UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File number 1-7221
MOTOROLA, INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
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36-1115800
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(State of
Incorporation)
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(I.R.S. Employer Identification
No.)
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1303 East
Algonquin Road, Schaumburg, Illinois 60196
(Address of principal executive offices)
(847) 576-5000
(Registrants telephone
number)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common Stock, $3 Par Value per Share
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New York Stock Exchange
Chicago Stock Exchange
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Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of
1934. Yes
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No
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller reporting
company
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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The aggregate market value of voting and non-voting common
equity held by non-affiliates of the registrant as of
June 28, 2008 (the last business day of the
Registrants most recently completed second quarter) was
approximately $16.7 billion (based on closing sale price of
$7.35 per share as reported for the New York Stock
Exchange-Composite Transactions).
The number of shares of the registrants Common Stock,
$3 par value per share, outstanding as of January 31,
2009 was 2,276,565,942.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement to
be delivered to stockholders in connection with its Annual
Meeting of Stockholders to be held on May 4, 2009, are
incorporated by reference into Part III.
1
PART I
Throughout this
10-K
report
we incorporate by reference certain information in
parts of other documents filed with the Securities and Exchange
Commission (the SEC). The SEC allows us to disclose
important information by referring to it in that manner. Please
refer to such information.
We are making forward-looking statements in this report. In
Item 1A: Risk Factors we discuss some of the
risk factors that could cause actual results to differ
materially from those stated in the forward-looking
statements.
Motorola (which may be referred to as the
Company, we, us, or
our) means Motorola, Inc. or Motorola, Inc. and its
subsidiaries, or one of our segments, as the context requires.
Motorola is a registered trademark of Motorola,
Inc.
General
We provide technologies, products and services that make a broad
range of mobile experiences possible. Our portfolio includes
wireless handsets, wireless accessories, digital entertainment
devices, wireless access systems, voice and data communications
systems, and enterprise mobility products. With the rapid
convergence of fixed and mobile broadband Internet and the
growing demand for next-generation mobile communications
products by people, businesses and governments, we are focused
on high-quality, innovative products that meet the expanding
needs of our customers around the world.
We operate in the following businesses:
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The
Mobile Devices
business designs, manufactures, sells
and services wireless handsets with integrated software and
accessory products, and licenses intellectual property.
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The
Home and Networks Mobility
business designs,
manufactures, sells, installs and services: (i) digital
video, Internet Protocol video and broadcast network interactive
set-tops, end-to-end video delivery systems, broadband access
infrastructure platforms, and associated data and voice customer
premise equipment to cable television and telecom service
providers, and (ii) wireless access systems, including
cellular infrastructure systems and wireless broadband systems,
to wireless service providers.
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The
Enterprise Mobility Solutions
business designs,
manufactures, sells, installs and services analog and digital
two-way radio, voice and data communications products and
systems for private networks, wireless broadband systems and
end-to-end enterprise mobility solutions to a wide range of
enterprise markets, including government and public safety
agencies, as well as retail, energy and utilities,
transportation, manufacturing, healthcare and other commercial
customers.
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Motorola is a corporation organized under the laws of the State
of Delaware as the successor to an Illinois corporation
organized in 1928. Motorolas principal executive offices
are located at 1303 East Algonquin Road, Schaumburg, Illinois
60196.
Business
Segments
We report financial results for the following three operating
business segments:
Mobile
Devices Segment
The Mobile Devices segment (Mobile Devices or the
segment) designs, manufactures, sells and services
wireless handsets with integrated software and accessory
products, and licenses intellectual property. In 2008, the
segments net sales represented 40% of the Companys
consolidated net sales.
Principal
Products and Services
Our wireless subscriber products include wireless handsets and
related software and accessory products. We also sell and
license our intellectual property. We market our products
globally to carriers and consumers through direct sales,
distributors, retailers and, in certain markets, through
licensees.
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Our
Industry
Total industry shipments of wireless handsets (also referred to
as industry sell-in) increased to approximately
1.2 billion units in 2008, a 5% increase compared to 2007.
Demand from new subscribers was strong in emerging markets, led
by India and China. During the second half of 2008, a global
economic downturn impacted the wireless handset industry,
resulting in the slowing of end-user demand.
The ongoing downturn in the global economy has many industry
forecasters predicting a challenging 2009 for the wireless
handset industry, with many predicting industry handset unit
shipments to decline approximately 10% for the full year 2009
compared to 2008. This would be the first decline in annual
industry handset unit shipments since 2001. The expected decline
would be a result of both slowing growth in the emerging markets
and lower replacement sales in highly-penetrated markets.
Beyond 2009, we expect growth to return to the wireless handset
industry. We believe growth rates will be in the mid single
digits for the years 2010 and 2011, compared to the 15% CAGR
experienced by the industry from 2004 through 2008. Although
slowing, growth is expected to continue to be driven primarily
by demand from new subscribers in emerging markets and
replacement sales from the current subscriber base. As growth in
the overall industry for mobile wireless handsets slows, we
expect smartphones (devices that primarily have an open
operating system and provide the opportunity to develop and run
native applications) to be the fastest growing market segment.
Our
Strategy
Motorola seeks to be a leading supplier of wireless handsets and
mobile experiences to customers globally. To accomplish this
objective, our strategy is focused on simplifying product
platforms, enhancing our mid- and
high-tier
product portfolio, and strengthening our position in priority
markets. We have taken significant actions in 2008 to simplify
our wireless handset platforms and enhance our product
portfolio, while reducing the size and cost structure of the
Mobile Devices business. These actions will accelerate our speed
to market with new products, allow us to offer richer consumer
experiences and improve our financial performance.
Simplifying product platforms is an essential component of our
overall strategy. We have reduced the number of product
platforms that we support, increasing our emphasis on 3G and
smartphone devices and maintaining our focus on CDMA and iDEN.
We are implementing aggressive plans to rationalize both
hardware and software platforms in order to reduce the
complexity of our product platforms and system architectures.
Our hardware platforms will leverage fewer chipset suppliers for
our handsets. In addition, our software platforms will focus on
Android (a Google-developed, royalty-free platform), Windows
Mobile (a Microsoft platform) and P2K (a Motorola internal,
proprietary platform). We will also continue to focus on our
proprietary iDEN technology and the CDMA software platforms.
CDMA and iDEN are technologies in which our segment has
traditionally maintained a strong market share position. Success
in these technologies also aligns with our focus on priority
markets. These steps will provide Mobile Devices with the
ability to streamline our portfolio, emphasizing product
development and innovation, while also addressing the changing
marketplace.
As the market evolves to reflect the emergence of converged
wireless devices, mobile internet, social networking, navigation
and messaging, the shift from voice-centric devices
to data-centric devices is expected to continue.
These devices, which include smartphones, deliver unique
consumer experiences and require complete end-to-end
solutions that incorporate various applications and services. By
utilizing the smartphone platforms, we will provide a broad
array of devices, targeted at delivering computer-like
functionality, such as web browsing and email, in both our mid-
and high-tier offerings. Over the next 12 to 18 months our
primary smartphone development will be based on the Android
operating system. As new generations of Windows Mobile enter the
market, we intend to increase our focus on this platform as
well. We will also leverage relationships with partners and
developers in order to provide the necessary applications and
services to support the end-to-end solutions desired
by our consumers. We intend to utilize our experience with the
Linux / Java platform and leverage our assets from
previous Linux/Java investments, to deliver compelling
applications and user experiences, such as more highly
integrated social networking experiences.
In addition to our portfolio streamlining and enhancement
efforts, over the next year we will also increase our focus in
priority markets. These markets will include North America,
Latin America and parts of Asia, including China. Historically,
these are regions in which we have experienced strong market
share and brand position. Additionally, these regions have
represented a significant portion of the segments overall
business. We will also continue to leverage our brand position
in these markets. In other geographies, we will prioritize and
make
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investments commensurate with the competitiveness of our
portfolio. Longer term, we plan to compete in all major markets.
Along with our mobile handset initiatives, we have also
increased focus in our accessories portfolio to deliver complete
mobile experiences and to complement the features and
functionalities of wireless handsets. Expanding our accessory
compatibility across all brands of wireless handsets and
Bluetooth-enabled devices, as well as into spaces such as
navigation, will provide greater opportunities for growth.
We continue to invest in next-generation technologies for
wireless devices based on WiMAX, High-Speed Downlink Packet
Access (HSDPA) and Long-Term Evolution
(LTE). We believe a strong intellectual property
portfolio is critical to our long-term success and to ensuring
that we maintain a favorable strategic position that demonstrate
unique experiences and value for consumers. In application
services, we continue to work with third parties to improve upon
and develop our services and applications, which will deliver
rich experiences to the customer. Motorola is committed to
investing in evolving technologies to ensure that we continue to
deliver enhanced and differentiated wireless handset experiences
to consumers.
Customers
The segment has several large customers located throughout the
world. In 2008, aggregate net sales to the segments five
largest customers represented approximately 41% of the
segments net sales. The loss of one or more of these
customers could have a material adverse effect on the
segments business. In addition to selling directly to
carriers and operators, our Mobile Devices business also sells
products through a variety of third-party distributors and
retailers, which account for approximately 24% of the
segments net sales.
Uncertainty about current and future global economic conditions
may cause, and in some cases has caused, our customers to
maintain tighter inventory management. We experienced this
beginning in the fourth quarter of 2008 and expect this trend to
continue into 2009, which could impact the timing of future
sales.
The U.S. market continued to be the segments largest
individual market, accounting for approximately 44% of the
segments net sales in 2008, compared to approximately 46%
of the segments net sales in 2007. Approximately 56% of
the segments net sales in 2008 were to markets outside the
U.S., the largest of which were Brazil, China and Mexico.
Compared to 2007, the segment experienced sales declines in each
of its four major sales regions: North America, the Europe,
Middle East and Africa (EMEA) region, Asia and Latin
America.
Competition
The segment believes its overall market share for the full year
2008 was approximately 8%, making it the fourth-largest
worldwide supplier of wireless handsets on a full-year basis.
For full year 2007, the segments overall market share was
approximately 14%. We estimate our market share in the fourth
quarter of 2008 to be approximately 6%, a decrease of
approximately 6 percentage points versus the fourth quarter
of 2007. The significant decrease was primarily driven by the
segments limited product offerings in critical market
segments, particularly 3G products, including smartphones,
and very low-tier products.
The segment experiences intense competition in worldwide markets
from numerous global competitors, such as Nokia, Samsung, LG and
Sony-Ericsson. In 2008, the five largest handset manufacturers
together held an aggregate market share of approximately 80%,
compared to 83% at the end of 2007.
Smartphones emerged as a major product in the wireless handset
market during 2008. Manufacturers with strong smartphone
portfolios have benefited from this. Motorola is committed to
enhancing its smartphone portfolio to compete more effectively
and will focus on Android and Windows Mobile software platforms
for these products, while also continuing to focus on our
proprietary iDEN technology and the CDMA software platforms.
General competitive factors in the market for the segments
products include: overall quality of user experience; design;
time-to-market; brand awareness; technology offered; price;
product features, performance, quality, delivery and warranty;
the quality and availability of service; and relationships with
key customers.
Payment
Terms
The segments customers and distributors buy from us
regularly with payment terms that are competitive with current
industry practices. These terms vary globally and generally
range from cash-with-order to 60 days.
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Extended payment terms beyond 60 days are provided to
certain customers on a limited basis. A customers
outstanding credit at any point in time is limited to a
predetermined amount as established by the Company.
Regulatory
Matters
Radio frequencies are required to provide wireless services. The
allocation of frequencies is regulated in the U.S. and
other countries, and limited spectrum space is allocated to
wireless services. The growth of the wireless and personal
communications industry may be affected if adequate frequencies
are not allocated or, alternatively, if new technologies are not
developed to better utilize the frequencies currently allocated
for such use. Industry growth may also be affected by the cost
of the new licenses required to use frequencies and any related
frequency relocation costs.
The U.S. leads the world in spectrum deregulation, allowing
new wireless communications technologies to be developed and
offered for sale. Examples include wireless local area network
systems, such as WiFi, and wide area network systems, such as
WiMAX and LTE. Other countries have also deregulated portions of
their available spectrum to allow deployment of these and other
new technologies. In addition, Mobile WiMAX was approved in 2007
as a global IMT (International Mobile Telecommunications)
standard. This action lays the foundation to further expand
mobile WiMAX in key bands, making additional spectrum available
globally. Deregulation may introduce new competition and new
opportunities for Motorola and our customers.
In 2008, the Federal Communications Commission (FCC)
conducted its auction of 700 MHz band spectrum licenses in
the United States. This spectrum can carry large amounts of data
across long distances and penetrate walls easier than higher
frequencies, enhancing in-building coverage. The spectrum is
being recovered from television broadcast use as a result of the
transition from analog to digital television. The spectrum was
expected to be fully available for mobile operations as of
February 17, 2009, however the date of the transition from
analog to digital has been moved to June 12, 2009. This
delay is not expected to significantly delay the deployment of
services. However, any additional delays may have a greater
impact on service deployment. The FCC has imposed open-access
conditions that prevent the licensee from blocking devices or
applications that are compatible with the network on
approximately one-third of the 700 MHz spectrum that was
auctioned. These conditions are intended to help foster
innovation in handsets and applications. However, the actual
impact of the new licenses remains unclear.
In January 2009, Chinas Ministry of Industry and
Information Technology issued licenses for its 3G mobile
data network to the three key operators in China. With the
Companys focus on 3G products and smartphones and its
focus on China as a high-priority market, we believe that we
will benefit from the 3G transition in China.
Backlog
The segments backlog was $290 million at
December 31, 2008, compared to $647 million at
December 31, 2007. This decrease in backlog is primarily
due to a decline in customer demand, driven by the
segments limited product portfolio, as well as the global
economic downturn. The 2008 backlog is believed to be generally
firm and 100% of that amount is expected to be recognized as
revenue in 2009. The forward-looking estimate of the firmness of
such orders is subject to future events that may cause the
amount recognized to change.
Intellectual
Property Matters
Patent protection is extremely important to the segments
operations. The segment has an extensive portfolio of patents
relating to its products, technologies and manufacturing
processes. The segment licenses certain of its patents to third
parties and generates revenue from these licenses. Motorola is
also licensed to use certain patents owned by others. Royalty
and licensing fees vary from year to year and are subject to the
terms of the agreements and sales volumes of the products
subject to licenses. The protection of these licenses is also
important to the segments operations. Reference is made to
the material under the heading Other Information for
additional information relating to patents and trademarks and
research and development activities with respect to this segment.
