Good afternoon, and welcome, everybody. For those in the room, we appreciate your personal attendance, and for those on the phone, we thank you for listening in. I'm delighted to welcome you to this annual meeting of Motorola Solutions stockholders. I'm gonna begin by introducing my fellow director nominees, then Kristin Kruska, who will preside over the formal business of the meeting, and then finally, I'll rejoin you to walk through brief remarks and take questions. As I introduce the other director nominees, I ask that they stand up as I call their name. Mr. Ken Denman is the former CEO and president of Emotient, Inc, and currently serves on the board of Costco Wholesale Corporation, Mitek Systems, Inc , and ShoreTel, Inc. Egon Durban is the managing partner and managing director of Silver Lake, and currently serves on the board of SecureWorks Corp and VMware.
Clay Jones is the former chairman of the board and CEO of Rockwell Collins, and currently serves on the boards of Deere & Company and Cardinal Health. Judy Lewent is the former Executive Vice President and CFO of Merck, and currently serves on the boards of GlaxoSmithKline and Thermo Fisher Scientific. Judy chairs our board's Audit Committee. Greg Mondre is the managing partner and managing director of Silver Lake, and currently serves on the boards of GoDaddy Inc and Sabre Corporation. Anne Pramaggiore is the president and CEO of ComEd, and currently serves on the board of the Babcock & Wilcox Company, and will chair our board's Compensation and Leadership Committee. Sam Scott is the former chairman, president, and CEO of Corn Products International, and currently serves on the boards of Abbott Labs and BNY Mellon. Sam is our lead independent director and chairs our board's Governance and Nominating Committee.
Joe Tucci is the co-CEO and co-chairman of GTY Technology Holdings, and former chairman and CEO of EMC Corporation. Joe currently serves on the boards of GTY Technology Holdings and Paychex Inc. Now, for the formal business of the meeting, I'd like to introduce Kristin Kruska, secretary to the board, who will serve as today's presiding stockholder meeting chair. Kristin?
Thank you, Greg. We will now attend to the formal business of the meeting, after which Greg will give the company report. Following Greg's remarks, the floor will be open for a general question-and-answer period. Representatives of KPMG, the company's external auditors, are also present and available to answer questions during the question-and-answer period. When you came in, you were handed a printed program, which sets forth today's agenda and includes the procedures we will follow on the back. If you do not have the program, raise your hand, and we can provide you with one. I now call the 2017 Annual Stockholders Meeting to order. As a reminder, the proposals in the proxy statement are the only items of business, business that can be transacted at this meeting.
As we go through the agenda, any stockholder who wishes to comment on a specific proposal may do so only during the time provided for comments on that proposal. If you wish to comment on a proposal, please approach the microphone when I ask if any stockholder wishes to comment. When recognized, please give your name. As a matter of courtesy to other stockholders, please limit your comments to two minutes to provide everyone with an opportunity to participate in the meeting. There is a total time of 10 minutes for the presentation and comments regarding each proposal under consideration. It is my job to enforce these procedures, so I thank you in advance for your cooperation. This meeting is being held pursuant to a notice mailed on or about March 27, 2017, to each stockholder of record at the close of business on March 17, 2017.
A list of the stockholders entitled to vote at this meeting has been available for the past 10 days at our corporate offices, and it is available at this meeting for inspection. I am pleased to report that 145,783,443 shares of the 163,892,787 shares outstanding and entitled to vote are represented in person or by proxy at this meeting. This is 89% of the outstanding shares and represents a quorum for purposes of this meeting. It is 5:04 P.M. on May 15th, 2017, and I now declare the polls open for all matters of business. The polls will remain open until all items of business have been presented and discussed.
If there are any stockholders present who have already voted and wish to revoke or change their vote, or who have not yet voted and wish to vote, you may do so at this time. If you need a ballot, please raise your hand. You may vote until all items of business as set forth in the agenda have been introduced and discussed. At that time, I will announce that the polls are closed, and we will collect your ballots. Proposal number one: election of directors. The first matter is the election of directors. I hereby nominate as directors for the ensuing year, or until their successors are duly elected and qualified, the board's nine nominees that were listed in the company's proxy statement. They are Gregory Q. Brown, Kenneth D. Denman, Egon P. Durban, Clayton M. Jones, Judy C. Lewent, Gregory K. Mondre, Anne R.
Pramaggiore, Samuel C. Scott III, and Joseph M. Tucci. Is there a second?
I second the motion.
Does any stockholder wish to make a comment directly related to the election of directors? Please.
