems Integration segment, inclusive of $14 million of revenue from acquisitions, driven by an increase in LMR and Video; and
an increase in the Software and Services segment, inclusive of $20 million of revenue from acquisitions, driven by an increase in Video, Command Center Software and LMR services; partially offset by
$44 million from unfavorable currency rates.

Regional results include:

a 13% increase in the North America region, inclusive of revenue from acquisitions, driven by an increase in LMR, Video and Command Center Software; and
consistent net sales in the International region, inclusive of revenue from acquisitions, on growth in Video and Command Center Software net sales, partially offset by a slight decline in LMR due to unfavorable currency rates.

Products and Systems Integration

The 7% increase in the Products and Systems Integration segment was driven by the following:

$52 million, or 5% growth in LMR, driven by the North America region; and
$35 million, or 17% growth in Video, inclusive of revenue from acquisitions, driven by the North America region; partially offset by
$19 million from unfavorable currency rates.

Software and Services

The 11% increase in the Software and Services segment was driven by the following:

$29 million, or 31% growth in Video, inclusive of revenue from acquisitions, driven primarily by the North America region;
$28 million, or 21% growth in Command Center Software, inclusive of revenue from acquisitions, driven by the North America region; and
$25 million, or 5% growth in LMR services, inclusive of revenue from acquisitions, driven by the North America region; partially offset by
$25 million from unfavorable currency rates.

Gross Margin


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021		% Change
Gross margin	$	990	$	952	4	%

Gross margin was 46.3% of net sales in the second quarter of 2022 compared to 48.3% in the second quarter of 2021. The primary drivers of this decrease of gross margin as a percentage of net sales were:

lower gross margin as a percentage of net sales in the Products and Systems Integration segment, inclusive of acquisitions, primarily driven by an increase in material and freight costs; and
lower gross margin as a percentage of net sales in the Software and Services segment, inclusive of acquisitions, primarily driven by a change in year-over-year mix.

Selling, General and Administrative Expenses


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021		% Change
Selling, general and administrative expenses	$	356	$	331	8	%

SG&A expenses increased 8% in the second quarter of 2022 compared to the second quarter of 2021. The increase in SG&A expenses was primarily due to higher expenses associated with acquired businesses and higher travel expenses. SG&A expenses were 16.6% of net sales in the second quarter of 2022 compared to 16.8% of net sales in the second quarter of 2021.

Research and Development Expenditures


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021		% Change
Research and development expenditures	$	191	$	181	6	%

R&D expenditures increased 6% in the second quarter of 2022 compared to the second quarter of 2021 primarily due to higher expenses associated with acquired businesses. R&D expenditures decreased to 8.9% of net sales in the second quarter of 2022 compared to 9.2% of net sales in the second quarter of 2021.

Other Charges


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021
Other charges	$	85	$	70

Other charges increased by $15 million in the second quarter of 2022 compared to the second quarter of 2021. The change was driven primarily by the following:

$8 million of fixed asset impairments in the second quarter of 2022 that did not occur in the second quarter of 2021;
$65 million of intangible asset amortization expense in the second quarter of 2022 compared to $58 million of intangible asset amortization expense in the second quarter of 2021;
$3 million of operating lease asset impairments in the second quarter of 2022 that did not occur in the second quarter of 2021; and
$4 million of acquisition-related transaction fees in the second quarter of 2022 compared to $3 million of acquisition-related transaction fees in the second quarter of 2021; partially offset by
$3 million of legal settlement charges in the second quarter of 2021 that did not occur in the second quarter of 2022; and
$5 million of net reorganization of business charges in the second quarter of 2022 compared to $6 million of net reorganization business charges in the second quarter of 2021 (see further detail in the “Reorganization of Business” section in this Part I, Item 2 of this Form 10-Q).