Inventory,
Raw Materials, Right of Return and Seasonality
The segments practice is to carry reasonable amounts of
inventory in manufacturing and distribution centers in order to
meet customer delivery requirements in a manner consistent with
industry standards. At the end of
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2008, the segment had a lower inventory balance than at the end
of 2007. The decrease reflects the continued decline in sales
volumes during 2008.
Availability of materials and components required by the segment
is relatively dependable, but fluctuations in supply and market
demand could cause selective shortages and affect results. We
currently source certain materials and components from single
vendors. Any material disruption from a single-source vendor may
have a material adverse impact on our results of operations. If
certain key suppliers were to become capacity constrained or
insolvent as a result of the ongoing global financial crisis, it
could result in a reduction or interruption in supplies or an
increase in the price of supplies and adversely impact the
segments financial results.
Natural gas, electricity, and, to a lesser extent, oil are the
primary sources of energy required for the segments
manufacturing operations. Each of these resources are currently
in generally adequate supply for the segments operations.
In addition, the cost to operate our facilities and freight
costs are dependent on world oil prices, which fluctuated
significantly during 2008 and impacted our manufacturing and
shipping costs. Labor is generally available in reasonable
proximity to the segments manufacturing facilities.
However, difficulties in obtaining any of the aforementioned
items or a significant cost increase could affect the
segments results.
The segment permits returns under limited circumstances to
remain competitive with current industry practices.
The segment typically experiences higher sales in the fourth
calendar quarter and lower sales in the first calendar quarter
of each year due to seasonal trends in the wireless handset
industry.
Our
Facilities/Manufacturing
Our headquarters are located in Libertyville, Illinois. Our
other major facilities are located in Plantation, Florida;
Beijing, Hangzhou, Nanjing and Tianjin, China; Seoul, South
Korea; Chennai, India; and Jaguariuna, Brazil.
We also use several electronics manufacturing suppliers
(EMS) and original design manufacturers
(ODM) to enhance our ability to lower our costs
and/or
deliver products that meet consumer demands in the
rapidly-changing technological environment. A significant
portion of our handsets are manufactured either completely or
substantially by non-affiliated EMS and ODM manufacturers,
primarily by two third-party manufacturers in China.
In 2008, our handsets were primarily manufactured in Asia and
Brazil, and we expect this to continue in 2009. Our largest
manufacturing facilities are located in China and Brazil. Each
of these facilities serves multiple countries and regions of the
world.
Home
and Networks Mobility Segment
The Home and Networks Mobility segment (Home and Networks
Mobility or the segment) designs,
manufactures, sells, installs and services: (i) digital
video, Internet Protocol (IP) video and broadcast
network interactive set-tops (digital entertainment
devices), end-to-end video delivery systems, broadband
access infrastructure platforms, and associated data and voice
customer premise equipment (broadband gateways) to
cable television and telecom service providers (collectively,
referred to as the home business), and
(ii) wireless access systems (wireless
networks), including cellular infrastructure systems and
wireless broadband systems, to wireless service providers
(collectively, referred to as the networks
business). In 2008, the segments net sales
represented 33% of the Companys consolidated net sales.
Principal
Products and Services
In the home business, the segment is a leading provider of
end-to-end networks used for the delivery of video, data and
voice services over hybrid fiber coaxial (HFC)
networks, digital subscriber line (DSL) networks and
passive optical networks (PON). Our portfolio
includes: MPEG video encoding equipment for standard-definition
and high-definition television (HDTV or
HD); video processing and multiplexing systems; and
video-on-demand,
switched digital video and conditional access systems used by
network operators and programmers to deliver video programming.
We provide a broad array of digital entertainment devices
supporting analog, digital and IP video delivery, including HD
and digital video recording (DVR) (together,
HD/DVR) applications. We support the delivery of
high-speed data and voice services with head-end and central
office
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equipment, along with data and voice modems and gateways for HFC
and DSL networks and optical line and optical node terminals for
PON networks.
In the networks business, the segment provides end-to-end
cellular networks, including radio base stations, base station
controllers, associated software and services, application
platforms and third-party switching for CDMA, GSM,
iDEN
®
and UMTS technologies. The segment also offers a portfolio of
WiMAX products and is in trials with customers to provide our
LTE technology to enable next-generation mobile IP broadband
access. WiMAX and LTE will make mobile bandwidth more affordable
and accessible for mainstream consumer adoption.
Our products are marketed primarily to cable television
operators, telecom operators, wireless service providers,
television programmers and other communications providers
worldwide and are sold primarily by our internal sales force.
Our
Industry
The home market is evolving rapidly as cable and telecom network
operators expand their video, data and voice services (commonly
known as the triple play) to grow their subscriber
base. The competition between cable and telecom service
providers continues to increase. Telecom operators are expanding
their broadband networks and beginning to offer advanced video
and data services using IPTV and PON technologies. Cable
operators are responding by expanding their investment in HD
programming, bundling voice-over-IP services, expanding their
broadband data service through Data Over Cable Service Interface
Specifications (DOCSIS) 3.0 channel bonding, and
maximizing utilization of network bandwidth using switched
digital video technology.
Our home business is subject to regulation by the FCC in the
United States and other governmental communication regulators
throughout the world. FCC regulations requiring separation of
security functionality from cable set-tops became effective in
2007. This has resulted in increased competition for sales of
set-top boxes to cable operators and has enabled a retail
distribution of devices capable of accessing encrypted cable
programming. Our home business offers a cablecard that allows
third-party consumer electronic devices to be deployed on a
network using the Motorola conditional access system. Motorola
also offers a portfolio of cable card host set-tops that allows
our digital video set-tops to be deployed in service provider
networks using third-party encryption technology.
In the wireless networks market, the majority of installed
cellular infrastructure systems are based on CDMA, GSM, UMTS and
iDEN technologies. We supply systems based on each of these
technologies and are the sole supplier of proprietary iDEN
networks. Advanced infrastructure systems based on these
technologies include GPRS, CDMA-1X and EDGE. In addition, some
segments of the cellular infrastructure industry have installed,
or are in the process of migrating to, 3G networks, which are
high-capacity radio access wireless networks providing enhanced
data services, improved Internet access and increased voice
capacity. The primary 3G technologies are
W-CDMA
(based on either UMTS or Freedom of Mobile Multimedia Access
(FOMA) technologies) and CDMA 2000 1xEVDO. We
supply 3G systems based on UMTS and CDMA 2000 1xEVDO
technologies. An additional 3G technology standard, TD-SCDMA,
has been driven primarily by the Chinese government and local
Chinese vendors. Chinas Ministry of Industry and
Information Technology awarded 3G licenses in early 2009, which
is driving regional network upgrades.
Industry standards bodies are in the process of defining the
next generation of wireless broadband systems after 3G. The
Institute of Electrical and Electronics Engineers
(IEEE) has developed fixed and mobile broadband
standards (802.16d and 802.16e) based on orthogonal frequency
division multiplexing (OFDM) technology, which will
utilize wider channels and enable triple play services (voice,
data, video). These standards are the basis for WiMAX, a market
that experienced strong growth in 2008. Motorola has been
awarded a number of WiMAX contracts and customers in various
markets have started to offer commercial WiMAX services
utilizing Motorola infrastructure equipment. We are an early
leader in WiMAX technology.
The International Telecommunications Union (ITU) has
also adopted next-generation cellular wireless access standards
(4G) for the cellular infrastructure industry, also
based on OFDM technology and known commonly as LTE. LTE has
widespread industry support, not only from current GSM and UMTS
operators, but also from CDMA/EV-DO based carriers.
Licensing bodies of governments around the world are making
spectrum available for advanced wireless technologies, including
4G, in recognition of growing demand for wireless broadband
services. Currently, Motorola estimates that there are over
1,200 licenses available worldwide for advanced wireless
technologies with over 800 licenses outside of North America.
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Demand for our products depends primarily on capital spending by
providers of cellular and broadband services for constructing,
rebuilding or upgrading their communications systems, as well as
the marketing of advanced communications services by those
providers. The amount of spending by these providers, and
therefore a majority of our sales and profitability, are
affected by a variety of factors, including: (i) the
continuing trend of consolidation within the cable, wireline and
wireless industries, (ii) the financial condition of
operators and alternative providers, including their access to
financing, (iii) technological developments,
(iv) standardization efforts that impact the deployment of
new equipment, (v) new legislation and regulations
affecting the equipment sold by the segment, and
(vi) general economic conditions.
During 2008, wireless operators expenditures globally for
2G technology and related services, such as GSM, GPRS and EDGE,
were comparable to 2007, while similar expenditures for iDEN
technology were down. Global expenditures for 3G technology and
related services, such as UMTS, increased in 2008, while similar
expenditures for CDMA/EV-DO technology were comparable to 2007.
Global expenditures for next-generation technologies, such as
WiMAX, and related services increased in 2008.
Forecasted industry trends point to an overall decline in
operator expenditures globally in 2009, as growth in UMTS and
WiMAX are not expected to offset the decline in expenditures for
legacy technologies, such as GSM and CDMA. Motorola expects the
overall wireless network market to be down in 2009 compared to
2008.
In 2008, the home business benefited from continued spending by
operators on our products due to the increase in the number of
video and data subscribers and the deployment of advanced video
platforms by cable operators for
HD/DVR
applications, as well as from spending by telecom operators
upgrading their networks and adding video services. The growth
of broadband connectivity is expected to continue as cable
operators upgrade to DOCSIS 3.0 and telecom service providers
continue to deploy very high speed digital subscriber line
(VDSL) and PON data services. While continued growth
is expected in these video and data markets, industry analysts
have been reducing their outlooks for capital spending due to
the ongoing uncertainty in the global economy.
Our
Strategy
The Home and Networks Mobility segment is focused on leadership
in next-generation broadband solutions to accelerate the
delivery of personal media experiences. Key elements in the
segments strategy include: (i) providing for seamless
convergence of services and applications across delivery
platforms within the home and across wireline and wireless
networks, (ii) innovating and optimizing our end-to-end
network portfolio, and (iii) developing new services that
leverage our platforms to provide revenue generating
applications and services to our operator customers while
enabling consumers to experience media mobility. As part of our
strategy, we have made and will continue to make strategic
acquisitions.
In the home business, we are focused on accelerating the rate of
digital penetration by broadband operators in North America
through an enhanced suite of digital entertainment devices.
These products include basic models supporting the industry
movement to all-digital delivery and advanced units supporting
HD/DVR functions, as well as whole home video networking. We
continue to invest to differentiate our products and services
and add value for our customers in areas of software and
applications, content on-demand and targeted advertising.
We are capitalizing on telecom operators decisions to offer IPTV
to their subscribers globally, with products that support
delivery of video content using both copper-outside-plant and
fiber-to-the-premises (FTTP) networks. The segment
continues to provide video infrastructure, FTTP access network
equipment, advanced digital entertainment devices and IP
interactive set-tops to leading telecommunication companies
around the world. During 2008, we completed the acquisition of
the set-top box and associated chipset assets of Zhejung Dahua
Digital Technology Co., LTD and Hangzhou Image Silicon, known
collectively as Dahua Digital to increase our position in the
rapidly growing cable market in China. We are also an industry
leader in broadband data and voice products. We are delivering
DOCSIS 3.0 channel bonding on our cable modem termination
systems (CMTS) and cable modems, and commercially
deploying our Gigabit PON platform.
In the networks business, the segment provides equipment and
services to over 125 GSM, CDMA, and iDEN networks globally. The
segment is investing to be a leader in next-generation wireless
broadband technologies with its WiMAX and LTE systems. WiMAX and
LTE are evolved wireless broadband technologies that enable
operators to provide improved data performance at lower
operating cost. These technologies offer similar advantages for
existing operators and emerging broadband service providers and
vary in selection depending on the desired application and
available spectrum. In 2008, the segment delivered WiMAX network
equipment to over 25 WiMAX networks throughout the world. In
addition, at the end of 2008, the segment was participating in
over
8
20 WiMAX trials globally, representing new business
opportunities in 2009. As a leader in the baseline OFDM
technology used for WiMAX, the segment is leveraging this
expertise to accelerate our LTE product offering which will
support both frequency division duplex (FDD) and
time division duplex (TDD) modes. The LTE standard
was ratified in December 2008, enabling operators and vendors to
accelerate testing and deployment. The segment is participating
in the LTE system architecture evolution trial initiative.
Customers
In 2008, aggregate net sales to the segments five largest
customers, primarily large cable operators and telecommunication
companies located throughout the world, represented
approximately 45% of the segments net sales. The loss of
any of the segments large customers could have a material
adverse effect on the segments business. Further, because
many of the segments contracts are long-term, the loss of
a major customer could impact revenue and earnings over several
quarters. The segments proportion of sales outside of
North America increased to 50% in 2008, compared to 48% in 2007.
This reflected 5% aggregate growth in net sales outside of North
America and a 3% decline in net sales in North America.
Competition
The businesses in which the segment operates are highly
competitive. The rapid technological changes occurring in each
of the markets in which the segment competes are expected to
lead to the entry of many new competitors. Competitive factors
in the market for the segments products and systems
include: technology offered; product and system performance;
price; product features; quality; delivery and availability. We
believe that we are competitively positioned because of our
solid relationships with major communication system operators
worldwide, our technological leadership and our new product
development capabilities. Price is a major area of competition
and often impacts margins for initial system bids, particularly
in emerging markets. Time-to-market has also been an important
competitive factor, especially for new systems and technologies.
We compete with many equipment suppliers and several consumer
electronics companies located throughout the world.
In our home business, we compete worldwide in the market for
digital entertainment devices and cable and wireline
infrastructure equipment for broadband networks. Our largest
competitor is Cisco. Based on 2008 annual sales, we are the
leading provider of digital cable and IPTV set-tops worldwide.
Our digital entertainment devices and infrastructure equipment
compete with products from a number of different companies,
including: (i) those that develop and sell products that
are distributed by direct broadcast satellite service providers
through retail channels, (ii) those that develop,
manufacture and sell products of their own design, and
(iii) those that license technology from us or other
competitors.
Traditionally, cable service providers have leased
set-tops
to
their customers. FCC regulations requiring separation of
security functionality from set-tops became effective in 2007.
To meet this requirement, we provide security modules to cable
operators for use with both our own and third-party set-tops, as
well as in consumer products designed to accept them. The
initial implementation limited consumer products to
broadcast-delivered channels including premium services. A full
two-way security interface specification that allows retail
customers access to all programming available on the
operators network without the need for a set-top box has
been adopted by a few television manufacturers. They began
shipping television sets that incorporate this capability in
2008.
We also compete worldwide in the market for broadband data and
voice products. We believe that we are a leading provider of
cable modems worldwide, competing with several consumer
electronic companies and original design manufacturers worldwide.