... Sister Valerie Heinonen, Mercy Investment Services. I wonder if you can address even briefly how you're looking at the candidates for election as directors in light of the articles now that we're seeing about bringing younger people onto boards so that they can gain experience and so on, the usual reasons on that score?
Absolutely. We do conduct a thorough review process. We do engage Russell Reynolds to assist us in our process to bring forward individuals who have the right experience and, I guess the right experience is the right word with respect to our industry and our position in the marketplace, and we feel that we have appropriate measures to ensure that we have the right directors coming on. We have two new directors this year, and we think they'll bring with them valuable experience to our board.
Thank you.
Any other comments? The next matter to be acted upon is the non-binding advisory vote to approve the company's executive compensation. The resolution provided in the proxy statement to be acted upon states: Resolved, that the stockholders approve on an advisory basis, the compensation of the named executive officers as described in the compensation discussion and analysis, the 2016 summary compensation table, and other related tables and disclosures in this proxy statement. Is there a second?
I second the motion.
Does any stockholder wish to make any comment directly related to the stockholder advisory vote on executive compensation? The next matter to be acted upon, as set forth in the notice of this meeting, is the non-binding advisory approval of the frequency of advisory votes to approve executive compensation. This proposal for the frequency of advisory votes to approve executive compensation on an annual basis is now formally submitted for stockholder approval. Is there a second?
I second the motion.
Does any stockholder wish to make a comment directly related to the stockholder advisory vote on the frequency of advisory votes to approve executive compensation on an annual basis? The next matter to be acted upon is the ratification of the appointment of KPMG LLP as the company's independent registered public accounting firm for 2017. The audit committee of the board has appointed KPMG as the company's independent registered public accounting firm for 2017. This appointment is now formally submitted for stockholder ratification. Is there a second?
I second the motion.
Does any stockholder wish to make a comment directly related to the appointment of KPMG as the company's independent registered public accounting firm for 2017? This year's proxy statement contains a stockholder proposal which is titled Lobbying Disclosure. I will now recognize the sponsor of this resolution, who may introduce this proposal, make a brief supporting statement, and make a motion for adoption of this proposal. The proponent should limit her remarks to five minutes. In addition, please remember that a total of 10 minutes will be allowed for all speakers on this topic.
I hope it's quicker. Good evening. I'm Sister Valerie Heinonen, an Ursuline sister, representing Mercy Investment Services and the Dominican Sisters of Hope, filers of the political spending proposal found on Page 58 of your proxy statement. I move Proposal 5, which asks for a report on federal and state lobbying expenditures, including indirect funding of lobbying through trade associations and support for the American Legislative Exchange Council. We believe our company has an obligation to its stakeholders and the general public to be fully transparent about its political spending. As we know firsthand from our most recent national and state elections, and from many media sources, political spending by 501(c)(4) groups continues to grow. Without a clear system ensuring accountability, corporate assets can be used to promote public policy objectives, which may pose risks to Motorola Solutions and its stockholders.
For example, Motorola Solutions is a member company in the EPA, whatever happens to that, Green Power Partnership. Yet the U.S. Chamber of Commerce has aggressively attacked the EPA Clean Power Plan, Plan to address climate change. How does an incongruity like this match our company's principles? Relying on publicly available data does not provide a complete picture of the company's political spending. For example, the company's payments to trade associations used for political activities are undisclosed and unknown and apparently not questioned. Nor do I believe we investors should become researchers to find such brief information.
While my guess is that no one present here today knows what federal regulation will be discarded next, we continue to believe that the Motorola Solutions Board of Directors should recognize that good corporate governance today includes a political spending policy that is transparent, offers full disclosure, has board oversight, and is available to investors in its entirety on its corporate governance website section. Thank you.
... Is there a second for this motion?
Yes, I second.
For the reasons stated in the company's proxy statement, including the fact that the company complies with all lobbying disclosure laws, our legal and government affairs organization has in place policies and procedures for conducting lobbying activities. Our trade association memberships over $50,000 are published on our website, and we believe that lobbying disclosure should apply equally to all participants in the legislative process. The board of directors recommends that you vote against the adoption of this stockholder-submitted proposal. There is one remaining item of business to address, and the polls will close shortly. This year's proxy statement—I'm sorry, did any other shareholders want to comment on that proposal? There, this year's proxy statement contains a stockholder proposal, which is titled Ethical Recruitment in Global Supply Chains.
I will now recognize the sponsor of this resolution, who may introduce this proposal, make a brief supporting statement, and make a motion for adoption of this proposal.