Operating Earnings


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021
Operating earnings from Products and Systems Integration	$	118	$	139
Operating earnings from Software and Services	240		231
Operating earnings	$	358	$	370

Operating earnings decreased $12 million, or 3%, in the second quarter of 2022 compared to the second quarter of 2021. The decrease in Operating earnings was due to:

$21 million decrease in the Products and Systems Integration segment, driven by higher expenses related to material and freight costs and higher expenses associated with acquired businesses, partially offset by higher sales; partially offset by
$9 million increase in the Software and Services segment, driven by higher sales, partially offset by a change in year-over-year mix and higher expenses associated with acquired businesses.

Interest Expense, net


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021
Interest expense, net	$	(56)	$	(44)

The $12 million increase in Interest expense, net in the second quarter of 2022 compared to the second quarter of 2021 was primarily driven by the reversal of a non-cash interest accrual related to an international tax audit recorded in the second quarter of 2021 and higher outstanding debt.

Other, net


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021
Other, net	$	(2)	$	14

The $16 million decrease in Other, net in the second quarter of 2022 compared to the second quarter of 2021 was primarily driven by:

$34 million loss on derivatives in the second quarter of 2022 compared to a $1 million loss on derivatives in the second quarter of 2021;
$12 million loss on fair value adjustments to equity investments in the second quarter of 2022 compared to a $8 million gain on fair value adjustments to equity investments in the second quarter of 2021;
$2 million loss on equity method investments in the second quarter of 2022 compared to a $2 million gain on equity method investments in the second quarter of 2021;
$5 million loss in other income in the second quarter of 2022 compared to a $2 million loss in other income in the second quarter of 2021; and
$30 million of net periodic pension and postretirement benefit in the second quarter of 2022 compared to $31 million of net periodic pension and postretirement benefit in the second quarter of 2021; partially offset by
$27 million of foreign currency gains in the second quarter of 2022 compared to $6 million of foreign currency losses in the second quarter of 2021; and
$6 million loss from the extinguishment of long-term debt in the second quarter of 2022 compared to a $18 million loss from the extinguishment of long-term debt in the second quarter of 2021 (see further detail in Note 5, "Debt and Credit Facilities" to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q).

Effective Tax Rate


	Three Months Ended
(In millions)	July 2, 2022		July 3, 2021
Income tax expense	$	71	$	46

Income tax expense increased by $25 million in the second quarter of 2022 compared to the second quarter of 2021, resulting in an effective tax rate of 24%. Our effective tax rate for the three months ended July 2, 2022 of 24% was higher than the effective tax rate for the three months ended July 3, 2021 of 14%, primarily due to a tax benefit related to the partial release of a valuation allowance recorded on the U.S. foreign tax credit carryforward in 2021 (see Note 7, "Income Taxes" to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information).

Results of Operations—Six months ended July 2, 2022 compared to Six months ended July 3, 2021


	Six Months Ended
	July 2, 2022									July 3, 2021
(In millions)	Products and Systems Integration			Software and Services			Total			Products and Systems Integration			Software and Services			Total
Net sales by region
North America	$	1,794		$	994		$	2,788		$	1,611		$	886		$	2,497
International	594			650			1,244			602			645			1,247
	$	2,388		$	1,644		$	4,032		$	2,213		$	1,531		$	3,744
Net sales by major products and services
LMR Communications	$	1,947		$	1,116		$	3,063		$	1,836		$	1,095		$	2,931
Video Security and Access Control	441			236			677			377			182			559
Command Center Software	—			292			292			—			254			254
Total	$	2,388		$	1,644		$	4,032		$	2,213		$	1,531		$	3,744

Operating earnings	157			440			597			216			452			668
Operating margins	6.6		%	26.8		%	14.8		%	9.8		%	29.5		%	17.8		%

Net Sales

The Products and Systems Integration segment's net sales represented 59% of our net sales in both the first half of 2022 and 2021. Net sales from the Software and Services segment represented 41% of our net sales in both the first half of 2022 and 2021.