In the wireless networks market, there is widespread competition
from numerous competitors, ranging from some of the worlds
largest diversified companies to foreign telecommunications
companies to many small, specialized firms. Ericsson is the
market leader, followed by the Nokia-Siemens joint venture,
Alcatel-Lucent, Huawei and Motorola, along with other vendors
with similar market share. We believe we are a leading provider
of WiMAX technologies. Many of the major competitors who compete
across various wireless technologies also compete in WiMAX.
The segments networks business is confronting several
factors that could impact its business, including price
competition, continuing consolidation among competitor
telecommunications equipment providers, consolidation among
customers, the potential impact of global economic conditions,
and vendor financing by competitors as customers continue to
look to vendors as an additional source of financing.
9
Payment
Terms
Payment terms vary worldwide, depending on the arrangement. In
North America, payment is generally due 30 to 60 days from
the invoice date. In regions outside of North America, terms
vary widely but are typically limited to no more than 90 days.
Contracts for wireless networks typically include implementation
milestones, such as delivery, installation and system
acceptance, which generally take 30 to 180 days to
complete. Invoicing the customer is dependent on the completion
of the milestone.
As required for competitive reasons, extended payment terms are
provided to customers from time-to-time on a limited basis. The
segments payment terms are consistent with industry
practice, as many of our contracts are awarded through a
competitive bid process. When required for competitive reasons,
we may provide long-term financing in connection with equipment
purchases. Financing may cover all or a portion of the purchase
price.
Regulatory
Matters
Many of our products are subject to regulation by the FCC in the
United States and other communications regulatory agencies
around the world. In addition, our customers, and their networks
into which our products are incorporated, are subject to
government regulation. Government regulatory policies affecting
either the willingness or the ability of cable and telecom
operators, wireless operators and wireline operators to offer
certain services, or the terms on which these operators offer
the services and conduct their business, may have a material
adverse effect on the segments results. Motorola has
developed products using trunking and data communications
technologies to enhance spectral efficiencies. The growth and
results of the wireless communications industry may be affected
by regulations impacting access to allocated spectrum for
wireless communications users, especially in urban areas where
the spectrum is heavily used.
Historically, reception of digital television programming from a
cable broadband network has required a set-top with security
technology. This security technology has limited the
availability of set-tops to those manufactured by a few cable
network manufacturers, including Motorola. FCC regulations
requiring separation of security functionality from set-tops
that are aimed at increasing competition and encouraging the
sale of set-tops in the retail market became effective for most
customers in 2007. Traditionally, cable service providers sold
or leased their set-top to their customer. As the retail market
develops for set-tops and televisions capable of accepting the
security modules, sales of our set-tops which are sold to cable
providers may be negatively impacted.
The U.S. leads the world in spectrum deregulation, allowing
new wireless communications technologies to be developed and
offered for sale. Examples include wireless local area network
systems, such as WiFi, and wide area network systems, such as
WiMAX and LTE. Other countries have also deregulated portions of
their available spectrum to allow deployment of these and other
technologies. Deregulation may introduce new competition and new
opportunities for Motorola and our customers.
As more fully described under Enterprise Mobility
Solutions Regulatory Matters, as television
transmission and reception technology transitions from analog to
more efficient digital modes, various countries around the world
are examining, and in some cases already pursuing, the
redevelopment of portions of the television spectrum. Certain
segments of the spectrum that have historically been utilized
for analog television have now been designated to support new
commercial communications systems and, therefore, are expected
to generate new business opportunities for Motorola in wireless
and video technologies. In the U.S., the FCC conducted an
auction of spectrum for the 700 MHz band that is expected
to be reclaimed by the government on June 12, 2009. License
for this spectrum may be used for flexible fixed, mobile and
broadcast applications. Although the auction winners will
determine the best utilization of the acquired spectrum, both
LTE and WiMAX are candidates for technology selection. In
addition, a contiguous portion of this spectrum has generated
interest for mobile TV applications.
Backlog
The segments backlog was $2.3 billion at
December 31, 2008, compared to $2.6 billion at
December 31, 2007. The 2008 order backlog is believed to be
generally firm and 100% of that amount is expected to be
recognized as revenue during 2009. The forward-looking estimate
of the firmness of such orders is subject to future events that
may cause the amount recognized to change.
Intellectual
Property Matters
Patent protection is extremely important to the segments
operations. The segment has an extensive portfolio of patents
relating to its products, systems, technologies and
manufacturing processes.
10
The segment seeks to build upon our core enabling technologies,
such as digital compression, encryption and conditional access
systems, and wireless air-interface technology in order to lead
worldwide growth in the market for wired and wireless
communications networks. Our policy is to protect our
proprietary position by, among other methods, filing
U.S. and foreign patent applications to protect technology
and improvements that we consider important to the development
of our business. We also rely on our proprietary knowledge and
ongoing technological innovation to develop and maintain our
competitive position and will periodically seek to include our
proprietary technologies in certain patent pools that support
the implementation of standards. We are a founder of MPEG LA,
the patent licensing authority established to foster broad
deployment of MPEG-2-compliant systems, and we have recently
joined the MPEG4-Visual patent pool as a licensor. In addition,
we have licensed our digital conditional access technology,
DigiCipher
®
II, to other equipment suppliers and continue our joint ventures
with Comcast for development and licensing of conditional access
technology.
We also enter into other license agreements, both as licensor
and licensee, covering certain products and processes with
various companies. These license agreements require the payment
of certain royalties that are not expected to be material to the
segments financial results. Royalty and licensing fees
vary from year to year and are subject to the terms of the
agreements and sales volumes of the products subject to
licenses. Reference is made to the material under the heading
Other Information for information relating to
patents, trademarks and research and development activities with
respect to this segment.
Inventory,
Raw Materials, Right of Return and Seasonality
The segments practice is to carry reasonable amounts of
inventory in order to meet customer delivery requirements in a
manner consistent with industry standards. At the end of 2008,
the segment had higher inventory balances than at the end of
2007, primarily due to a change in manufacturing strategy to
increase in-house manufacturing and reduce outsourced
manufacturing by third-party providers.
Availability of materials and components required by the segment
is relatively dependable, but fluctuations in supply and market
demand could cause selective shortages and affect results. We
currently procure certain materials and components from
single-source
vendors. Any material disruption from a single-source vendor may
have a material adverse impact on our results of operations. If
certain key suppliers were to become capacity constrained or
insolvent as a result of the ongoing global financial crisis, it
could result in a reduction or interruption in supplies or an
increase in the price of supplies and adversely impact the
segments financial results.
Natural gas, electricity, and, to a lesser extent, oil are the
primary sources of energy required for our manufacturing
operations. Each of these resources are currently in generally
adequate supply for the segments operations. In addition,
the cost to operate our facilities and freight costs are
dependent on world oil prices, which fluctuated significantly
during 2008 and impacted our manufacturing and shipping costs.
Labor is generally available in reasonable proximity to the
segments manufacturing facilities. However, difficulties
in obtaining any of the aforementioned items or a significant
cost increase could affect the segments results.
Generally, we do not permit customers to return products, other
than under standard warranty provisions. The segment has not
experienced seasonal buying patterns for its products.
Our
Facilities/Manufacturing
Our headquarters are located in Horsham, Pennsylvania. Our other
major facilities are located in: Arlington Heights, Illinois;
San Diego, California; Taipei, Taiwan; Bangalore, India; Beijing
and Tianjin, China; and Reynosa, Mexico. In addition to our own
manufacturing, we utilize non-affiliated electronics
manufacturing suppliers and original design manufacturers,
primarily in Asia, in order to enhance our ability to lower
costs
and/or
deliver products that meet consumer demands.
Enterprise
Mobility Solutions Segment
The Enterprise Mobility Solutions segment (Enterprise
Mobility Solutions or the segment) designs,
manufactures, sells, installs and services analog and digital
two-way radio, voice and data communications products and
systems for private networks, wireless broadband systems and
end-to-end enterprise mobility systems for a wide range of
enterprise markets, including government and public safety
agencies (which, together with all sales to distributors of
two-way communication products, is referred to as the
government and public safety market), as well as
retail, energy and utilities, transportation,
manufacturing, healthcare and other commercial
11
customers (which, collectively, are referred to as the
commercial enterprise market). In 2008, the
segments net sales represented 27% of the Companys
consolidated net sales.
Principal
Products and Services
We are the worlds leading provider of advanced
mission-critical and commercial enterprise mobility networks,
services, applications and devices. In the government and public
safety market, Motorola offers an extensive portfolio of
standard products and services that meet evolving public safety
and security needs, including products based on both TETRA
(terrestrial trunked radio) and APCO 25 (Association for Public
Safety Communications Officials) standards, with nearly
80 years of experience in this space. In the commercial
enterprise market, our products and systems provide better
information at the point of business activity, connect
seamlessly, and present tools to control the mobile experience.
Our products include: two-way radios, mobile computing products,
advanced data capture products including barcode scanners and
imagers, radio frequency identification (RFID)
infrastructure, software management, security tools and wireless
infrastructure.
The segments products and services are sold stand-alone or
as an integrated solution through Motorolas direct sales
force and through independent and authorized distributors,
dealers and value-added resellers, independent software vendors,
original equipment manufacturers and service operators.
Distributors and value-added resellers may provide a service or
add components in order to resell our product to end users. The
segment provides systems engineering, installation and other
technical and systems management services to meet its customers
particular needs. The customer may also choose to install and
maintain the equipment with its own employees, or may obtain
installation, service and parts from a network of the
segments authorized service centers or from other
non-Motorola service centers.
Our
Industry
We compete in the mobile segment of the communications industry,
providing wireless products and services to public safety,
government and enterprise customers.
Within our government and public safety market, interoperability
and natural disaster preparedness continue to be important
issues for our customers worldwide. Our extensive portfolio of
products includes integration services, equipment and support
packages for both of the major standards-based private network
technologies, APCO 25 and TETRA, as well as wireless broadband
applications. As new and better spectrum utilization evolves, we
expect to see more demand and greater potential for broadband
solutions and data applications, such as video surveillance and
other data-based products, in 2009 and beyond. While
mission-critical communications and homeland security remain
high priorities for our customers, we have seen reduced spending
in the construction and manufacturing markets due to the global
market conditions, and expect this to continue in 2009.
Within our commercial enterprise market, we believe there
continues to be long-term opportunity for growth as the global
workforce continues to become more mobile and the industries and
markets that purchase our products continue to expand. The
markets in which Motorola competes include mobile computing
products and services, enterprise wireless infrastructure, bar
code scanning, RFID products and services, and mobile network
management platforms. Organizations looking to increase
productivity and derive benefits from mobilizing their
applications and workforces are driving adoption in this market.
In 2009, given the current global economic conditions and
customer capital expenditure constraints, we expect reduced
spending in the commercial enterprise market.
Our
Strategy
The segments strategy is to maintain our global leadership
positions in the government and public safety and commercial
enterprise markets through the continued delivery of mobile
products and services and systems that meet our customers
demand for real-time information everywhere.
Our strategy in the government and public safety market is to
enable our customers to focus on their missions, not the
technology. This is accomplished by providing mission-critical
systems, seamless connectivity through highly reliable voice and
data networks and a suite of advanced applications that provide
real-time information to end users. Key objectives in
maintaining our leadership position include: (i) continuing
investment in our analog radio portfolio while leading the
ongoing migration to digital products, (ii) leveraging our
wireless broadband portfolio to drive growth and enter new
markets, (iii) managing the potential public/private
convergence of
12
700MHz public safety systems in the U.S. and digital
dividend spectrum worldwide, and (iv) continuing to lead
the market in APCO 25 and TETRA standards-based voice and data
networking systems around the world. We continue to actively
manage our portfolio, investing to expand into attractive,
complementary markets, and divesting non-strategic businesses.
In the commercial enterprise market, our approach is to deliver
products and services that are designed to empower the mobile
workforce to increase productivity, drive cost effectiveness,
and promote faster execution of critical business processes. Our
solutions architecture focuses on three areas:
(i) portfolio of devices and applications that provide real
time information at the point of business activity,
(ii) enterprise wireless networks that allocate seamless
connectivity inside and outside the enterprise, and (iii) a
set of management, security and mobility tools that provide a
controlled deployment of the enterprise mobility applications.
Customers
Our products and services are sold worldwide to a diverse set of
customers, including government and public safety agencies
(police, fire, and emergency management services) and
militaries, as well as retail, utility, transportation and
logistics, manufacturing, wholesale and distribution, healthcare
and other commercial customers. Our sales model emphasizes both
direct sales by our in-house sales force and indirect sales
through our channel of value-added resellers and distributors.
We believe this dual sales approach allows us to meet customer
needs effectively, build strong, lasting relationships and
broaden our penetration across various markets. Our channel
sales force extends the reach of our products and services to
meet demand in market segments where our direct sales force does
not sell. Resellers and distributors each have their own sales
organizations which complement and extend our sales
organization. With deep expertise about specific customers
operations, resellers are very effective in promoting sales of
the Companys products. Our independent software vendor and
value-added resale channels offer customized applications that
meet specific needs in each market segment we serve.
Our largest customer is the U.S. Government, which
represented approximately 8% of the segments net sales.
The loss of this customer could have a material adverse effect
on the segments revenue and earnings over several
quarters, because some of our contracts with the U.S. Government
are long-term. Net sales to customers in North America
represented 57% of the segments net sales in 2008.
A majority of our sales are made directly by our in-house sales
force, and the remainder of our sales are made through global
resellers and distributors. Given the current global economic
conditions, we expect reduced spending by certain customers,
particularly retail, transportation and logistics, construction
and manufacturing, to continue into 2009.
Competition
The businesses in which we operate are highly competitive.
Continued evolution in the industry, as well as technological
migration, is opening up the market to increased competition.
Other key competitive factors include: technology offered;
price; availability of vendor financing; product and system
performance; product features, quality, availability and
warranty; the quality and availability of service; company
reputation; relationship with key customers; and time-to-market.
We believe we are uniquely positioned in the industry due to our
strong customer relationships, our technological leadership and
capabilities, and our comprehensive range of offerings.
The segment experiences widespread competition in the government
and public safety market from a growing number of new and
existing competitors, including large system integrators. In
this market, the segment provides communications and information
systems compliant with both APCO 25 and TETRA industry digital
standards. Major competitors include: M/A-Com, EADS, Kenwood, EF
Johnson and Cisco.
Large system integrators are seeking to move further into the
public safety area, specifically in the federal government
market. Competitors in this segment, including the Company, may
also serve as subcontractors to large system integrators and are
selected based on a number of competitive factors and customer
requirements. Where favorable to the Company, we may partner
with large system integrators to make available our portfolio of
advanced mission-critical services, applications and devices.