Thank you. I'm Robert McGarrah, and I'm here on behalf of Domini Impact Equity Fund to move proposal number six. This proposal asks for a report disclosing specific remedial efforts that Motorola Solutions has taken to ensure that its global supply chain is free of forced or bonded labor, including any efforts to reimburse workers for recruitment fees that were paid by workers in violation of the company's policies. Around the world, there are approximately 150 million people who leave their countries in search of economic opportunities elsewhere. They often pass through the hands of unscrupulous recruiters that exploit vulnerable job seekers by charging fees, withholding passports, and failing to provide written contracts spelling out the terms of their employment. Many workers find themselves in conditions of bonded labor. They work months simply just to pay off these exorbitant recruitment fees.
A growing number of leading corporations have responded to these abuses by adopting what are called no-fees commitments that seek to ensure that recruiters are paid by employers and not by the workers themselves. As a multinational corporation dependent upon extended supply chains in many countries, Motorola Solutions must assess if workers are being recruited into debt bondage, forced labor, and ultimately slavery. The risk is high. Most of Motorola's products that are manufactured outside the United States are made in Malaysia, and according to a United States Department of Labor-funded study, 92% of the migrant workers in Malaysia's electronics industry had paid recruitment fees, and 92% of that group had paid fees that exceeded the legal or industry standards. Domini thanks Motorola for taking the time to discuss this proposal with us and for responding to questions.
We recognize the numerous steps that Motorola has taken to address human rights in its supply chain, including its membership in the EICC and its work with Verité in Malaysia. Motorola has the right policies in place, but many questions remain about how these policies are being implemented on the ground. Investors do not have sufficient information to understand whether Motorola's efforts are adequate, and this proposal seeks to address that gap in reporting. The primary impetus for the proposal comes down to one number, 14. Motorola Solutions reports that out of its entire global supply chain, it only audited 14 sites in 2015. It reports that 21 freely chosen employment issues were identified, but it provides no further information. In 2016, it planned to do even less. It only planned to audit 12 high-risk facilities. Not all high-risk facilities, only 12.
So let me put that number in context. In 2016, Apple, for example, conducted 705 comprehensive audits in its supply chain. In 2015, HP, Hewlett-Packard, conducted 192 audits of production and non-production supplier facilities. And yes, these are different companies with different supply chains, but Motorola's own disclosures suggest that they are not doing enough to root out these problems. To identify the factories it will audit, Motorola conducts a series of risk assessments, but this process does not seem to be accurately calibrated to the human rights risks that are presented to Motorola. Motorola reports that it completed just over 1,400 risk assessments in 2015, representing 76% of its spend, and these assessments appear to cover only the top tier of its supply chain, the proverbial tip of the iceberg.
There's no way to understand how they got from 1,400 to only 14, particularly in Malaysia, where the risk of bonded labor is so high. It may seem reasonable for a company to focus its efforts where it spends most of its money, but that is not necessarily where the risk lies. Motorola disclosed in its 10-K that unethical labor practices at even one supplier could negatively impact the company. Unethical recruitment practices are rampant globally. Migrant workers are among the most vulnerable in the world.
... They are far from home, they may not speak the local language, and they often find themselves trapped by an employer who will not return their passport or by a mountain of debt that seems to never go down. Nobody should have to pay for their job. We commend Motorola Solutions for recognizing this, and today we're simply asking the company to show us that it means what it says. Domini looks forward to continued dialogue with Motorola Solutions' management team, and we thank you for your attention to these concerns. Thanks.
Thank you. For the reasons stated in the company's proxy statement, including the fact that we have already addressed concerns raised by this proposal through our comprehensive policies and procedures on human rights, including the Motorola Solutions Code of Business Conduct, the Motorola Solutions Human Rights Policy, the Motorola Solutions Supplier Code of Conduct, and the Anti-Human Trafficking Compliance Plan, all of which are based on internationally recognized human rights standards, the board of directors recommends that you vote against the adoption of this stockholder-submitted proposal. Is there a stockholder who wishes to second this proposal to put it to a vote?
I second this proposal.
Thank you. Does any stockholder wish to make any further comments directly related to this proposal? There are no other matters that may properly be voted on before this meeting, and I ask that you now complete your ballots and raise your hands, so we can collect them. If your broker or the registered holder of your shares provided you with a legal proxy evidencing your right to vote, please be sure to turn that in with your ballot. I now declare the polls are closed at 5:20 P.M. on May 15, 2017. I will now read the preliminary results of the items acted upon at today's meeting, each as reported by the Inspector of Election. More than the majority of for, of the shares voted in person or by proxy at this meeting were voted for the election of each director.