Net sales increased $288 million, or 8%, in the first half of 2022 compared to the first half of 2021. The $175 million, or 8%, increase in net sales within the Products and Systems Integration segment was driven by an increase of 11% in the North America region, partially offset by a decrease of 1% in the International region. The $113 million, or 7%, increase in net sales within the Software and Services segment was driven by an increase of 12% in the North America region and an increase of 1% in the International region. Net sales includes:

an increase in the Products and Systems Integration segment, inclusive of $20 million of revenue from acquisitions, driven by an increase in LMR and Video; and
an increase in Software and Services, inclusive of $31 million of revenue from acquisitions, driven by an increase in Video, Command Center Software and LMR services; partially offset by
$62 million from unfavorable currency rates.

Regional results include:

a 12% increase in the North America region, inclusive of revenue from acquisitions, driven by an increase in LMR, Video and Command Center Software; and
consistent net sales in the International region, inclusive of revenue from acquisitions, driven by an increase in Video and Command Center Software and offset by a decrease in LMR.

Products and Systems Integration

The 8% increase in the Products and Systems Integration segment was driven by the following:

$111 million, or 6% growth in LMR, driven by the North America region and partially offset by the International region; and
$64 million, or 17% growth in Video, inclusive of revenue from acquisitions, driven by both the North America and International regions; partially offset by
$27 million from unfavorable currency rates.

Software and Services

The 7% increase in the Software and Services segment was driven by the following:

$54 million, or 30% growth in Video, inclusive of revenue from acquisitions, driven by both the North America and International regions;
$38 million, or 15% growth in Command Center Software, inclusive of revenue from acquisitions, driven by both the North America and International regions; and
$21 million, or 2% growth in LMR services, inclusive of revenue from acquisitions, driven by the North America region; partially offset by
$35 million from unfavorable currency rates.

Gross Margin


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021		% Change
Gross margin	$	1,846	$	1,812	2	%

Gross margin was 45.8% of net sales in the first half of 2022 compared to 48.4% in the first half of 2021. The primary drivers of this decrease of gross margin as a percentage of net sales were:

lower gross margin as a percentage of net sales in the Products and Systems Integration segment, inclusive of acquisitions, primarily driven by an increase in material and freight costs; and
lower gross margin as a percentage of net sales in the Software and Services segment, inclusive of acquisitions, primarily driven by a change in year-over-year mix.

Selling, General and Administrative Expenses


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021		% Change
Selling, general and administrative expenses	$	692	$	633	9	%

SG&A expenses increased 9% in the first half of 2022 compared to the first half of 2021. The increase in SG&A expenses was primarily due to higher expenses associated with acquired businesses, higher share-based compensation and higher travel expenses. SG&A expenses were 17.2% of net sales in the first half of 2022 compared to 16.9% of net sales in the first half of 2021.

Research and Development Expenditures


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021		% Change
Research and development expenditures	$	380	$	361	5	%

R&D expenditures increased 5% in the first half of 2022 compared to the first half of 2021 primarily due to higher expenses associated with acquired businesses and higher share-based compensation. R&D expenditures decreased to 9.4% of net sales in the first half of 2022 compared to 9.6% of net sales in the first half of 2021.

Other Charges


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021
Other charges	$	177	$	150

Other charges increased by $27 million in the first half of 2022 compared to the first half of 2021. The change was driven primarily by the following:

$131 million of intangible asset amortization expense in the first half of 2022 compared to $116 million of intangible asset amortization expense in the first half of 2021;
$11 million of fixed asset impairment in the first half of 2022 that did not recur in the first half of 2021.
$14 million of acquisition-related transaction fees in the first half of 2022 compared to $4 million of acquisition-related transaction fees in the first half of 2021;
$11 million of losses on legal settlements in the first half of 2022 compared to $3 million of losses on legal settlements in the first half of 2021; and
$12 million of operating lease asset impairments in the first half of 2022 compared to $7 million of operating lease asset impairments in the first half of 2021; partially offset by
$13 million gain on recoveries from the legal settlement under the Hytera bankruptcy proceedings in the first half of 2022 (see further detail in "Hytera Bankruptcy Proceedings" in Note 12, "Commitments and Contingencies" to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q); and
$12 million of net reorganization business charges in the first half of 2022 compared to $20 million of net reorganization business charges in the first half of 2021 (see further detail in the “Reorganization of Business” section in this Part I, Item 2 of this Form 10-Q).

