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 nine months ended October 1, 2022 and October 2, 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 October 1, 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 the United Kingdom's Competition and Markets Authority's provisional decision regarding Airwave (including our actions in response to such provisional decision) on our business; (h) the impact of our negotiations with the Home Office of the United Kingdom regarding an early exit by us from the Emergency Services Network contract on our business; (i) the impact of the Inflation Reduction Act of 2022 on our business; (j) the impact of acquisitions on our business; (k) market growth/contraction, demand, spending and resulting opportunities; (l) our continued ability to reduce our operating expenses; (m) the growth of technologies and sales opportunities in our Products and Systems Integration and Software and Services segments; (n) the success of our business strategy and portfolio; (o) future payments, charges, use of accruals and expected cost-saving benefits associated with our reorganization of business programs and employee separation costs; (p) our ability and cost to repatriate funds; (q) the liquidity of our investments and our ability to satisfy our liquidity requirements; (r) our ability to borrow and the amount available under our credit facilities; (s) 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; (t) future cash flows generated from operations, and future uses of such cash; (u) ability to invest in existing products and technologies; and (v) 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; (4) “Legal Proceedings,” about the outcome and effect of pending legal matters; and (5) "Risk Factors," about potential impacts of the risks we face, such as those associated with (y) the expansion of our technologies within the Products and Systems Integration and Software and Services segments (including, but not limited to, the impact of the United Kingdom's Competition and Markets Authority's provisional decision regarding Airwave), and (z) our large, multi-year system and services contracts (including, but not limited to, with respect to the ESN and Airwave contracts). We undertake 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."

Third Quarter Financial Results

• Net sales were $2.4 billion in the third quarter of 2022 compared to $2.1 billion in the third quarter of 2021.

• Operating earnings were $373 million in the third quarter of 2022 compared to $451 million in the third quarter of 2021.

• Net earnings attributable to Motorola Solutions, Inc. were $279 million, or $1.63 per diluted common share, in the third quarter of 2022, compared to $307 million, or $1.76 per diluted common share, in the third quarter of 2021.

• Operating cash flow decreased $584 million to $550 million in the first nine months of 2022 compared to $1.1 billion in the first nine months of 2021.

• We repurchased $749 million of common stock and paid $398 million in dividends in the first nine months of 2022.

Macroeconomic Events

During the third quarter of 2022, we continued to operate under challenging market conditions, influenced by events such as those discussed below.

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, including those relating to an escalation of the conflict’s current scope or expansion of the conflict’s economic disruption, could materially and adversely affect our results of operations. During the first nine months 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

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 throughout the first nine months of 2022, 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 nine months 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 nine months of 2022, driven by revenues and costs that are denominated in foreign currencies, which has negatively 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 nine months 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 nine months 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 benefited from these adjustments during the third quarter of 2022. We expect to further benefit from such adjustments during the fourth quarter 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 nine months 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 October 1, 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, as a result of the challenging market conditions described above, we evaluated whether there were any impairment indicators as of October 1, 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 third quarter of 2022, we concluded our assets were fairly stated and recoverable.

Recent Events

CMA Update

In October 2021, the United Kingdom’s Competition and Markets Authority (the "CMA") announced that it had opened a market investigation into the Mobile Radio Network for the Police and Emergency Services. This investigation affects Airwave, our private mobile radio communications network that we acquired in 2016. Airwave provides mission-critical voice and data communications to public emergency service agencies in Great Britain. In October 2022, the CMA published a provisional decision with its findings regarding competition and proposed remedies. We disagree with the CMA’s provisional decision and will continue to work with the CMA to demonstrate the value of the Airwave network and protect Airwave’s contractual position.