As a result, the nine persons who have been nominated for election have been duly elected as the directors of the company, each to hold office for a one-year term. Approximately 95% of the votes cast were voted for the approval of the company's executive compensation. Approximately 86% of the votes cast were voted for one year for the frequency of advisory votes to approve executive compensation. Approximately 98% of the votes cast were voted for the ratification of the appointment of KPMG as the company's independent registered public accounting firm for 2017. Approximately 32% of the votes cast were voted for the resolution on lobbying disclosure. As a result, this stockholder proposal has not been approved by the stockholders. Approximately 11% of the votes cast were voted for the resolution on ethical recruitment in global supply chains.
As a result, this stockholder proposal has not been approved by the stockholders. We will report the official results of the stockholder vote with respect to each proposal on a Form 8-K within four days of this meeting. I now declare the formal portion of the meeting adjourned. It is now my pleasure to return the meeting over to Greg Brown, who will report to you on the company's business and open the floor for a general question-and-answer period.
Thanks, Kristin. I wanted to just take a minute or two to briefly overview the current state and composition of your company. I think it's going very well. We approach our 90-year birthday next year, actually, September of 2018. Currently, the composition of the company is 60% products, 40% services. You will see us having more and more emphasis on the services part of our business, of what we call managed services or recurring revenue in the software area. I think that we've maintained our leadership position in intellectual property and innovation, represented by a strong IP portfolio, and we invest more research and development in our space than our primary competitors combined.
We lead in the provisioning of public safety radio systems, as well as what we call professional and commercial radio systems. And there's a new thing called public safety LTE, and of the five awards, largest ones in the world, Los Angeles, the U.K., two countries in the Middle East, and FirstNet, where we are participating with AT&T, we will have been a participant in five out of five of the largest awards. We think that bodes very well for the future of your company. If we take a look at 2016 specifically, it was an excellent year. We grew revenue 6%. We reduced operating expenses. Operating cash flow improved. Operating margin expanded.
Earnings per share was up 48%, and along the way, we completed the second-largest acquisition in our history, which is the public safety network in the U.K., and that's over 300,000 first responders. And we also had four other acquisitions: in North America channel services, mobile applications in the U.K., mobile applications in Australia, and CAD software, or what we call the command center software space, which is very strategic for us here in the U.S. So I think, as a shareowner, you should be comforted by the fact that we continue to grow the company financially improve it, invest more R&D than anyone else, extend and expand our product leadership, and also continue to grow the firm overall. I might add, coming out of Q1, we continued a lot of that momentum. We grew 7%.
We achieved a record level of backlog. Backlog is that which is sold, but not converted into revenue yet, and is a general proxy for the health of the company. The order volume, both on products and services, was very, very strong. So in summary, your company, since the split of Motorola, we made the decision to exit the cell phone or smartphone business. We've now had six years as an independent Motorola Solutions company, and we have, over those six years, grew 150% total shareholder return, including reinvested dividends, significantly outperforming the S&P and our competitive peer group. Just last year, we doubled the performance of the S&P 500. So there's lots more work to do.
I'm proud of the team, I appreciate the support of the board, and I feel very good about the momentum and the path that our company is on. With that, I'd open it up for questions, if anybody has any. Sir?
Good afternoon, Mr. Brown. My name is Jim White from Philadelphia, shareholder. Thank you for your good results. Well, as you can see, not everything's black and white, right?
Sure.
But, two things that you didn't mention, I think you should also take some credit for on the Motorola Solutions team, is the issue of CapEx expenditure and dividend increase. So thank you very much for bolstering those numbers as well. God bless you. Good work.
Thank you.
Thank you.
Thank you very much. We have had very good dividend increases since the split of the company, which has gone into the $13.3 billion capital return, along with share repurchase, and we continue to spend pretty robustly in CapEx, highlighted by facilities modernization, the recent conversion in our IT systems, and some special large orders here in the U.K.
I think that FirstNet's gonna be a very big plus, too.
We're hoping so, sir. Thank you for your comments. Yes, sister.
I have, I have a question with respect to, the Paris Agreement on Climate. I'm wondering if, Motorola Solutions signed on to the letter or is planning to sign on to the letter that corporations are sending?
I don't believe we have signed on to that letter, and I don't know if we plan on doing that. I'd have to check, sister, to-
Okay.
- to check on that. I don't know the answer to that.
Thank you.
Sure, sister. Thank you. Okay. So on behalf of your board of directors, thank you for your support. I appreciate you coming, appreciate your confidence, and have an excellent evening. Thank you.
Ladies and gentlemen, that concludes our 2017 Annual Meeting of Stockholders. Thank you for your attendance and your ownership of Motorola Solutions.