Several other competitive factors may have an impact on the
business, including: the consolidation among telecommunications
equipment providers, evolving developments in the 700 MHz
band, and increasing encroachment by broadband and IP solution
providers and new low-tier entrants. As demand for
fully-integrated
13
voice, data, and broadband systems continues, the segment may
face additional competition from public telecommunications
carriers.
Within the commercial enterprise market, many firms are engaged
in the manufacturing and marketing of mobile computing devices,
products in bar code reading equipment and wireless networks.
Numerous companies, including present manufacturers of scanners,
lasers, optical instruments, microprocessors, wireless networks,
notebook computers, handheld devices and telephonic and other
communication devices, have the technical potential to compete
with the business. Competitors such as Intermec, Honeywell and
Cisco deliver products in certain parts of the commercial
enterprise market.
Payment
Terms
Payment terms vary worldwide, depending on the arrangement.
Generally, contract payment terms range from 30 to 45 days
from the invoice date within North America and are typically
limited to 90 days in regions outside of North America. A
portion of the contracts in the government and public safety
market include implementation milestones, such as delivery,
installation and system acceptance, which generally take 30 to
180 days to complete. Invoicing the customer is dependent
on completion of the milestone.
We generally do not grant extended payment terms. As required
for competitive reasons, we may provide long-term financing in
connection with equipment purchases. Financing may cover all or
a portion of the purchase price.
Regulatory
Matters
The use of wireless voice, data and video communications systems
requires radio spectrum, which is regulated by governmental
agencies throughout the world. In the U.S., the FCC and the
National Telecommunications and Information Administration
(NTIA) regulate spectrum use by non-federal entities
and federal entities, respectively. Similarly, countries around
the world have one or more regulatory bodies that define and
implement the rules for use of the radio spectrum, pursuant to
their respective national laws and international coordination
under the International Telecommunications Union
(ITU). Consequently, the business and results of
this segment could be affected by the rules and regulations
adopted by the FCC, NTIA or regulatory agencies in other
countries from time to time. The availability of additional
radio spectrum may provide new business opportunities.
Regulatory changes in current spectrum bands may also provide
opportunities or may require modifications to some of our
products so they can continue to be manufactured and marketed.
The segment manufactures and markets products in spectrum bands
already made available by regulatory bodies. These include voice
and data infrastructure, mobile radios and portable or handheld
units. Our products span the public safety, enterprise,
commercial and consumer markets and operate both on licensed and
unlicensed spectrum. In addition, new spectrum bands and
modified regulations provide possible opportunities for new
business.
As television transmission and reception technology transitions
from analog to more efficient digital modes, various countries
around the world are examining, and in some cases already
pursuing, the redevelopment of portions of the television
spectrum. In the U.S., pursuant to federal legislation, analog
television stations must cease operation in the broadcast
television spectrum by June 12, 2009. As a result of this
transition, 108 MHz of spectrum historically used for
broadcast television is being redeveloped for new uses (the
so-called digital dividend spectrum), including
broadband and narrowband wireless communications. This
soon-to-be available spectrum can provide new opportunities for
Motorola and for our competitors. Under rules adopted by the
FCC, this portion of the spectrum under redevelopment (the
700 MHz band) will support new commercial and public safety
communications systems. Licenses for the majority of this
spectrum have already been issued and as of February 2009, over
40 public safety customers are already implementing narrowband
700 MHz systems in areas where television incumbency is not
an issue. Additional agencies are expected to begin deploying
systems once broadcast television is cleared from the
700 MHz band in mid-2009. The FCC is also making provisions
for a 700 MHz band nationwide public safety broadband
network that may be built over the next
10-15 years.
Canada also released a consultation requesting industry input on
making additional spectrum available for public safety use in
the 700 MHz band. Segments of the spectrum have been
auctioned for commercial use and Motorola could see new business
opportunities as auction winners implement broadband systems on
that spectrum. However, since many analog television operations
will continue transmitting in this spectrum until June 12,
2009, it is premature for auction winners to deploy in most
markets. This delay may temporarily delay opportunities for the
Company.
14
In addition to reallocating TV spectrum at 700 MHz for
public safety and commercial use, in November 2008 the FCC
issued a decision to open unused portions of the television
spectrum below 700 MHz for unlicensed uses, including
broadband. The amount and specific location in the TV band of
this whitespace spectrum available varies by
geographic location. Also, its use is governed by technical
rules adopted to protect incumbent operations from interference.
For example, the FCC decision relies on geolocation, a
technology recommended by Motorola, to protect incumbent
television stations. This decision to open the TV whitespace
spectrum provides additional potential opportunities for
wireless broadband systems. The FCC decision also advised that
these initial TV whitespace rules are conservative with regard
to protection of broadcast incumbents and that relaxation to
provide greater TV whitespace opportunities may be possible once
additional experience is gained.
Internationally, the ITU World Radio Conference held in Geneva
in November 2007 identified spectrum that could be made
available as part of a digital dividend as
television transitions from analog to digital technology
globally. Countries around the world are studying the potential
size, timing and use of this potentially available spectrum. In
November 2007, the European Commission issued a statement
promoting a common European approach to its use. The United
Kingdom has already decided to redevelop spectrum as a result of
the digital transition and is making available 112 MHz of
spectrum through auctions. Canada has released a consultation
requesting industry input on making additional spectrum
available for public safety use in the 700 MHz band. A
number of other countries around the world have also indicated
their intention to pursue the availability of digital dividend
spectrum.
In addition, some of our operations use substances regulated
under various federal, state, local and international laws
governing the environment and worker health and safety,
including those governing the discharge of pollutants into the
ground, air and water, the management and disposal of hazardous
substances and wastes and the cleanup of contaminated sites.
Certain of our products are subject to various federal, state,
local and international laws governing chemical substances in
electronic products.
Backlog
The segments backlog was $2.4 billion as of
December 31, 2008, compared to $2.3 billion as of
December 31, 2007. The 2008 order backlog is believed to be
generally firm and approximately 70% of that amount is expected
to be recognized as revenue during 2009. The forward-looking
estimate of the firmness of such orders is subject to future
events that may cause the amount recognized to change.
Intellectual
Property Matters
Patent protection is extremely important to the segments
operations. The segment has an extensive U.S. and
international portfolio of patents relating to its products,
systems, technologies and manufacturing processes, including
recent research developments in scanning, information
collection, network communications and network management. We
have also filed additional patent applications in the
U.S. Patent and Trademark Office as well as in foreign
patent offices.
The segment licenses some of its patents to third parties and
this revenue is not significant. Motorola is also licensed to
use certain patents owned by others. Royalty and licensing fees
vary from year to year and are subject to the terms of the
agreements and sales volumes of the products subject to licenses.
We actively participate in the development of open standards for
interoperable, mission-critical digital two-way radio systems.
We have published our technology and licensed patents to
signatories of the industrys two primary memorandums of
understanding defined by the Telecommunications Industry
Association (TIA), Project 25, and European
Telecommunications Standards Institute (ETSI), TETRA.
Notwithstanding the expiration of certain patents and the
resulting potential for increased competition for some of our
products in the future, we believe that our extensive patent
portfolio will continue to provide us with a competitive
advantage. Furthermore, we believe we are not dependent upon a
single patent, or a few patents. Our success depends more upon
our proprietary know-how, innovative skills, technical
competence and marketing abilities. In addition, because of
changing technology, our present intention is not to rely
primarily on patents or other intellectual property rights to
protect or establish our market position. However, the segment
continues to litigate against competitors to enforce its
intellectual property rights in certain technologies and is
currently involved in several such lawsuits. Reference is made
to the material under the heading Other Information
for information relating to patents, trademarks and research and
development activities with respect to this segment.
15
Inventory,
Raw Materials, Right of Return and Seasonality
The segments practice is to carry reasonable amounts of
inventory to meet customers delivery requirements in a
manner consistent with industry standards. The segment provides
custom products which requires the stocking of inventories and
large varieties of piece parts and replacement parts in order to
meet delivery and warranty requirements. To the extent
suppliers product life cycles are shorter than the
segments, stocking of lifetime buy inventories is required
to meet long-term warranty and contractual requirements. In
addition, replacement parts are stocked for delivery on customer
demand within a short delivery cycle. At the end of 2008, the
segment had a higher inventory balance than at the end of 2007,
primarily as a result of the Company acquiring a controlling
interest in Vertex Standard Co, Ltd., in January 2008.
Availability of materials and components required by the segment
is relatively dependable, but fluctuations in supply and market
demand could cause selective shortages and affect results. We
currently procure certain materials and components from
single-source vendors. A material disruption from a
single-source vendor may have a material adverse impact on our
results of operations. If certain key suppliers were to become
capacity constrained or insolvent as a result of the ongoing
global financial crisis, it could result in a reduction or
interruption in supplies or an increase in the price of supplies
and adversely impact the segments financial results.
Natural gas, electricity and, to a lesser extent, oil are the
primary sources of energy for our manufacturing operations,
which are currently in adequate supply. In addition, the cost to
operate our facilities and freight costs are dependent on world
oil prices, which fluctuated significantly during 2008 and
impacted our manufacturing and shipping costs. Labor is
generally available in reasonable proximity to the
segments manufacturing facilities. However, difficulties
in obtaining any of these items or a significant cost increase
could affect the segments results.
Generally, the segments contracts do not include a right
of return, other than for standard warranty provisions. For new
product introductions in our government and public safety
market, we may enter into milestone contracts providing that the
product could be returned if we do not achieve the milestones.
Due to buying patterns in the markets we serve, sales tend to be
somewhat higher in the fourth quarter.
Our
Facilities/Manufacturing
Our primary offices are located in Schaumburg, Illinois and
Holtsville, New York. Our other major facilities are located in:
Penang, Malaysia; Reynosa, Mexico; Krakow, Poland; Berlin,
Germany; and Arad, Israel. In addition to our own manufacturing,
we utilize non-affiliated electronics manufacturing suppliers
and distribution and logistics services providers in order to
enhance our ability to lower costs and deliver products that
meet consumer demands.
Other
Information
Financial Information About
Segments.
The response to this section of
Item 1 incorporates by reference Note 12,
Information by Segment and Geographic Region, of
Part II, Item 8: Financial Statements and
Supplementary Data of this document.
Customers.
Motorola has
several large customers, the loss of one or more of which could
have a material adverse effect on the Company. In 2008,
aggregate net sales to the Companys five largest customers
represented approximately 25% of the Companys sales. No
single customer accounted for more than 10% of the
Companys net sales in 2008.
Approximately 2% of Motorolas net sales in 2008 were to
various branches and agencies, including the armed services, of
the U.S. Government. All contracts with the
U.S. Government are subject to cancellation at the
convenience of the Government.
Government contractors, including Motorola, are routinely
subjected to numerous audits and investigations, which may be
either civil or criminal in nature. The consequences of these
audits and investigations may include administrative action to
suspend business dealings with the contractor and to exclude it
from receiving new business. In addition, Motorola, like other
contractors, reviews aspects of its government contracting
operations, and, where appropriate, takes corrective actions and
makes voluntary disclosures to the U.S. Government. These
audits and investigations could adversely affect Motorolas
ability to obtain new business from the U.S. Government.
16
Backlog.
Motorolas
aggregate backlog position for all Motorola segments, as of the
end of the last two fiscal years was approximately as follows:
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December 31, 2008
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$
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5.0 billion
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December 31, 2007
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$
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5.5 billion
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Except as previously discussed in this Item 1, the orders
supporting the 2008 backlog amounts shown in the foregoing table
are believed to be generally firm, and approximately 90% of the
backlog on hand at December 31, 2008 is expected to be
recognized as revenue in 2009. The forward-looking estimate of
the firmness of such orders is subject to future events that may
cause the amount recognized to change.
Research and
Development.
Motorolas business
segments participate in very competitive industries with
constant changes in technology. Throughout its history, Motorola
has relied, and continues to rely, primarily on its research and
development (R&D) programs for the development
of new products, and on its production engineering capabilities
for the improvement of existing products. Technical data and
product application ideas are exchanged among Motorolas
business segments on a regular basis. Management believes,
looking forward, that Motorolas commitment to R&D
programs should allow each of its segments to remain competitive.
R&D expenditures relating to new product development or
product improvement were $4.1 billion in 2008, compared to
$4.4 billion in 2007 and $4.1 billion in 2006.
R&D expenditures decreased 7% in 2008 as compared to 2007,
after increasing 8% in 2007 as compared to 2006. Motorola
continues to believe that a strong commitment to research and
development is required to drive long-term growth. As of
December 31, 2008, approximately 27,000 professional
employees were engaged in such R&D activities.
Patents and
Trademarks.
Motorola seeks to obtain patents
and trademarks to protect our proprietary position whenever
possible and practical. As of December 31, 2008, Motorola,
Inc. and its wholly owned subsidiaries owned approximately 9,907
utility and design patents in the U.S. and 12,793 patents in
foreign countries. These foreign patents are mostly counterparts
of Motorolas U.S. patents, but a number result from
research conducted outside the U.S. and are originally filed in
the country of origin. During 2008, Motorola, Inc. and its
wholly owned subsidiaries were granted 644 U.S. utility and
design patents. Many of the patents owned by Motorola are used
in its operations or licensed for use by others, and Motorola is
licensed to use certain patents owned by others. Royalty and
licensing fees vary from year to year and are subject to the
terms of the agreements and sales volumes of the products
subject to licenses.
Environmental
Quality.
During 2008, compliance with
federal, state and local laws regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, did not have a material effect on
capital expenditures, earnings or the competitive position of
Motorola.
Employees.
At
December 31, 2008, there were approximately 64,000
employees of Motorola and its subsidiaries, compared to
66,000 employees of Motorola and its subsidiaries at
December 31, 2007.
Financial Information About Geographic
Areas.
The response to this section of
Item 1 incorporates by reference Note 11,
Commitments and Contingencies and Note 12,
Information by Segment and Geographic Region of
Part II, Item 8: Financial Statements and
Supplementary Data of this document, the Results of
Operations2008 Compared to 2007 and Results of
Operations 2007 Compared to 2006 sections of
Part II, Item 7: Managements Discussion
and Analysis of Financial Condition and Results of
Operations and Item A: Risk Factors of
this document.
Available
Information
We make available free of charge through our website,
www.motorola.com/investor,
our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, other reports filed under the Securities
Exchange Act of 1934 (Exchange Act) and all
amendments to those reports simultaneously or as soon as
reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange
Commission (SEC). Our reports are also available
free of charge on the SECs website,
www.sec.gov.