ESN Matters

During the third quarter of 2022, we began negotiations with the Home Office of the United Kingdom (the "Home Office") regarding an early exit by us from the Emergency Services Network ("ESN") communications systems contract, inclusive of twelve months of transition services. As a result of the negotiations, we determined that the future service potential of the asset is limited, based on our intention to terminate the contract in advance of the contracted service term. During the three months ended October 1, 2022, we recorded a fixed asset impairment loss of $147 million related to assets constructed and used in the deployment of the ESN service contract with the Home Office based on our current expectation that, more likely than not, the ESN long-lived asset group will be disposed of significantly before the end of its previously estimated useful life. The recognized impairment loss represents the amount by which the carrying amount of the asset group exceeded the fair value as of October 1, 2022, under a measurement of discounted cash flows. The impairment loss was recorded in the Software and Services segment within cost of sales in the Condensed Consolidated Statements of Operations.

Inflation Reduction Act

On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was enacted into law in the United States. Included in the IRA is a provision to implement a 15% corporate alternative minimum tax on corporations based on "adjusted financial statement income," which would be effective for tax years beginning after December 31, 2022. We are continuing to evaluate the provisions of the IRA, but we do not believe the IRA will have a material impact on our financial results, including the effective tax rate.

Recent Acquisitions

Technology			Segment			Acquisition			Description			Purchase Price			Date of Acquisition
LMR Communications			Products and Systems Integration			Barrett Communications Pty Ltd			Provider of specialized radio communications.			$18 million			August 8, 2022
Video Security and Access Control			Products and Systems Integration			Videotec S.p.A.			Provider of ruggedized video security solutions.			$23 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.			$39 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																								Nine Months Ended
(Dollars in millions, except per share amounts)			October 1, 2022						% of Sales*						October 2, 2021						% of Sales*						October 1, 2022						% of Sales*						October 2, 2021						% of Sales*
Net sales from products			$	1,439											$	1,221											$	3,697											$	3,250
Net sales from services			934												886												2,708												2,601
Net sales			2,373												2,107												6,405												5,851
Costs of products sales			659						45.8		%				559						45.8		%				1,844						49.9		%				1,516						46.6		%
Costs of services sales			683						73.1		%				503						56.8		%				1,683						62.1		%				1,478						56.8		%
Costs of sales			1,342												1,062												3,527												2,994
Gross margin			1,031						43.4		%				1,045						49.6		%				2,878						44.9		%				2,857						48.8		%
Selling, general and administrative expenses			378						15.9		%				351						16.7		%				1,069						16.7		%				985						16.8		%
Research and development expenditures			197						8.3		%				183						8.7		%				577						9.0		%				545						9.3		%
Other charges			83						3.5		%				60						2.8		%				262						4.1		%				209						3.6		%
Operating earnings			373						15.7		%				451						21.4		%				970						15.1		%				1,118						19.1		%
Other income (expense):
Interest expense, net			(60)						(2.5)		%				(56)						(2.7)		%				(171)						(2.7)		%				(154)						(2.6)		%
Gains on sales of investments and businesses, net			1						—		%				—						—		%				3						—		%				—						—		%
Other, net			19						0.8		%				10						0.5		%				50						0.8		%				70						1.2		%
Total other expense			(40)						(1.7)		%				(46)						(2.2)		%				(118)						(1.8)		%				(84)						(1.4)		%
Net earnings before income taxes			333						14.0		%				405						19.2		%				852						13.3		%				1,034						17.7		%
Income tax expense			53						2.2		%				97						4.6		%				75						1.2		%				186						3.2		%
Net earnings			280						11.8		%				308						14.6		%				777						12.1		%				848						14.5		%
Less: Earnings attributable to non-controlling interests			1						—		%				1						—		%				3						—		%				4						0.1		%
Net earnings attributable to Motorola Solutions, Inc.			$	279					11.8		%				$	307					14.6		%				$	774					12.1		%				$	844					14.4		%
Earnings per diluted common share			$	1.63											$	1.76											$	4.50											$	4.87

** Percentages may not add due to rounding*

Results of Operations—Three months ended October 1, 2022 compared to three months ended October 2, 2021