Operating Earnings


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021
Operating earnings from Products and Systems Integration	$	157	$	216
Operating earnings from Software and Services	440		452
Operating earnings	$	597	$	668

Operating earnings decreased $71 million, or 11%, in the first half of 2022 compared to the first half of 2021. The decrease in Operating earnings was due to:

$59 million decrease in the Products and Systems Integration segment, primarily driven by lower gross margin contribution, higher expenses related to material and freight costs, higher expenses associated with acquired businesses and higher travel expenses, partially offset by a gain on recoveries related to the legal settlement of the Hytera bankruptcy proceedings in the first half of 2022 (see further detail in "Hytera Bankruptcy Proceedings" in Note 12, "Commitments and Contingencies" to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q) and lower reorganization of business charges; and
$12 million decrease in the Software and Services segment, primarily driven by higher expenses associated with acquired businesses and a change in year-over-year mix, partially offset by increased net sales.

Interest Expense, net


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021
Interest expense, net	$	(112)	$	(98)

The $14 million increase in net interest expense in the first half of 2022 compared to the first half of 2021 was a result of the reversal of a non-cash interest accrual related to an international tax audit recorded in the first half of 2021 and higher outstanding debt.

Other, net


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021
Other, net	$	33	$	60

The $27 million decrease in Other, net in the first half of 2022 compared to the first half of 2021 was primarily driven by:

$57 million of losses on derivative instruments in the first half of 2022 compared to $9 million of losses on derivative instruments in the first half of 2021;
$30 million loss on fair value adjustments to equity investments in the first half of 2022 compared to a $13 million gain on fair value adjustments to equity investments in the first half of 2021;
$5 million loss in other income in the first half of 2022 compared to a $3 million gain in other income in the first half of 2021; and
$1 million of investment impairment in the first half of 2022 that did not occur in the first half of 2021; partially offset by
$50 million of foreign currency gains in the first half of 2022 compared to $8 million of foreign currency gains in the first half of 2021;
$19 million gain on equity method investments in the first half of 2022, driven by a $21 million gain on the TETRA Ireland equity method investment, partially offset by a $2 million loss on equity method investments, compared to a $3 million gain on equity method investments in the second quarter of 2021 (see further detail in "Other Charges" in Note 4, "Other Financial Data" to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q);
$6 million loss on the extinguishment of long-term debt in the first half of 2022 compared to a $18 million loss on the extinguishment of long-term debt in the first half of 2021; and
$63 million of net periodic pension and postretirement benefit in the first half of 2022 compared to $60 million of net periodic pension and postretirement benefit in the first half of 2021.

Effective Tax Rate


	Six Months Ended
(In millions)	July 2, 2022		July 3, 2021
Income tax expense	$	23	$	90

Income tax expense decreased by $67 million in the first half of 2022 compared to the first half of 2021, resulting in an effective tax rate of 4%. Our effective tax rate of 4% for the six months ended July 2, 2022 was lower than the effective tax rate for the six months ended July 3, 2021 of 14%, primarily due to a net deferred tax benefit as a result of an intra-group transfer of certain intellectual property rights and a higher tax rate benefit from the foreign derived intangible income deduction, offset by a tax benefit due to a partial release of a valuation allowance in 2021 (see Note 7, "Income Taxes" to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information).

Reorganization of Business

During the second quarter of 2022, we recorded net reorganization of business charges of $7 million, including $5 million of charges recorded within Other charges and $2 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $7 million were charges of $11 million related to employee separation costs, partially offset by $4 million of reversals for accruals no longer needed.