Also available free of charge on our website are the
following corporate governance documents:
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Motorola, Inc. Restated Certificate of Incorporation
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Motorola, Inc. Amended and Restated Bylaws
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Motorola, Inc. Board Governance Guidelines
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Motorola, Inc. Director Independence Guidelines
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Principles of Conduct for Members of the Motorola, Inc. Board of
Directors
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Motorola Code of Business Conduct, which is applicable to all
Motorola employees, including the principal executive officers,
the principal financial officer and the controller (principal
accounting officer)
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Audit and Legal Committee Charter
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Compensation and Leadership Committee Charter
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Governance and Nominating Committee Charter
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All of our reports and corporate governance documents may also
be obtained without charge by contacting Investor Relations,
Motorola, Inc., Corporate Offices, 1303 East Algonquin Road,
Schaumburg, Illinois 60196,
E-mail:
investors@motorola.com
. Our Annual Report on
Form 10-K
and Definitive Proxy Statement may also be requested in hardcopy
by clicking on Printed Materials at
www.motorola.com/investor. Our Internet website and the
information contained therein or incorporated therein are not
intended to be incorporated into this Annual Report on
Form 10-K.
18
We wish to caution the reader that the following important
risk factors, and those risk factors described elsewhere in this
report or our other Securities and Exchange Commission filings,
could cause our actual results to differ materially from those
stated in forward-looking statements contained in this document
and elsewhere. These risks are not presented in order of
importance or probability of occurrence.
We have had substantial operating losses in 2008 and 2007 and
may continue to incur losses as we reposition our Mobile Devices
business.
In 2008 and 2007, Motorola had substantial operating losses as a
result of the financial performance of our Mobile Devices
business. While we have plans in place intended to improve the
performance of this business, we cannot be certain that we will
be successful or that we will be profitable in 2009.
The wireless mobile handset market experienced slowing growth
in 2008 and the market is expected to decline in 2009 which
could negatively impact transition plans for our Mobile Devices
business.
In 2009, worldwide wireless handset industry unit shipments are
expected to decline by approximately 10%. This would be the
first annual decline in industry handset unit shipments since
2001. A declining mobile handset market may make it more
difficult to improve our business, due to excess manufacturing
capacity, increased price competition and other market factors.
We have lost significant market share in our Mobile Devices
businesses and such loss has negatively impacted our performance
and may continue to negatively impact our financial results.
Our share of the worldwide wireless handset market has declined
significantly in the last two years, from approximately 22% in
2006, to 14% in 2007, to 8% in 2008. While we reduced our costs
during this period of time, these market share declines and
resulting volume reductions have had an adverse effect on our
results of operations. If market share in our Mobile Devices
business continues to decline, it will adversely impact our
financial results.
The uncertainty of current economic and political conditions
makes budgeting and forecasting difficult and may reduce demand
for our products.
Current conditions in the domestic and world economies are very
uncertain. The global financial crisis, as well as ongoing
political conflicts in the Middle East and elsewhere, have
created many economic and political uncertainties that have
impacted worldwide markets. As a result, it is difficult to
estimate changes in various parts of the world economy,
including the markets in which we participate. Because all
components of our budgeting and forecasting are dependent upon
estimates in the markets we serve and demand for our products,
the prevailing economic uncertainties render estimates of future
income and expenditures difficult.
We have manufacturing operations and engineering resources in
Israel that could be disrupted as a result of hostilities in the
region. We also sell our products and services throughout the
Middle East and demand for our products and services could be
adversely impacted by hostilities in this region.
The potential for future terrorist attacks, increased global
conflicts and the escalation of existing conflicts and public
health issues has created worldwide uncertainties that have
negatively impacted, and may continue to negatively impact,
demand for certain of our products.
We operate in highly competitive markets and our financial
results will be affected if we are not able to compete
effectively.
The markets for our products are highly competitive with respect
to, among other factors: pricing, product features, product and
service quality, and the time required to introduce new products
and services. We are constantly exposed to the risk that our
competitors may implement new technologies before we do, or may
offer lower prices, additional products or services or other
incentives that we cannot or will not offer. We can give no
assurances that we will be able to compete successfully against
existing or future competitors.
Our success depends in part on our timely introduction of new
products and technologies and our results can be impacted by the
effectiveness of our significant investments in new products and
technologies.
The markets for our products are characterized by rapidly
changing technologies, frequent new product introductions, short
product life cycles and evolving industry standards. We face
intense competition in these
19
markets from both established companies and new entrants.
Product life cycles can be short and new products are expensive
to develop and bring to market. Our success depends, in
substantial part, on the timely and successful introduction of
new products and upgrades of current products to comply with
emerging industry standards and to address competing
technological and product developments carried out by our
competitors. The research and development of new,
technologically-advanced products is a complex and uncertain
process requiring high levels of innovation and investment, as
well as the accurate anticipation of technology and market
trends. We may focus our resources on technologies that do not
become widely accepted or are not commercially viable. In
addition, our products may contain defects or errors that are
detected only after deployment. If our products are not
competitive or do not work properly, our business will suffer.
Our results are subject to risks related to our significant
investment in developing and introducing new products, such as:
advanced wireless handsets, including smartphones; WiMAX, LTE
and other advanced technologies for wireless broadband networks;
products for transmission of telephony and high-speed data over
hybrid fiber coaxial cable systems; integrated digital radios;
and integrated public safety systems. These risks include:
(i) difficulties and delays in the development, production,
testing and marketing of products; (ii) customer acceptance
of products; (iii) the development of, approval and
compliance with industry standards; (iv) the significant
amount of resources we must devote to the development of new
technology; and (v) the ability to differentiate our
products and compete with other companies in the same markets.
We face a number of risks related to the ongoing financial
crisis and severe tightening in the global credit markets.
The ongoing global financial crisis affecting the banking system
and financial markets has resulted in a severe tightening in the
worldwide credit markets, a low level of liquidity in many
financial markets and extreme volatility in credit and equity
markets. This financial crisis has impacted, and could continue
to impact, Motorolas business in a number of ways,
including:
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Potential Deferment or Cancellation of Purchases and Orders
by Customers:
Uncertainty about current and
future global economic conditions may cause, and in some cases
has caused, consumers, businesses and governments to defer or
cancel purchases in response to tighter credit, decreased cash
availability and declining consumer confidence. If future demand
for our products declines, it will adversely impact our
financial results.
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Customers Inability to Obtain Financing to Make
Purchases from Motorola
and/or
Maintain Their Business:
Some of our customers
require substantial financing in order to fund their operations
and make purchases from Motorola. The inability of these
customers to obtain sufficient credit to finance purchases of
our products
and/or
meet
their payment obligations to us could have, and in some cases
has had, an adverse impact on our financial results. In
addition, if the financial crisis results in insolvencies for
our customers, it will adversely impact our financial results.
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Increased Requests by Customers for Vendor Financing by
Motorola:
Certain of the Companys
customers, particularly, but not limited to, those who purchase
large infrastructure systems, request that their suppliers
provide financing in connection with equipment purchases. In
response to the recent tightening in the credit markets, these
types of requests continue to increase in volume and scope.
Motorola has increased its commitments to provide financing in
light of these requests and a continuation of the current credit
crisis could force Motorola to choose between further increasing
its level of vendor financing or potentially losing sales to
these customers.
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Negative Impact from Increased Financial Pressures on
Third-Party Dealers, Distributors and
Retailers:
A number of our businesses make sales
in certain regions through third-party dealers, distributors and
retailers. Although many of these third parties have significant
operations and maintain access to available credit, others are
smaller and more likely to be impacted by the significant
decrease in available credit that has resulted from the current
financial crisis. If credit pressures or other financial
difficulties result in insolvency for important third parties
and Motorola is unable to successfully transition
end-customers
to purchase our products from other third parties or from us
directly, it will adversely impact our financial results.
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Negative Impact from Increased Financial Pressures on Key
Suppliers:
Our ability to meet customers
demands depends, in part, on our ability to obtain timely and
adequate delivery of quality materials, parts and components
from our suppliers. Certain of our components are available only
from a single source or limited sources. If certain key
suppliers were to become capacity constrained or insolvent as a
result of the financial crisis, it could result in a reduction
or interruption in supplies or an increase in the price of
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supplies and adversely impact our financial results. In
addition, credit constraints at key suppliers have resulted in
accelerated payment of accounts payable by Motorola, impacting
our cash flow. This trend could continue and may even
accelerate, impacting our cash flow.
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Increased Risk of Losses or Impairment Charges Related to
Debt Securities and Equity and Other Investments Held by
Motorola:
The current volatility in the financial
markets and overall economic uncertainty increases the risk that
the actual amounts realized in the future on our debt and equity
investments will differ significantly from the fair values
currently assigned to them. In 2008, Motorola has recognized
$186 million of impairment charges and $101 million of
temporary unrealized losses on debt securities held in its Sigma
Fund, a broadly diversified portfolio of highly rated,
short-duration debt securities. There can be no assurance that
the value of Sigma Fund investments will not decline further in
the future.
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Also, many of the Companys equity investments are in
early-stage technology companies and, therefore, may be
particularly subject to substantial price volatility and
heightened risk from the tightening in the credit markets.
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Increased Risk of Financial Counterparty Failures Could
Negatively Impact our Financial Position:
The
Company uses financial instruments to reduce its overall
exposure to the effects of currency fluctuations on cash flows.
The Company is exposed to credit loss in the event of
nonperformance by the counterparties to these financial
instruments. In order to minimize this risk, the contracts are
distributed among several leading financial institutions, all of
whom presently have investment grade credit ratings. Although
the Company has not experienced and does not anticipate
nonperformance by its counterparties, in light of the ongoing
threats to financial institutions from the global financial
crisis, there can be no assurance of performance by the
counterparties to these financial instruments.
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Returns on Pension and Retirement Plan Assets and Interest
Rate Changes Could Affect Our Earnings in Future
Periods:
The funding position of our pension
plans is impacted by the performance of the financial markets,
particularly the equity markets, and the discount rates used to
calculate our pension obligations for funding and expense
purposes. Recent significant declines in the financial markets
have negatively impacted the value of the assets in the
Companys pension plans. In addition, lower bond yields may
reduce our discount rates resulting in increased pension
contributions and expense.
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Funding obligations are determined under government regulations
and are measured each year based on the value of assets and
liabilities on a specific date. If the financial markets do not
provide the long-term returns that are expected under the
governmental funding calculations, we could be required to make
larger contributions. The equity markets can be, and recently
have been, very volatile, and therefore our estimate of future
contribution requirements can change dramatically in relatively
short periods of time. Similarly, changes in interest rates can
impact our contribution requirements. In a low interest rate
environment, the likelihood of higher contributions in the
future increases.
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Impact on Ability to Sell Receivables:
The
Company sells accounts receivable and long-term receivables to
third parties. Sales are made both on a one-time, non-recourse
basis and under committed facilities that involve contractual
commitments from third parties to purchase qualifying
receivables up to monetary limits. These sales of receivables
provide the Company the ability to accelerate cash flow when it
is prudent to do so. The ability to sell (or factor)
receivables, particularly under committed facilities, is often
subject to the credit quality of the obligor and the
Companys ability to obtain sufficient levels of credit
insurance from independent insurance companies. In early 2009, a
$400 million committed facility expired and was not
renewed. Although the Company is negotiating replacement
facilities, there is no assurance that the Company will be able
to implement these facilities. Reduction in the volume of
committed receivable purchasing facilities could limit the
Companys ability to sell receivables in the future.
Further, the severe tightening in the credit markets due to the
ongoing global financial crisis could limit the Companys
ability to sell receivables in the future, particularly if the
creditworthiness of our customers declines.
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Impact on Ability to Purchase Sufficient Credit
Insurance:
We purchase a large amount of credit
insurance to mitigate some of our credit risks. In particular,
our ability to sell receivables, particularly under committed
receivables facilities, is often subject to obtaining sufficient
levels of credit insurance from independent insurance companies.
Accordingly, our ability to sell certain of our receivables, and
therefore our cash flows, could be negatively impacted if we are
not able to continue to purchase credit insurance in certain
countries and in sufficient quantities. Although credit
insurance remains generally available to the Company, it has
become more expensive to obtain and often requires higher
deductibles than in the past.
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There can be no assurances that the Company will be able to
obtain sufficient quantities of credit insurance in the
necessary locations in the future.
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We face a number of risks related to the recent downgrade of
the Companys long-term debt to non-investment grade by one
credit rating agency:
In December, Standard and Poors downgraded the
Companys long-term debt to BB+ (one level below investment
grade) from BBB and removed the short-term rating. In February
2009, Fitch Ratings downgraded the Companys long-term debt
to BBB- from BBB and downgraded the short-term debt rating to
F-3 from F-2. Also in February 2009, Moodys Investor
Service downgraded the Companys long-term debt to Baa3
from Baa2 and downgraded the short-term debt rating to P-3 from
P-2. Since the Company has a non-investment grade rating from
one rating agency, it is referred to as a split rated
credit.
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Our access to short-term borrowing in the commercial paper
market is very limited:
While the Company did not
issue commercial paper in 2008, if the Company needs access to
very short-term borrowing, it may no longer be able to access
the unsecured commercial paper market because of its
P-3/F-3
short-term
ratings. Other sources of short-term borrowing may be more
limited, if available at all, and will have higher cost to
borrow than the commercial paper market.
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Our access to the long-term debt market may be
limited:
As a split rated credit, our ability to
issue long-term debt is more limited and the market into which
split rated debt is offered can be very volatile and can be
unavailable for periods of time. As a result, it may be more
difficult for us to quickly issue long-term debt and any debt
issued may be more costly. These factors may impact our
operating flexibility.
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Our ability to provide performance bonds, bid bonds, standby
letters of credit and surety bonds could be severely
limited:
Commercial contracts with
Motorolas customers often require performance bonds, bid
bonds, standby letters of credit and surety bonds (collectively,
referred to as Performance Bonds) to be issued on
behalf of the Company by banks and insurance companies. As a
split rated credit, issuers of these Performance Bonds may be
less likely to provide Performance Bonds on the Companys
behalf in the future, unless the Company provides collateral.
These limitations on issuance may apply to the renewal and
extension of existing Performance Bonds, as well as the issuance
of new Performance Bonds. Such collateral requirements could
result in less liquidity for other operational needs. Also, as a
result of the Companys current credit ratings, there has
been an increase in the cost of issuance of Performance Bonds.
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Our ability to hedge foreign exchange risk could be severely
limited:
As a split rated credit, counterparties
may be unwilling to provide trading and derivative lines for the
Company without cash collateral. This would severely limit our
ability to reduce volatility in earnings and cash flow. Should
cash collateral be provided, less liquidity would be available
for operational needs.
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Our ability to fund our foreign affiliates could be
limited:
The Company relies on uncommitted lines
of credit from banks to provide daylight overdraft, short-term
loans and other sources of liquidity for foreign affiliates. As
a split rated credit, lenders may be unwilling to provide credit
to our foreign affiliates. This could result in the Company
using U.S. cash to make loans to these affiliates or
provide permanent equity where loans are not possible.