The results of operations for the third 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
			October 1, 2022																		October 2, 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			$	1,166					$	521					$	1,687					$	992					$	457					$	1,449
International			363						323						686						333						325						658
			$	1,529					$	844					$	2,373					$	1,325					$	782					$	2,107
Net sales by major products and services
LMR Communications			$	1,243					$	569					$	1,812					$	1,111					$	547					$	1,658
Video Security and Access Control			286						133						419						214						102						316
Command Center Software			—						142						142						—						133						133
Total			$	1,529					$	844					$	2,373					$	1,325					$	782					$	2,107
Operating earnings			$	303					$	70					$	373					$	224					$	227					$	451
Operating margins			19.8		%				8.3		%				15.7		%				16.9		%				29.1		%				21.4		%

Net Sales

The Products and Systems Integration segment’s net sales represented 64% of our net sales in the third quarter of 2022 and 63% in the third quarter of 2021. The Software and Services segment’s net sales represented 36% of our net sales in the third quarter of 2022 and 37% in the third quarter of 2021.

Net sales increased $266 million, or 13%, in the third quarter of 2022 compared to the third quarter of 2021. The $204 million, or 15%, increase in net sales within the Products and Systems Integration segment was driven by an increase of 18% in the North America region and an increase of 9% in the International region. The $62 million, or 8%, increase in net sales within the Software and Services segment was driven by an increase of 14% in the North America region and consistent net sales in the International region. Net sales includes:

• an increase in the Products and Systems Integration segment, inclusive of $13 million of revenue from acquisitions, driven by an increase in LMR and Video; and

• an increase in the Software and Services segment, inclusive of $19 million of revenue from acquisitions, driven by an increase in Video, LMR Services and Command Center Software;

• inclusive of $66 million from unfavorable currency rates.

Regional results include:

• a 16% increase in the North America region, inclusive of revenue from acquisitions, driven by an increase in LMR, Video and Command Center Software; and

• a 4% increase in the International region, inclusive of revenue from acquisitions, driven by an increase in Video, LMR and Command Center Software.

Products and Systems Integration

The 15% increase in the Products and Systems Integration segment was driven by the following:

• $132 million, or 12% growth in LMR, inclusive of revenue from acquisitions, driven by the North America and International regions; and

• $72 million, or 34% growth in Video, inclusive of revenue from acquisitions, driven by the North America and International regions;

• inclusive of $28 million from unfavorable currency rates.

Software and Services

The 8% increase in the Software and Services segment was driven by the following:

• $31 million, or 30% growth in Video, inclusive of revenue from acquisitions, driven primarily by the North America region;

• $22 million, or 4% growth in LMR services, inclusive of revenue from acquisitions, driven by the North America region and partially offset by the International region; and

• $9 million, or 7% growth in Command Center Software, inclusive of revenue from acquisitions, driven by the North America and International regions;

• inclusive of $38 million from unfavorable currency rates.

Gross Margin

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021						% Change
Gross margin			$	1,031					$	1,045					(1)		%

Gross margin was 43.4% of net sales in the third quarter of 2022 compared to 49.6% in the third quarter of 2021. The primary drivers of this decrease in gross margin as a percentage of net sales were:

• lower gross margin as a percentage of net sales in the Software and Services segment, inclusive of acquisitions, primarily driven by a fixed asset impairment loss of $147 million related to assets constructed and used in the deployment of the ESN service contract with the Home Office and higher reorganization costs; partially offset by

• higher gross margin as a percentage of net sales in the Products and Systems Integration segment, inclusive of acquisitions, primarily driven by pricing actions and volume leverage, partially offset by increased direct material costs.

Selling, General and Administrative Expenses

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021						% Change
Selling, general and administrative expenses			$	378					$	351					8		%

SG&A expenses increased 8% in the third quarter of 2022 compared to the third quarter of 2021. The increase in SG&A expenses was primarily due to higher expenses associated with acquired businesses and higher Hytera-related legal expenses. SG&A expenses were 15.9% of net sales in the third quarter of 2022 compared to 16.7% of net sales in the third quarter of 2021.

Research and Development Expenditures

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021						% Change
Research and development expenditures			$	197					$	183					8		%

R&D expenditures increased 8% in the third quarter of 2022 compared to the third quarter of 2021 primarily due to an investment in R&D and higher expenses associated with acquired businesses. R&D expenditures decreased to 8.3% of net sales in the third quarter of 2022 compared to 8.7% of net sales in the third quarter of 2021.