During the first half of 2022, we recorded net reorganization of business charges of $17 million, including $12 million of charges recorded within Other charges and $5 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $17 million were charges of $24 million related to employee separation costs, partially offset by $7 million of reversals for accruals no longer needed.

During the second quarter of 2021, we recorded net reorganization of business charges of $9 million, including $6 million of charges in Other charges and $3 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $9 million were charges of $12 million related to employee separation costs, partially offset by $3 million of reversals for accruals no longer needed.

During the first half of 2021, we recorded net reorganization of business charges of $25 million, including $20 million of charges in Other charges and $5 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $25 million were charges of $30 million related to employee separation costs, partially offset by $5 million of reversals for accruals no longer needed.

The following table displays the net charges incurred by segment:


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Products and Systems Integration	$	6	$	7	$	14	$	19
Software and Services	1		2		3		6
	$	7	$	9	$	17	$	25

Cash payments for employee severance in connection with the reorganization of business plans were $20 million in the first half of 2022 and $56 million in the first half of 2021. The reorganization of business accrual at July 2, 2022 was $31 million related to employee separation costs that are expected to be paid within one year.

Liquidity and Capital Resources


	Six Months Ended
	July 2, 2022		July 3, 2021
Cash flows provided by (used for):
Operating activities	$	162	$	758
Investing activities	(673)		(114)
Financing activities	(564)		30
Effect of exchange rates on cash and cash equivalents	(82)		(7)
Increase (decrease) in cash and cash equivalents	$	(1,157)	$	667

Cash and Cash Equivalents

At July 2, 2022, $309 million of the $717 million cash and cash equivalents balance was held in the U.S. and $408 million was held in other countries, with $96 million held in the United Kingdom.

Operating Activities

The decrease in cash flows provided by operating activities from the first half of 2021 to the first half of 2022 was driven primarily by higher working capital due to an increase in inventory and higher employee incentive payments.

Investing Activities

The increase in cash flows used for investing activities in the first half of 2022 compared to the first half of 2021 was primarily due to a $562 million increase in cash used for acquisitions and investments.

Financing Activities

The increase in cash flows used for financing activities in the first half of 2022 compared to the first half of 2021 was primarily driven by (see also further discussion in the "Debt," "Share Repurchase Program" and "Dividends" sections below in this Part I, Item 2 of this Form 10-Q):

$383 million increase in share repurchases in the first half of 2022 compared to the first half of 2021;
$249 million decrease in net proceeds from issuance of debt in the first half of 2022 compared to the first half of 2021;
$24 million increase in the payment of dividends in the first half of 2022 compared to the first half of 2021; and
$9 million decrease in net proceeds from the issuance of common stock in connection with our employee stock option and employee stock purchase plans in the first half of 2022 compared to the first half of 2021; partially offset by
$65 million decrease in repayments of debt in the first half of 2022 compared to the first half of 2021; and
$7 million related to the payment of revolving credit facility renewal fees in the first half of 2021 that did not occur in the first half of 2022.

Sales of Receivables

The following table summarizes the proceeds received from sales of accounts receivable and long-term customer financing receivables for the three and six months ended July 2, 2022 and July 3, 2021:


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Contract-specific discounting facility	$	—	$	36	$	49	$	107
Accounts receivable sales proceeds	40		8		$	62	$	8
Long-term receivables sales proceeds	5		30		22		84
Total proceeds from receivable sales	$	45	$	74	$	133	$	199

During the six months ended July 2, 2022, we completed the final draw against a cost-efficient receivables discounting facility, implemented in 2020 to neutralize the impact of increased payment terms under a renegotiated and extended long-term contract in Europe. The proceeds of our receivable sales are included in Operating activities within our Condensed Consolidated Statements of Cash Flows.

Debt

We had outstanding debt of $6.0 billion and $5.7 billion at July 2, 2022 and December 31, 2021, including the current portions of $2 million and $5 million, at July 2, 2022 and December 31, 2021, respectively.