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Trade terms with suppliers could become less
favorable:
Given the Companys split rating,
suppliers may require letters of credit, cash collateral or
other forms of security as part of standard payment conditions.
This could result in reduced liquidity and less leverage in
pricing negotiations.
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Our ability to sell receivables could be
impacted:
As a split rated credit, the conditions
placed on us by the parties that we sell our receivables to will
become more stringent. If we are unable, or choose not to, meet
these new conditions, our ability to sell the receivables will
be negatively impacted.
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We may not be able to borrow funds under our credit facility
if we are not able to meet the conditions for borrowing required
by our facility.
Our existing $2 billion five-year domestic syndicated
revolving credit facility contains various conditions, covenants
and representations with which we must be in compliance in order
to borrow funds. Although there are no borrowings outstanding
under the facility, if we wish to borrow under this facility in
the future, there can be no assurance that we will be in
compliance with these conditions, covenants and representations.
22
We may not generate sufficient future taxable income, which
may require additional deferred tax asset valuation
allowances.
If the Company is unable to generate sufficient future taxable
income in the U.S. and certain other jurisdictions, or if there
is a significant change in the actual effective tax rates or the
time period within which the underlying temporary differences
become taxable or deductible, the Company could be required to
increase its valuation allowances against its deferred tax
assets resulting in an increase in its effective tax rate and an
adverse impact on future operating results.
We may be required to record additional goodwill or
amortizable intangible assets impairment charges, which could
result in an additional significant charge to earnings.
Under generally accepted accounting principles, we review our
amortizable intangible assets for impairment when events or
changes in circumstances indicate the carrying value may not be
recoverable. Goodwill is tested for impairment at least
annually. Factors that may be considered in assessing whether
goodwill or intangible assets may not be recoverable include a
decline in the Companys stock price or market
capitalization, reduced estimates of future cash flows, and
slower growth rates in our industry. During 2008, the Company
recorded goodwill impairment charges of $1.6 billion and
intangible assets impairment charges of $129 million. The
goodwill impairment charges resulted from lower asset values in
the overall market and the impact of the macroenvironment on the
Companys near-term forecasts. The intangible asset
impairments resulted from a change in a technology platform
strategy. Further declines in the Companys stock price,
the markets or reductions in the Companys future cash flow
estimates and future operating results may require the Company
to record significant additional goodwill or intangible asset
impairment charges in our financial statements in future
periods, negatively impacting our financial results.
Our strategy to separate our businesses into two
publicly-traded companies may have an adverse effect on business
operations and our assets.
The Company has announced a strategy to separate into two
publicly-traded companies in the future, if and when market and
businesses conditions support a separation. There are various
uncertainties and risks relating to the proposed separation of
our businesses into two publicly-traded companies, which are
enhanced because we have not announced a target date for the
separation or determined the structure that will best serve the
strategic realignment. The uncertainties and risks that could
have an adverse effect on our business operations or assets
include: (i) the distraction of management and disruption
of operations, which could have a material adverse effect on our
operating results; (ii) perceived uncertainties as to our
future direction may result in increased difficulties in
recruiting and retaining employees, particularly highly
qualified employees; (iii) perceived uncertainties as to
our future direction may have a negative impact on our
relationships with our customers, suppliers, vendors and
partners and may result in the loss of business opportunities;
(iv) the process of exploring strategic alternatives may be
time consuming and expensive and may result in the loss of
business opportunities; and (v) we may not be able to
successfully achieve the benefits of any strategic alternative
undertaken by us.
Our future financial results may be negatively impacted if we
do not execute on our hardware and software strategy for our
Mobile Devices business.
As part of our ongoing effort to improve the product portfolio
of our Mobile Devices business, we are in the process of
rationalizing our hardware and software platforms to reduce the
complexity of our product platforms and system architecture to
lower our cost to produce devices and to enable richer consumer
experiences. Failure to execute these rationalization plans in a
timely and effective manner may cause us to be competitively
disadvantaged in many areas, including but not limited to, cost,
time to market and the ability to
ramp-up
production in a timely fashion with acceptable quality and
improved/additional features.
If our operating system strategy is not successful, our
Mobile Devices business could be negatively impacted.
We have made a strategic decision to use third-party
and/or
open
source operating systems, such as Googles Android
operating system and Microsofts Windows Mobile operating
system in our wireless products. As a result of this, we are at
risk due to our dependency on third parties continued
development of operating systems and third parties
software application ecosystem infrastructures. With respect to
Googles Android operating system which is a newer
operating system for wireless handsets, in the event that
Googles Android team no longer develops the Android code
base and this development is not taken up by the open source
community, this would increase the burden of development on
Motorola. From an overall risk perspective, the industry is
currently engaged in an extremely competitive phase with respect
to operating system platforms and software generally.
23
Android is viewed as a competitive platform in the Linux and
smartphone categories. If Android fails to gain operator
and/or
developer adoption, the Companys financial results could
be negatively impacted.
We have taken, and continue to take, cost-reduction actions.
Our ability to complete these actions and the impact of such
actions on our business may be limited by a variety of factors.
The cost-reduction actions, in turn, may expose us to additional
production risk and have an adverse effect on our sales,
profitability and ability to attract and retain employees.
We have been reducing costs and simplifying our product
portfolios in all of our businesses, with sizable reductions in
our Mobile Devices business. We have discontinued product lines,
exited businesses, consolidated manufacturing operations,
increased manufacturing with third parties, reduced our employee
population and changed our compensation and benefit programs.
The impact of these cost-reduction actions on our sales and
profitability may be influenced by many factors including, but
not limited to: (i) our ability to successfully complete
these ongoing efforts; (ii) our ability to generate the
level of cost savings we expect or that are necessary to enable
us to effectively compete; (iii) delays in implementation
of anticipated workforce reductions in highly-regulated
locations outside the United States, particularly in Europe and
Asia; (iv) decline in employee morale and the potential
inability to meet operational targets due to the loss of
employees; (v) our ability to retain or recruit key
employees, particularly as a result of recent actions to suspend
the Companys 401(k) contributions to employee accounts,
permanently freeze all future benefit accruals under
U.S. pension plans and eliminate merit increase programs in
the U.S. and many other markets; (vi) the adequacy of our
manufacturing capacity, including capacity provided by third
parties; and (vii) the performance of other parties under
contract manufacturing arrangements on which we rely for the
manufacture of certain products, parts and components.
All of our businesses have consolidated or exited certain
facilities and our products are manufactured in fewer facilities
than in the past. While we have business continuity and risk
management plans in place in case capacity is significantly
reduced or eliminated at a given facility, the reduced number of
alternative facilities could cause the duration of any
manufacturing disruption to be longer. As a result, we could
have difficulties fulfilling our orders and our sales and
profits could decline.
The demand for our products depends, in part, on the
continued growth of the industries in which we participate. A
market decline in any one of these industries could have an
adverse effect on our business.
The rate at which the portions of the telecommunications
industry in which we participate continue to grow is critical to
our ability to improve our overall financial performance and we
could be negatively impacted by a slowdown. Our business was
very negatively impacted by the economic slowdown and the
corresponding reduction in capital spending by the
telecommunications industry from 2001 to 2003, and we are
forecasting declines and slower growth in 2009 for the
industries we compete in.
Our customers and suppliers are located throughout the world
and, as a result, we face risks that other companies that are
not global may not face.
Our customers and suppliers are located throughout the world and
more than half of our net sales are made to customers outside
the U.S. In addition, we have many manufacturing,
administrative and sales facilities outside the U.S. and
more than half of our employees are employed outside the
U.S. Most of our suppliers operations are outside the
U.S., and most of our products are manufactured outside the
U.S.
As with all companies that have sizeable sales and operations
outside the U.S., we are exposed to risks that could negatively
impact sales or profitability, including but not limited to:
(i) tariffs, trade barriers and trade disputes, customs
classifications and certifications, including but not limited to
changes in classifications or errors or omissions related to
such classifications and certifications; (ii) changes in
U.S. and
non-U.S. rules
related to trade, environmental, health and safety, technical
standards & consumer protection; (iii) longer
payment cycles; (iv) tax issues, such as tax law changes,
variations in tax laws from country to country and as compared
to the U.S., obligations under tax incentive agreements, and
difficulties in repatriating cash generated or held abroad in a
tax-efficient manner; (v) currency fluctuations,
particularly in the Chinese renminbi, Euro, Brazilian real,
Taiwan dollar and Japanese yen; (vi) foreign exchange
regulations, which may limit the Companys ability to
convert or repatriate foreign currency; (vii) challenges in
collecting accounts receivable; (viii) cultural and
language differences; (ix) employment regulations and local
labor conditions; (x) difficulties protecting IP in foreign
countries; (xi) instability in economic or political
conditions, including inflation, recession and actual or
anticipated military or political conflicts; (xii) natural
disasters; (xiii) public health issues or outbreaks;
24
(xiv) changes in laws or regulations that adversely impact
benefits being received by the Company; and (xv) the impact
of each of the foregoing on our outsourcing and procurement
arrangements.
Many of our products that are manufactured outside the
U.S. are manufactured in Asia and Mexico. If manufacturing
in these regions is disrupted, our overall capacity could be
significantly reduced and sales or profitability could be
negatively impacted. Furthermore, the legal system in China is
still developing and is subject to change. Accordingly, our
operations and orders for products in China could be adversely
impacted by changes to, or interpretation of, Chinese law.
We also have presence in emerging markets such as India and
Russia. We face challenges in emerging markets, including
creating demand for our products and the negative impact of
changes in the laws, or the interpretation of the laws, in those
countries.
Changes in our operations or sales outside the
U.S. markets could result in lost benefits in impacted
countries and increase our cost of doing business.
The Company has entered into various agreements with
non-U.S. governments,
agencies, or similar organizations under which the Company
receives certain benefits relating to its operations
and/or
sales
in the jurisdiction. If the Companys circumstances change
and operations or sales are not at levels originally
anticipated, the Company may be at risk of losing some or all of
these benefits and increasing our cost of doing business.
If the quality of our products does not meet our
customers expectations, then our sales and operating
earnings, and ultimately our reputation, could be adversely
affected.
Some of the products we sell have quality issues resulting from
the design or manufacture of the product, or from the software
used in the product. Sometimes, these issues may be caused by
components we purchase from other manufacturers or suppliers.
Often these issues are identified prior to the shipment of the
products and may cause delays in shipping products to customers,
or even the cancellation of orders by customers. Sometimes, we
discover quality issues in the products after they have been
shipped to our customers, distributors or end-users, requiring
us to resolve such issues in a timely manner that is the least
disruptive to our customers. Such pre-shipment and post-shipment
quality issues can have legal and financial ramifications,
including: delays in the recognition of revenue, loss of revenue
or future orders, customer-imposed penalties on Motorola for
failure to meet contractual requirements, increased costs
associated with repairing or replacing products, and a negative
impact on our goodwill and brand name reputation.
In some cases, if the quality issue affects the products
safety or regulatory compliance, then such a
defective product may need to be recalled. Depending
on the nature of the defect and the number of products in the
field, it could cause the Company to incur substantial recall
costs, in addition to the costs associated with the potential
loss of future orders, and the damage to the Companys
goodwill or brand/reputation. In addition, the Company may be
required, under certain customer contracts, to pay damages for
failed performance that might exceed the revenue that the
Company receives from the contracts. Recalls involving
regulatory agencies could also result in fines and additional
costs. Finally, recalls could result in third-party litigation,
including class action litigation by persons alleging common
harm resulting from the purchase of the products.
If the volume of our sales decrease or do not reach projected
targets, we could face increased materials and manufacturing
costs that may make our products less competitive.
We have negotiated favorable pricing terms with many of our
suppliers, some of which have volume-based pricing. In the case
of volume-based pricing arrangements, we may experience higher
than anticipated costs if current volume-based purchase
projections are not met. Some contracts have minimum purchase
commitments and we may incur large financial penalties if these
commitments are not met. We also may have unused production
capacity if our current volume projections are not met,
increasing our production cost per unit. In the future, as we
establish new pricing terms, our volume demand could adversely
impact future pricing from suppliers. All of these outcomes may
result in our products being more costly to manufacture and less
competitive.
Our future operating results depend on our ability to
purchase a sufficient amount of materials, parts and components
to meet the demands of our customers.
Our ability to meet customers demands depends, in part, on
our ability to obtain timely and adequate delivery of quality
materials, parts and components from our suppliers. We have
experienced shortages in the past that have adversely affected
our operations. Although we work closely with our suppliers to
avoid these types of shortages, there can be no assurances that
we will not encounter these problems in the future. Furthermore,
certain
25
of our components are available only from a single source or
limited sources. We may not be able to diversify sources in a
timely manner. A reduction or interruption in supplies or a
significant increase in the price of supplies could have a
material adverse effect on our businesses.
Our success is dependent, in part, upon our ability to form
successful strategic alliances. If these arrangements do not
develop as expected, our business may be adversely impacted.
We currently partner with industry leaders to meet customer
product and service requirements and to develop innovative
advances in design and technology. Some of our partnerships
allow us to supplement internal manufacturing capacity and share
the cost of developing next-generation technologies. Other
partnerships allow us to offer more services and features to our
customers. If such arrangements do not develop as expected, our
business could be adversely impacted.
We rely on third-party distributors, representatives and
retailers to sell certain of our products.
In addition to our own sales force, we offer our products
through a variety of third-party distributors, representatives
and retailers. Certain of our distributors or representatives
may also market other products that compete with our products.
The loss, termination or failure of one or more of our
distributors or representatives to effectively promote our
products, or changes in the financial or business condition of
these distributors, representatives or retailers, could affect
our ability to bring products to market.
We face many risks relating to intellectual property
rights.
Our business will be harmed if: (i) we, our customers
and/or
our
suppliers are found to have infringed intellectual property
rights of third parties, (ii) if the intellectual property
indemnities in our supplier agreements are inadequate to cover
damages and losses due to infringement of third-party
intellectual property rights by supplier products, (iii) if
we are required to provide broad intellectual property
indemnities to our customers, or (iv) if our intellectual
property protection is inadequate to protect our proprietary
rights. We may be harmed if we are forced to make publicly
available, under the relevant
open-source
licenses, certain internally developed
software-related
intellectual property as a result of either our use of
open-source
software code or the use of
third-party
software that contains
open-source
code.