Other Charges

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021
Other charges			$	83					$	60

Other charges increased by $23 million in the third quarter of 2022 compared to the third quarter of 2021. The change was driven primarily by the following:

• $12 million of legal settlement charges in the third quarter of 2022 that did not occur in the third quarter of 2021;

• $63 million of intangible asset amortization expense in the third quarter of 2022 compared to $56 million of intangible asset amortization expense in the third quarter of 2021;

• $4 million of operating lease asset impairments in the third quarter of 2022 that did not occur in the third quarter of 2021; and

• $1 million of fixed asset impairments in the third quarter of 2022 that did not occur in the third quarter of 2021.

Operating Earnings

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021
Operating earnings from Products and Systems Integration			$	303					$	224
Operating earnings from Software and Services			70						227
Operating earnings			$	373					$	451

Operating earnings decreased $78 million, or 17%, in the third quarter of 2022 compared to the third quarter of 2021. The decrease in Operating earnings was due to:

• $157 million decrease in the Software and Services segment, primarily driven by a fixed asset impairment loss of $147 million related to assets constructed and used in the deployment of the ESN service contract with the Home Office, higher reorganization costs and higher legal settlement costs; partially offset by

• $79 million increase in the Products and Systems Integration segment, driven by higher gross margin contribution and partially offset by higher expenses associated with acquired businesses, higher share-based compensation and higher Hytera-related legal expenses.

Interest Expense, net

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021
Interest expense, net			$	(60)					$	(56)

The $4 million increase in Interest expense, net in the third quarter of 2022 compared to the third quarter of 2021 was primarily driven by higher outstanding debt.

Other, net

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021
Other, net			$	19					$	10

The $9 million increase in Other, net in the third quarter of 2022 compared to the third quarter of 2021 was primarily driven by:

• $45 million of foreign currency gains in the third quarter of 2022 compared to $5 million of foreign currency gains in the third quarter of 2021;

• $5 million loss on fair value adjustments to equity investments in the third quarter of 2022 compared to a $18 million loss on fair value adjustments to equity investments in the third quarter of 2021; and

• $5 million gain in other income in the third quarter of 2022 compared to a $1 million gain in other income in the third quarter of 2021; partially offset by

• $54 million loss on derivatives in the third quarter of 2022 compared to a $10 million loss on derivatives in the third quarter of 2021;

• $28 million of net periodic pension and postretirement benefit in the third quarter of 2022 compared to $31 million of net periodic pension and postretirement benefit in the third quarter of 2021; and

• $1 million gain on equity method investments in the third quarter of 2021 that did not occur in the third quarter of 2022.

Effective Tax Rate

			Three Months Ended
(In millions)			October 1, 2022						October 2, 2021
Income tax expense			$	53					$	97

Income tax expense decreased by $44 million in the third quarter of 2022 compared to the third quarter of 2021, resulting in an effective tax rate of 16%. Our effective tax rate for the three months ended October 1, 2022 of 16% was lower than the effective tax rate for the three months ended October 2, 2021 of 24%, primarily due to higher excess tax benefits of share-based compensation in 2022.

Results of Operations—Nine months ended October 1, 2022 compared to Nine months ended October 2, 2021

			Nine Months Ended
			October 1, 2022																		October 2, 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			$	2,961					$	1,514					$	4,475					$	2,603					$	1,343					$	3,946
International			957						973						1,930						935						970						1,905
			$	3,918					$	2,487					$	6,405					$	3,538					$	2,313					$	5,851
Net sales by major products and services
LMR Communications			$	3,190					$	1,684					$	4,874					$	2,948					$	1,642					$	4,590
Video Security and Access Control			728						368						1,096						590						284						874
Command Center Software			—						435						435						—						387						387
Total			$	3,918					$	2,487					$	6,405					$	3,538					$	2,313					$	5,851
Operating earnings			460						510						970						440						678						1,118
Operating margins			11.7		%				20.5		%				15.1		%				12.4		%				29.3		%				19.1		%

Net Sales

The Products and Systems Integration segment's net sales represented 61% of our net sales in the first nine months of 2022 and 60% in the first nine months of 2021. Net sales from the Software and Services segment represented 39% of our net sales in the first nine months of 2022 and 40% in the first nine months of 2021.