On May 31, 2022, we issued $600 million of 5.6% senior notes due 2032. We recognized net proceeds of $595 million after debt issuance costs and discounts. A portion of these proceeds was then used to repurchase $275 million in principal amount of the 4.0% senior notes due 2024 pursuant to a cash tender offer, for a purchase price of $279 million, excluding $3 million of accrued interest. After accelerating the amortization of debt discounts and debt issuance costs, we recognized a loss of $6 million related to the tender offer in Other, net within Other income (expense) in the Condensed Consolidated Statements of Operations.

We have a $2.25 billion syndicated, unsecured revolving credit facility scheduled to mature in March 2026 (the "2021 Motorola Solutions Credit Agreement"). The 2021 Motorola Solutions Credit Agreement includes a letter of credit sub-limit and fronting commitments of $450 million. 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 our option. The 2021 Motorola Solutions Credit Agreement includes provisions allowing us to replace LIBOR with a replacement benchmark rate in the future under certain conditions defined in the agreement. 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 our credit rating changes. We must comply with certain customary covenants including a maximum leverage ratio, as defined in the 2021 Motorola Solutions Credit Agreement. We were in compliance with our financial covenants as of July 2, 2022.

On September 5, 2019, we entered into an agreement with Silver Lake Partners to issue $1.0 billion of 1.75% senior convertible notes which mature in September 2024 ("Senior Convertible Notes"). Interest on these notes is payable semiannually. The Senior Convertible Notes became fully convertible on September 5, 2021. The notes are convertible based on a conversion rate of 4.9140 per $1,000 principal amount (which is equal to an initial conversion price of $203.50 per share). In November 2021, the Company's Board of Directors approved an irrevocable determination requiring the future settlement of the principal amount of the Senior Convertible Notes to be settled in cash.

We have an unsecured commercial paper program, backed by the 2021 Motorola Solutions Credit Agreement, under which we may issue unsecured commercial paper notes up to a maximum aggregate principal amount of $2.2 billion outstanding at any one time. Proceeds from the issuances of the notes are expected to be used for general corporate purposes. As of July 2, 2022 we had no outstanding debt under the commercial paper program.

Share Repurchase Program

During the three and six months ended July 2, 2022, we paid an aggregate of $162 million and $655 million, respectively, including transaction costs, to repurchase approximately 0.7 million and 2.9 million shares at an average price of $217.73 and $222.72 per share. As of July 2, 2022, we had used approximately $14.5 billion of the share repurchase authority to repurchase shares, leaving $1.5 billion of authority available for future repurchases.

Dividends

During the second quarter of 2022 we paid $132 million in cash dividends to holders of our common stock. During the first half of 2022 we paid $266 million in cash dividends to holders of our common stock. Subsequent to the quarter, we paid an additional $132 million in cash dividends to holders of our common stock.

Adequate Internal Funding Resources

We believe that we have adequate internal resources available to generate adequate amounts of cash to meet our expected working capital, capital expenditure and cash requirements for the next twelve months and the foreseeable future, as supported by the level of cash and cash equivalents in the U.S., the ability to repatriate funds from foreign jurisdictions, cash provided by operations, as well as liquidity provided by our commercial paper program backed by the 2021 Motorola Solutions Credit Agreement.

We do not anticipate a material decrease to net future cash flows generated from operations. We expect to use our available cash, investments, and debt facilities to support and invest in our business. This includes investing in our existing

products and technologies, seeking new acquisition opportunities related to our strategic growth initiatives and returning cash to shareholders through common stock cash dividend payments (subject to the discretion of our Board of Directors) and share repurchases. Refer also to the “Macroeconomic Events” section in this Part I, Item 2 of this Form 10-Q for a discussion of the impact of macroeconomic events on our liquidity.

Long-Term Customer Financing Commitments

We had outstanding commitments to provide long-term financing to third parties totaling $102 million at July 2, 2022, compared to $56 million at December 31, 2021.

Recent Accounting Pronouncements

See “Recently Adopted Accounting Pronouncements” in Note 1, “Basis of Presentation” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

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