Because our products are comprised of complex technology, much
of which we acquire from suppliers through the purchase of
components or licensing of software, we are often involved in or
impacted by litigation regarding patent and other intellectual
property rights. Third parties have asserted, and in the future
may assert, intellectual property infringement claims against us
and against our customers and suppliers. Defending claims may be
expensive and divert the time and efforts of our management and
employees. Increasingly, third parties have sought broad
injunctive relief which could limit our ability to sell our
products in the U.S. or elsewhere with intellectual
property subject to the claims. If we do not succeed in any such
litigation, we could be required to expend significant resources
to pay damages, develop non-infringing intellectual property or
to obtain licenses to the intellectual property that is the
subject of such litigation. However, we cannot be certain that
any such licenses, if available at all, will be available to us
on commercially reasonable terms. In some cases, we might be
forced to stop delivering certain products if we or our customer
or supplier are subject to a final injunction.
We attempt to negotiate favorable intellectual property
indemnities with our suppliers for infringement of third-party
intellectual property rights, but there is no assurance that we
will be successful in our negotiations or that a suppliers
indemnity will cover all damages and losses suffered by Motorola
and our customers due to the infringing products or that a
supplier may choose to accept a license or modify or replace its
products with non-infringing products which would otherwise
mitigate such damages and losses. Further, Motorola may not be
able to participate in intellectual property litigation
involving a supplier and may not be able to influence any
ultimate resolution or outcome that may adversely impact
Motorolas sales if a court enters an injunction that
enjoins the suppliers products or if the International
Trade Commission issues an exclusionary order that blocks
Motorola products from importation into the U.S.
In addition, our customers increasingly demand that we indemnify
them broadly from all damages and losses resulting from
intellectual property litigation against them. Because our
customers often derive much larger revenue streams by reselling
or leasing our products than we generate from the same products,
these indemnity claims by our customers have the potential to
expose us to damages that are much higher than we would be
exposed to if we were sued directly.
Our patent and other intellectual property rights are important
competitive tools and may generate income under license
agreements. We regard our intellectual property rights as
proprietary and attempt to protect them
26
with patents, copyrights, trademarks, trade secret laws,
confidentiality agreements and other methods. We also generally
restrict access to and distribution of our proprietary
information. Despite these precautions, it may be possible for a
third party to obtain and use our proprietary information or
develop similar technology independently. In addition, effective
patent, copyright, trademark and trade secret protection may be
unavailable or limited in certain foreign countries.
Unauthorized use of our intellectual property rights by third
parties and the cost of any litigation necessary to enforce our
intellectual property rights could have an adverse impact on our
business.
As we expand our business, including through acquisitions, and
compete with new competitors in new markets, the breadth and
strength of our intellectual property portfolio in those new
areas may not be as developed as in our longer-standing
businesses. This may expose us to a heightened risk of
litigation and other challenges from competitors in these new
markets.
We face risks related to ongoing patent-related disputes
between Qualcomm and Broadcom.
Motorola is a purchaser of CDMA EV-DO baseband processor chips
and chipsets from Qualcomm Incorporated (Qualcomm),
and we previously announced an intention to design certain of
Qualcomms W-CDMA chipsets into certain of our 3G handsets.
Qualcomm and Broadcom Corporation (Broadcom) are
engaged in several patent-related legal actions. In certain of
these actions, Broadcom is seeking orders to ban the importation
into the U.S. of Qualcomms infringing EV-DO and
W-CDMA baseband processor chipsets and certain
downstream products that contain them (including
Motorola handsets)
and/or
limit
Qualcomms ability to provide certain services and products
in the U.S. relating to such infringing chipsets. A final
outcome adverse to Qualcomm in any of the patent-related legal
actions could have a material adverse impact on Motorolas
performance by making it difficult, more expensive or impossible
for Motorola to make
and/or
import products destined for the U.S. market that use
certain infringing Qualcomm chipsets. While we continue to work
with Qualcomm and others on contingency plans relating to these
cases, there is no guarantee that such plans will prove
successful or avoid further legal challenge.
Our future financial results may be negatively impacted if we
are not successful in licensing our intellectual property.
As part of the business strategy of some of our business
segments, primarily our Mobile Devices business, we generate
revenue through the licensing of intellectual property rights.
The licensed rights include those that are essential to
telecommunications standards, such as the GSM standard.
Previously
agreed-upon
terms of some of our long-standing license agreements and the
aging of our essential patent portfolio have reduced our royalty
revenue over the past several years and are likely to continue
to reduce that revenue. Uncertainty in the legal environment
makes it difficult to assure that we will be able to enter into
new license agreements that will be sufficient to offset that
reduction in our revenue.
Many of our components and products are designed or
manufactured by third parties and if third-party manufacturers
lack sufficient quality control or if there are significant
changes in the financial or business condition of such
third-party manufacturers, it may have a material adverse effect
on our business.
We rely on third-party suppliers for many of the components used
in our products and we rely on third-party manufacturers to
manufacture many of our assemblies and finished products. If we
are not able to engage such manufacturers with the capabilities
or capacities required by our business, or if such third parties
lack sufficient quality control or if there are significant
changes in the financial or business condition of such third
parties, it could have a material adverse effect on our business.
We also have third-party arrangements for the design or
manufacture of certain products, parts and components. If we are
not able to engage such parties with the capabilities or
capacities required by our business, or if these third parties
fail to deliver quality products, parts and components on time
and at reasonable prices, we could have difficulties fulfilling
our orders and our sales and profits could decline.
We may continue to make strategic acquisitions of other
companies or businesses and these acquisitions introduce
significant risks and uncertainties, including risks related to
integrating the acquired businesses and achieving benefits from
the acquisitions.
In order to position ourselves to take advantage of growth
opportunities, we have made, and may continue to make, strategic
acquisitions that involve significant risks and uncertainties.
These risks and uncertainties include: (i) the difficulty
in integrating newly-acquired businesses and operations in an
efficient and effective manner; (ii) the challenges in
achieving strategic objectives, cost savings and other benefits
from acquisitions; (iii) the risk
27
that our markets do not evolve as anticipated and that the
technologies acquired do not prove to be those needed to be
successful in those markets; (iv) the potential loss of key
employees of the acquired businesses; (v) the risk of
diverting the attention of senior management from our
operations; (vi) the risks of entering new markets in which
we have limited experience; (vii) risks associated with
integrating financial reporting and internal control systems;
(viii) difficulties in expanding information technology
systems and other business processes to accommodate the acquired
businesses; and (ix) future impairments of goodwill of an
acquired business.
Acquisition candidates in the industries in which we participate
may carry higher relative valuations (based on their earnings)
than we do. This is particularly evident in software and
services businesses. Acquiring a business that has a higher
valuation than Motorola may be dilutive to our earnings,
especially when the acquired business has little or no revenue.
In addition, we may not pursue opportunities that are highly
dilutive to near-term earnings and have, in the past, foregone
certain of these acquisitions.
Key employees of acquired businesses may receive substantial
value in connection with a transaction in the form of
change-in-control
agreements, acceleration of stock options and the lifting of
restrictions on other equity- based compensation rights. To
retain such employees and integrate the acquired business, we
may offer additional retention incentives, but it may still be
difficult to retain certain key employees.
The value of our investments in the securities of various
companies fluctuates and it may be difficult for us to realize
the value of these investments.
We hold a portfolio of investments in various companies. Since
the majority of these securities represent investments in
technology companies, the fair market values of these securities
are subject to significant price volatility. In addition, the
realizable value of these securities is subject to market and
other conditions.
We also have invested in numerous privately-held companies, many
of which can still be considered in startup or developmental
stages. These investments are inherently risky as the market for
the technologies or products they have under development are
typically in the early stages and may never materialize. We
could lose all or substantially all of the value of our
investments in these companies, and in some cases have.
The Sigma Fund holds U.S. Dollar-denominated debt
obligations which include, among other securities, corporate
bonds, asset- and mortgage-backed securities. As issuers of
these securities continue to be negatively impacted by the
weakened global economic environment and dislocation in the
financial markets, the total fair value of the Sigma Fund
holdings is less than its total original cost. The fair value of
these holdings may experience further declines due to the
widening credit spreads in several debt market segments or if
the underlying debtors should default on their obligations. Such
events could result in additional temporary unrealized losses or
impairment charges in the Sigma Fund investments.
It may be difficult for us to recruit and retain the types of
highly-skilled employees that are necessary to remain
competitive.
Competition for key technical personnel in high-technology
industries is intense. We believe that our future success
depends in large part on our continued ability to hire,
assimilate, retain and leverage the skills of qualified
engineers and other highly-skilled personnel needed to compete
and develop successful new products. We may not be as successful
as our competitors at recruiting, assimilating, retaining and
utilizing these highly-skilled personnel. In particular, we may
have more difficulty attracting or retaining highly-skilled
personnel during periods of poor operating performance, and as a
result of recent actions to suspend the Companys 401(k)
contributions to employee accounts, permanently freeze all
future benefit accruals under U.S. pension plans and
eliminate merit increase programs in the U.S. and many other
markets.
The unfavorable outcome of litigation pending or future
litigation could materially impact the Company.
Our financial results could be materially adversely impacted by
unfavorable outcomes to any pending or future litigation. See
Item 3Legal Proceedings. There can be no
assurances as to the favorable outcome of any litigation. In
addition, it can be very costly to defend litigation and these
costs could negatively impact our financial results.
We are subject to a wide range of product regulatory and
safety, consumer, worker safety and environmental laws.
Our operations and the products we manufacture
and/or
sell
are subject to a wide range of global laws. Compliance with
existing or future laws could subject us to future costs or
liabilities, impact our production capabilities, constrict our
ability to sell, expand or acquire facilities, and generally
impact our financial
28
performance. Some of these laws relate to the use, disposal,
clean up of, and exposure to hazardous substances. In the United
States, laws often require parties to fund remedial studies or
action regardless of fault. Motorola continues to incur disposal
costs and has ongoing remediation obligations. Changes to
U.S. environmental laws or our discovery of additional
obligations under these laws could have a negative impact on
Motorola.
Over the last several years, laws focused on: the energy
efficiency of electronic products and accessories; recycling of
both electronic products and packaging; and reducing or
eliminating certain hazardous substances in electronic products
have expanded significantly. Laws pertaining to accessibility
features of electronic products, standardization of connectors
and power supplies, sound levels of music playing devices, and
other aspects are also proliferating.
These laws impact our products and make it more expensive to
manufacture and sell product. It may also be difficult to comply
with the laws in a timely way and we may not have compliant
products available in the quantities requested by our customers,
thereby impacting our sales and profitability.
We expect these trends to continue. In addition, we anticipate
increased demand to meet voluntary criteria related to reduction
or elimination of certain hazardous constituents from products,
increasing energy efficiency, and providing additional
accessibility.
We are exposed to risks under large multi-year system
contracts that may negatively impact our business.
We enter into large multi-year system contracts with large
customers. This exposes us to risks, including: (i) the
technological risks of such contracts, especially when the
contracts involve new technology, and (ii) financial risks
under these contracts, including the estimates inherent in
projecting costs associated with large contracts and the related
impact on operating results. We are also facing increasing
competition from traditional system integrators and the defense
industry as system contracts become larger and more complicated.
Political developments also can impact the nature and timing of
these large contracts.
It is important that we are able to obtain many different
types of insurance, and if we are not able to obtain insurance
we are forced to retain the risk.
The Company has many types of insurance coverage and also
self-insures for some risks and obligations. The insurance
market was disrupted after the events of September 11, 2001
and the 2005 hurricanes. While the cost and availability of most
insurance has stabilized, there are still certain types and
levels of insurance that remain unavailable. Natural disasters
and certain risks arising from securities claims and public
liability are potential self-insured events that could
negatively impact our financial results.
Government regulation of radio frequencies may limit the
growth of the wireless communications industry or reduce
barriers to entry for new competitors.
Radio frequencies are required to provide wireless services. The
allocation of frequencies is regulated in the U.S. and
other countries and limited spectrum space is allocated to
wireless services. The growth of the wireless and personal
communications industry may be affected: (i) by regulations
relating to the access to allocated spectrum for wireless
communication users, especially in urban areas, (ii) if
adequate frequencies are not allocated, or (iii) if new
technologies are not developed to better utilize the frequencies
currently allocated for such use. Industry growth has been and
may continue to be affected by the cost of new licenses required
to use frequencies and any related frequency relocation costs.
The U.S. leads the world in spectrum deregulation, allowing
new wireless communications technologies to be developed and
offered for sale. Examples include wireless local area network
systems, such as WiFi, mesh technologies and wide area network
systems, such as WiMAX and LTE. Other countries have also
deregulated portions of their available spectrum to allow
deployment of these and other technologies. Deregulation may
introduce new competition and new opportunities for Motorola and
our customers.
Changes in government policies and laws or economic
conditions may adversely affect our financial results.
Our results may be affected by changes in trade, monetary and
fiscal policies, laws and regulations, or other activities of
U.S. and
non-U.S. governments,
agencies and similar organizations. Our results may also be
affected by social and economic conditions, which impact our
operations, including in emerging markets in Asia, India, Latin
America and Eastern Europe, and in markets subject to ongoing
political hostilities and war, including the Middle East.
29
In addition, the laws and regulations that apply directly to
access to, or commerce on, the Internet are still evolving. We
could be adversely affected by any such regulation in any
country where we operate, including under the new presidential
administration in the U.S. The adoption of such measures
could decrease demand for our products and at the same time
increase the cost of selling such products.
Consolidations in both the cable and telecommunication
industries may adversely impact our business.
The cable and telecommunication industries have experienced
consolidation and this trend is expected to continue according
to industry estimates. Industry consolidation could result in
delays of purchases or in the selection of new suppliers by the
merged companies. This could adversely impact equipment
suppliers like Motorola and our competitors. Due to continuing
consolidation within the cable and telecommunications industries
worldwide, a small number of operators own a majority of cable
television systems and account for a significant portion of the
capital spending made by cable telecommunications systems
operators.
The effects of FCC regulations requiring separation of
security functionality from set-tops could negatively impact our
sales of set-tops to cable providers.
Historically, reception of digital television programming from a
cable broadband network has required a set-top with security
technology. Traditionally, cable service providers sold or
leased their set-top to their customer. This security technology
has limited the availability of set-tops to those manufactured
by a few cable network manufacturers, including Motorola. FCC
regulations requiring separation of security functionality from
set-tops that are aimed at increasing competition and
encouraging the sale of set-tops in the retail market became
effective for most customers in 2007. As the retail market
develops for set-tops and televisions capable of accepting the
security modules, sales of our set-tops to cable providers may
be negatively impacted. In addition, a full two-way security
interface specification that allows retail customers access to
all programming available on a cable operators network
without the need for a set-top box has been adopted by a few
television manufacturers. They began shipping television sets
that incorporate this capability in 2008.
We rely on complex information technology systems and
networks to operate our business. Any significant system or
network disruption could have a material adverse impact on our
operations, sales and operating results.