Net sales increased $554 million, or 9%, in the first nine months of 2022 compared to the first nine months of 2021. The $380 million, or 11%, increase in net sales within the Products and Systems Integration segment was driven by an increase of 14% in the North America region and an increase of 2% in the International region. The $174 million, or 8%, increase in net sales within the Software and Services segment was driven by an increase of 13% in the North America region and consistent net sales in the International region. Net sales includes:

• an increase in the Products and Systems Integration segment, inclusive of $33 million of revenue from acquisitions, driven by an increase in LMR and Video; and

• an increase in Software and Services, inclusive of $49 million of revenue from acquisitions, driven by an increase in Video, Command Center Software and LMR services;

• inclusive of $128 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

• a 1% increase in the International region, inclusive of revenue from acquisitions, driven by an increase in Video and Command Center Software.

Products and Systems Integration

The 11% increase in the Products and Systems Integration segment was driven by the following:

• $242 million, or 8% growth in LMR, inclusive of revenue from acquisitions, primarily driven by the North America region; and

• $138 million, or 23% growth in Video, inclusive of revenue from acquisitions, driven by both the North America and International regions;

• inclusive of $54 million from unfavorable currency rates.

Software and Services

The 8% increase in the Software and Services segment was driven by the following:

• $84 million, or 30% growth in Video, inclusive of revenue from acquisitions, driven by both the North America and International regions;

• $48 million, or 12% growth in Command Center Software, inclusive of revenue from acquisitions, driven by both the North America and International regions; and

• $42 million, or 3% growth in LMR services, inclusive of revenue from acquisitions, driven by the North America region;

• inclusive of $74 million from unfavorable currency rates.

Gross Margin

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021						% Change
Gross margin			$	2,878					$	2,857					1		%

Gross margin was 44.9% of net sales in the first nine months of 2022 compared to 48.8% in the first nine months of 2021. The primary drivers of this decrease in gross margin as a percentage of net sales were:

• lower gross margin as a percentage of net sales in the Software and Services segment, inclusive of acquisitions, primarily driven by a fixed asset impairment loss of $147 million related to assets constructed and used in the deployment of the ESN service contract with the Home Office and a change in year-over-year mix; and

• 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 partially offset by price increases and volume leverage.

Selling, General and Administrative Expenses

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021						% Change
Selling, general and administrative expenses			$	1,069					$	985					9		%

SG&A expenses increased 9% in the first nine months of 2022 compared to the first nine months of 2021. The increase in SG&A expenses was primarily due to higher expenses associated with acquired businesses, higher travel expenses and higher share-based compensation. SG&A expenses were 16.7% of net sales in the first nine months of 2022 compared to 16.8% of net sales in the first nine months of 2021.

Research and Development Expenditures

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021						% Change
Research and development expenditures			$	577					$	545					6		%

R&D expenditures increased 6% in the first nine months of 2022 compared to the first nine months of 2021 primarily due to higher expenses associated with acquired businesses, an investment in R&D and higher share-based compensation. R&D expenditures decreased to 9.0% of net sales in the first nine months of 2022 compared to 9.3% of net sales in the first nine months of 2021.

Other Charges

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021
Other charges			$	262					$	209

Other charges increased by $53 million in the first nine months of 2022 compared to the first nine months of 2021. The change was driven primarily by the following:

• $194 million of intangible asset amortization expense in the first nine months of 2022 compared to $172 million of intangible asset amortization expense in the first nine months of 2021;

• $23 million of losses on legal settlements in the first nine months of 2022 compared to $3 million of losses on legal settlements in the first nine months of 2021;

• $12 million of fixed asset impairments in the first nine months of 2022 that did not occur in the first nine months of 2021;

• $16 million of acquisition-related transaction fees in the first nine months of 2022 compared to $6 million of acquisition-related transaction fees in the first nine months of 2021; and

• $16 million of operating lease asset impairments in the first nine months of 2022 compared to $7 million of operating lease asset impairments in the first nine months of 2021; partially offset by

• $13 million gain on recoveries from the legal settlement under the Hytera bankruptcy proceedings in the first nine months 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), that did not occur in the first nine months of 2021; and

• $14 million of net reorganization business charges in the first nine months of 2022 compared to $22 million of net reorganization business charges in the first nine months of 2021 (see further detail in the “Reorganization of Business” section in this Part I, Item 2 of this Form 10-Q).

Operating Earnings

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021
Operating earnings from Products and Systems Integration			$	460					$	440
Operating earnings from Software and Services			510						678
Operating earnings			$	970					$	1,118

Operating earnings decreased $148 million, or 13%, in the first nine months of 2022 compared to the first nine months of 2021. The decrease in Operating earnings was due to:

• $168 million decrease in the Software and Services segment, primarily driven by a fixed asset impairment loss of $147 million related to assets constructed and used in the deployment of the ESN service contract with the Home Office, higher expenses associated with acquired businesses, higher expenses related to legal settlements and a change in year-over-year mix; partially offset by

• $20 million increase in the Products and Systems Integration segment, primarily driven by pricing actions, and partially offset by higher expenses related to material and freight costs, higher expenses associated with acquired businesses, higher share-based compensation and higher travel expenses.

Interest Expense, net

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021
Interest expense, net			$	(171)					$	(154)

The $17 million increase in net interest expense in the first nine months of 2022 compared to the first nine months of 2021 was a result of the reversal of a non-cash interest accrual related to an international tax audit recorded in the first nine months of 2021 and higher outstanding debt.

Other, net

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021
Other, net			$	50					$	70

The $20 million decrease in Other, net in the first nine months of 2022 compared to the first nine months of 2021 was primarily driven by:

• $111 million of losses on derivative instruments in the first nine months of 2022 compared to $19 million of losses on derivative instruments in the first nine months of 2021;

• $35 million loss on fair value adjustments to equity investments in the first nine months of 2022 compared to a $5 million loss on fair value adjustments to equity investments in the first nine months of 2021;

• $2 million loss in other income in the first nine months of 2022 compared to a $3 million gain in other income in the first nine months of 2021; and

• $1 million of investment impairments in the first nine months of 2022 that did not occur in the first nine months of 2021; partially offset by

• $95 million of foreign currency gains in the first nine months of 2022 compared to $13 million of foreign currency gains in the first nine months of 2021;

• $19 million gain on equity method investments in the first nine months of 2022, primarily driven by a $21 million gain on the TETRA Ireland equity method investment, compared to a $5 million gain on equity method investments in the third 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); and

• $6 million loss on the extinguishment of long-term debt in the first nine months of 2022 compared to a $18 million loss on the extinguishment of long-term debt in the first nine months of 2021.

Effective Tax Rate

			Nine Months Ended
(In millions)			October 1, 2022						October 2, 2021
Income tax expense			$	75					$	186

Income tax expense decreased by $111 million in the first nine months of 2022 compared to the first nine months of 2021, resulting in an effective tax rate of 9%. Our effective tax rate of 9% for the nine months ended October 1, 2022 was lower than the effective tax rate for the nine months ended October 2, 2021 of 18%, primarily due to a net deferred tax benefit as a result of an intra-group transfer of certain intellectual property rights and higher excess tax benefits of share-based compensation in 2022, 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 third quarter of 2022, we recorded net reorganization of business charges of $14 million, including $2 million of charges recorded within Other charges and $12 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $14 million were charges of $7 million related to employee separation costs and $10 million related to exit costs, partially offset by $3 million of reversals for accruals no longer needed.

During the first nine months of 2022, we recorded net reorganization of business charges of $31 million, including $14 million of charges recorded within Other charges and $17 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $31 million were charges of $30 million related to employee separation costs and $10 million related to exit costs, partially offset by $9 million of reversals for accruals no longer needed.

During the third quarter of 2021, we recorded net reorganization of business charges of $4 million, including $2 million of charges in Other charges and $2 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $4 million were charges of $6 million related to employee separation costs, partially offset by $2 million of reversals for accruals no longer needed.

During the first nine months of 2021, we recorded net reorganization of business charges of $29 million, including $22 million of charges in Other charges and $7 million of charges in Costs of sales in our Condensed Consolidated Statements of Operations. Included in the $29 million were charges of $36 million related to employee separation costs, partially offset by $7 million of reversals for accruals no longer needed.

The following table displays the net charges incurred by segment:

			Three Months Ended												Nine Months Ended
			October 1, 2022						October 2, 2021						October 1, 2022						October 2, 2021
Products and Systems Integration			$	3					$	3					$	17					$	23
Software and Services			11						1						14						6
			$	14					$	4					$	31					$	29

Cash payments for employee severance in connection with the reorganization of business plans were $27 million in the first nine months of 2022 and $70 million in the first nine months of 2021. The reorganization of business accrual at October 1, 2022 was $28 million related to employee separation costs that are expected to be paid within one year.

Liquidity and Capital Resources

			Nine Months Ended
			October 1, 2022						October 2, 2021
Cash flows provided by (used for):
Operating activities			$	550					$	1,134
Investing activities			(735)						(525)
Financing activities			(704)						(179)
Effect of exchange rates on cash and cash equivalents			(163)						(31)
Increase (decrease) in cash and cash equivalents			$	(1,052)					$	399

Cash and Cash Equivalents

At October 1, 2022, $469 million of the $822 million cash and cash equivalents balance was held in the U.S. and $353 million was held in other countries, with $62 million held in the United Kingdom.

Operating Activities

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

Investing Activities

The increase in cash flows used for investing activities in the first nine months of 2022 compared to the first nine months of 2021 was primarily due to a $230 million increase in cash used for acquisitions and investments.

Financing Activities

The increase in cash flows used for financing activities in the first nine months of 2022 compared to the first nine months 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):

• $352 million increase in share repurchases in the first nine months of 2022 compared to the first nine months of 2021;

• $249 million decrease in net proceeds from issuance of debt in the first nine months of 2022 compared to the first nine months of 2021; and

• $36 million increase in the payment of dividends in the first nine months of 2022 compared to the first nine months of 2021; partially offset by

• $68 million decrease in repayments of debt in the first nine months of 2022 compared to the first nine months of 2021;

• $38 million increase in net proceeds from the issuance of common stock in connection with our employee stock option and employee stock purchase plans in the first nine months of 2022 compared to the first nine months of 2021; and

• $7 million related to the payment of revolving credit facility renewal fees in the first nine months of 2021 that did not occur in the first nine months 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 nine months ended October 1, 2022 and October 2, 2021:

			Three Months Ended												Nine Months Ended
			October 1, 2022						October 2, 2021						October 1, 2022						October 2, 2021
Contract-specific discounting facility			$	—					$	66					$	49					$	173
Accounts receivable sales proceeds			—						15						$	62					$	23
Long-term receivables sales proceeds			42						56						64						140
Total proceeds from receivable sales			$	42					$	137					$	175					$	336

During the nine months ended October 1, 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 October 1, 2022 and December 31, 2021, including the current portions of $1 million and $5 million, at October 1, 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 our 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 October 1, 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 October 1, 2022 we had no outstanding debt under the commercial paper program.

Share Repurchase Program

During the three and nine months ended October 1, 2022, we paid an aggregate of $94 million and $749 million, respectively, including transaction costs, to repurchase approximately 0.4 million and 3.3 million shares at an average price of $236.46 and $224.35 per share. As of October 1, 2022, we had used approximately $14.6 billion of the share repurchase authority to repurchase shares, leaving $1.4 billion of authority available for future repurchases.

Dividends

During the third quarter of 2022 we paid $132 million in cash dividends to holders of our common stock. During the first nine months of 2022 we paid $398 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 $127 million at October 1, 2022, compared to $56 million at December 31, 2021.

Recent Accounting Pronouncements

See "Recent Accounting Pronouncements" and “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.