We rely on the efficient and uninterrupted operation of complex
information technology systems and networks, some of which are
within Motorola and some are outsourced. All information
technology systems are potentially vulnerable to damage or
interruption from a variety of sources, including but not
limited to computer viruses, security breach, energy blackouts,
natural disasters, terrorism, war and telecommunication
failures. There also may be system or network disruptions if new
or upgraded business management systems are defective or are not
installed properly. We have implemented various measures to
manage our risks related to system and network disruptions, but
a system failure or security breach could negatively impact our
operations and financial results. In addition, we may incur
additional costs to remedy the damages caused by these
disruptions or security breaches.
Our share price has been and may continue to be volatile.
Our share price has been volatile due, in part, to generally
volatile securities markets, and the volatility in the
telecommunications and technology companies securities
markets in particular. Factors other than our financial results
that may affect our share price include, but are not limited to,
market expectations of our performance, spending plans of our
customers, and the level of perceived growth in the industries
in which we participate.
The outcome of currently ongoing and future examinations of
our income tax returns by the IRS could impact our financial
results.
We are subject to continued examination of our income tax
returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse
outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes. There can be no
assurance that the outcomes from these continuing examinations
will not have an adverse effect on future operating results.
Failure of our suppliers to use acceptable ethical business
practices could negatively impact our business.
It is our policy to require our suppliers to operate in
compliance with applicable laws, rules and regulations regarding
working conditions, employment practices, environmental
compliance and trademark and copyright licensing. However, we do
not control their labor and other business practices. If one of
our suppliers violates labor or other laws or implements labor
or other business practices that are regarded as unethical, the
shipment of finished products to us could be interrupted, orders
could be canceled, relationships could be terminated and our
30
reputation could be damaged. If one of our suppliers fails to
procure necessary license rights to trademarks, copyrights or
patents, legal action could be taken against us that could
impact the salability of our inventory and expose us to
financial obligations to a third party. Any of these events
could have a material adverse effect on our sales and results of
operations.
Copyright levies in numerous countries for the sale of
products may adversely impact our business.
Motorola faces the possibility of substantial copyright levies
from collecting societies in numerous countries for the sale of
products that might be used for the private copying of copyright
protected works such as mobile phones, memory cards, and set top
boxes. The collecting societies argue that such levies should
apply to such products because they include audio/video
recording functionality, such as an MP3 player or DVR or storage
capability, despite the fact that such products are not
primarily intended to act as a recording device. As of this
date, to our knowledge, no copyright levies have been paid to
any collecting societies anywhere by any manufacturer. Motorola
is currently working with other major mobile communications
companies to challenge the applicability of these levies to
mobile phones, and is also engaged in aggressive lobbying
efforts against the levies in general at the European Union
level. However, if these levies are imposed, our financial
results will be negatively impacted.
Item 1B:
Unresolved
Staff Comments
None.
Motorolas principal executive offices are located at 1303
East Algonquin Road, Schaumburg, Illinois 60196. Motorola also
operates manufacturing facilities and sales offices in other
U.S. locations and in many other countries. (See
Item 1: Business for information regarding the
location of the major facilities for each of Motorolas
business segments.) Motorola owns 35 facilities (manufacturing,
sales, service and office), 21 of which are located in the
Americas Region (USA, Canada, Mexico and Latin America) and 14
of which are located in other countries. Motorola leases 321
facilities, 140 of which are located in the Americas Region and
181 of which are located in other countries. Motorola primarily
utilizes 10 major facilities for the manufacturing and
distribution of its products. These facilities are located in:
Hangzhou and Tianjin, China; Taipei, Taiwan; Chennai, India;
Penang, Malaysia; Schaumburg, Illinois; Jaguariuna, Brazil;
Reynosa, Mexico; Arad, Israel; and Berlin, Germany.
During 2008 and the beginning of 2009, facilities in: Flensburg,
Germany; Bohemia, New York; Glen Rock, New Jersey; Beijing,
China; and Taunesstein, Germany were sold. Sites at Chandler,
Arizona; Arlington Heights, Illinois; and Nogales, Mexico are
currently for sale.
Motorola generally considers the productive capacity of the
plants operated by each of its business segments to be adequate
and sufficient for the requirements of each business group. The
extent of utilization of such manufacturing facilities varies
from plant to plant and from time to time during the year.
A substantial portion of Motorolas products are
manufactured in Asia, primarily China, either in our own
facilities or in the facilities of others who manufacture and
assemble products for Motorola. If manufacturing in the region
was disrupted, Motorolas overall productive capacity could
be significantly reduced.
Item 3:
Legal
Proceedings
Telsim-Related
Cases
In April 2001, Telsim Mobil Telekomunikasyon Hizmetleri A.S.
(Telsim), a wireless telephone operator in Turkey,
defaulted on the payment of approximately $2 billion of
loans owed to Motorola and its subsidiaries (the Telsim
Loans). The Uzan family controlled Telsim until 2004 when
an agency of the Turkish government took over control of Telsim.
In December 2005, Telsim was sold by the Turkish government to
Vodafone and Motorola received an aggregate payment from the
sale of $910 million.
The Company continues its efforts to collect on its judgment of
$2.13 billion (the U.S. Judgment) for
compensatory damages rendered by the United States District
Court for the Southern District of New York (the District
Court) against the Uzans on July 31, 2003 and
affirmed by the U.S. Court of Appeals for the Second
Circuit (the Second Circuit) in 2004 and in
connection with foreign proceedings against the Uzan family.
However, the Company believes that the ongoing litigation,
collection
and/or
settlement processes against the Uzan
31
family will be very lengthy in light of the Uzans
continued resistance to satisfy the judgments against them and
their decision to violate various courts orders, including
orders holding them in contempt of court. Following a remand
from the Second Circuit of the U.S. Judgment, on
February 8, 2006, the District Court awarded a judgment in
favor of Motorola for $1 billion in punitive damages
against the Uzan family and their co-conspirator, Antonio Luna
Bettancourt. That decision was affirmed by the Second Circuit on
November 21, 2007. The District Court, on April 10,
2007, denied the Uzans motion to vacate the
U.S. Judgment. The Uzans have appealed that decision to the
Second Circuit.
Howell v.
Motorola, Inc., et al.
A class action,
Howell v. Motorola, Inc., et al.
, was
filed against Motorola and various of its directors, officers
and employees in the United States District Court for the
Northern District of Illinois (Illinois District
Court) on July 21, 2003, alleging breach of fiduciary
duty and violations of the Employment Retirement Income Security
Act (ERISA). The complaint alleged that the
defendants had improperly permitted participants in the Motorola
401(k) Plan (the Plan) to purchase or hold shares of
common stock of Motorola because the price of Motorolas
stock was artificially inflated by a failure to disclose vendor
financing to Telsim in connection with the sale of
telecommunications equipment by Motorola. The plaintiff sought
to represent a class of participants in the Plan and sought an
unspecified amount of damages. On September 30, 2005, the
district court dismissed the second amended complaint filed on
October 15, 2004 (the Howell Complaint). Three
new purported lead plaintiffs have since intervened in the case,
and have filed a motion for class certification seeking to
represent a class of Plan participants. On September 28,
2007, the Illinois District Court granted the motion for class
certification but narrowed the requested scope of the class. On
October 25, 2007, the Illinois District Court modified the
scope of the class, granted summary judgment dismissing two of
the individually-named defendants in light of the narrowed
class, and ruled that the judgment as to the original named
plaintiff, Howell, would be immediately appealable. The class as
certified includes all Plan participants for whose individual
accounts the Plan purchased
and/or
held
shares of Motorola common stock from May 16, 2000 through
May 14, 2001, with certain exclusions. On February 15,
2008 plaintiffs and defendants each filed motions for summary
judgment in the Illinois District Court. On February 22,
2008 the appellate court granted defendants motion for
leave to appeal from the Illinois District Courts
class-certification
decision. In addition, the original named plaintiff, Howell, has
appealed the dismissal of his claim.
Silverman/Williams
Federal Securities Lawsuits and Related Derivative
Matters
A purported class action lawsuit on behalf of the purchasers of
Motorola securities between July 19, 2006 and
January 5, 2007,
Silverman v. Motorola, Inc., et
al
., was filed against the Company and certain current and
former officers and directors of the Company on August 9,
2007, in the United States District Court for the Northern
District of Illinois. The complaint alleges violations of
Section 10(b) of the Securities Exchange Act of 1934 and
SEC
Rule 10b-5
as well as, in the case of the individual defendants, the
control person provisions of the Securities Exchange Act. The
factual assertions in the complaint consist primarily of the
allegation that the defendants knowingly made incorrect
statements concerning Motorolas projected revenues for the
third and fourth quarter of 2006. The complaint seeks
unspecified damages and other relief relating to the purported
inflation in the price of Motorola shares during the class
period. An amended complaint was filed December 20, 2007
and Motorola moved to dismiss that complaint in February 2008.
On September 24, 2008, the district court granted this
motion in part to dismiss Section 10(b) claims as to two
individuals and certain claims related to forward looking
statements, among other things, and denied the motion in part.
In addition, on August 24, 2007, two lawsuits were filed as
purportedly derivative actions on behalf of Motorola,
Williams v. Zander, et al.
, and
Cinotto v.
Zander, et al.
, in the Circuit Court of Cook County,
Illinois against the Company and certain of its current and
former officers and directors. These complaints make similar
factual allegations to those made in the
Silverman
complaint and assert causes of action for breach of
fiduciary duty, abuse of control, gross mismanagement, waste of
corporate assets, and unjust enrichment. The complaints seek
unspecified damages associated with the alleged loss to the
Company deriving from the defendants actions and demand
that Motorola make a number of changes to its internal
procedures. An amended complaint was filed on December 14,
2007. On January 27, 2009, Motorolas motion to
dismiss the amended complaint was granted in part and denied in
part.
32
In re
Adelphia Communications Corp. Securities and Derivative
Litigation
On December 22, 2003, Motorola was named as a defendant in
two cases relating to the
In re Adelphia Communications Corp.
Securities and Derivative Litigation
(the Adelphia
MDL). The Adelphia MDL consists of at least fourteen
individual cases and one purported class action that were filed
in or have been transferred to the United States District Court
for the Southern District of New York. First, Motorola was named
as a defendant in the Second Amended Complaint in the individual
case of
W.R. Huff Asset Management Co. L.L.C. v.
Deloitte & Touche LLP, et al.
(the Huff
Complaint). This case was originally filed by W.R. Huff
Asset Management Co. L.L.C. on June 7, 2002, in the United
States District Court for the Western District of New York and
was subsequently transferred to the Southern District of New
York as related to the Adelphia MDL. Motorola and several other
individual and corporate defendants are named in the amended
complaint.
As to Motorola, the complaint alleges a claim arising under
Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5
promulgated thereunder relating to Adelphia securities, and
seeks recovery of the consideration paid by plaintiff for
Adelphia debt securities, compensatory damages, costs and
expenses of litigation and other relief. Motorola filed a motion
to dismiss this complaint on March 8, 2004, which was
granted on January 29, 2009. Plaintiffs motion to
file an amended complaint is pending at this time.
Also on December 22, 2003, Motorola was named as a
defendant in
Stocke v. John J. Rigas, et al.
This
case was originally filed in Pennsylvania and was subsequently
transferred to the Southern District of New York as related to
the Adelphia MDL. Motorola and several other individual and
corporate defendants are named in the amended complaint. As to
Motorola, the complaint generally makes the same allegations as
the
Huff
Complaint and a state law claim of aiding and
abetting fraud relating to Adelphia securities. The complaint
seeks return of the consideration paid by plaintiff for Adelphia
securities, punitive damages and other relief. Motorola filed a
motion to dismiss this complaint on April 12, 2004. In
March 2008, the
Stocke
plaintiff agreed to become a
member of the purported class in
Argent
and the
Stocke
action was dismissed by the court as a stand-alone action.
On July 23, 2004, Motorola was named as a defendant in
Argent Classic Convertible Arbitrage Fund L.P., et
al. v. Scientific-Atlanta, Inc., et al.
(the
Argent Complaint). The Argent Complaint was filed
against Scientific Atlanta and Motorola in the Southern District
of New York. The Argent Complaint generally makes the same
allegations as the other previously-disclosed cases relating to
the
In re Adelphia Communications Corp. Securities and
Derivative Litigation
that have been transferred to the
Southern District of New York. The complaint seeks compensatory
damages and other relief. Motorola filed a motion to dismiss the
Argent Complaint on October 12, 2004, which is awaiting
decision.
On September 14, 2004, a complaint filed in state court in
Los Angeles, California, named Motorola, Scientific-Atlanta and
certain officers of Scientific-Atlanta as defendants,
Los
Angeles County Employees Retirement Association et al. v.
Motorola, Inc., et al.
The complaint raises claims under
California law for aiding and abetting fraud and conspiracy to
defraud and generally makes the same allegations as the other
previously disclosed cases relating to the
In re Adelphia
Communications Corp. Securities and Derivative Litigation
that have been transferred to the Southern District of New
York. There are no new substantive allegations. The complaint
seeks compensatory damages, opportunity-cost damages, punitive
and other exemplary damages and other relief. In late 2004, the
Multi-District Litigation Panel transferred the case to federal
court in New York, which transfer is now final. Motorola filed a
motion to dismiss the complaint in this action on
September 19, 2005, which is awaiting decision.
On October 25, 2004, Motorola was named in a complaint
filed in state court in Fulton County, Georgia, naming Motorola
and Scientific-Atlanta and certain officers of
Scientific-Atlanta,
AIG DKR SoundShore Holdings, Ltd., et
al. v. Scientific-Atlanta Inc., et al.
The complaint
raises claims under Georgia law of conspiracy to defraud and
generally makes the same allegations as the other previously
disclosed cases relating to the
In re Adelphia Communications
Corp. Securities and Derivative Litigation
that have already
been filed and transferred to the Southern District of New York.
The complaint seeks damages and statutory compensation, punitive
damages and other relief. On April 18, 2005, the
Multi-District Litigation Panel issued a final order
transferring the case to New York and that transfer is
final. Motorola filed a motion to dismiss the complaint in this
action on September 19, 2005, which is awaiting decision.
Adelphia
Communications Corp.Bankruptcy Court Lawsuit
On June 23, 2006, Adelphia, on behalf of the estate and the
various classes of Adelphia creditors, objected to
Motorolas claim for payment of $67 million and
asserted causes of action against Motorola including
preferences,
33
avoidance of liens, fraudulent transfers, equitable
subordination and aiding and abetting fraud as part of the
ongoing
Adelphia
bankruptcy action in the Bankruptcy
Court for the Southern District of New York. Plaintiff is
alleging damages in excess of $1 billion against Motorola
for the
above-stated
causes of action. The bankruptcy action is still pending.
Intellectual
Property Related Cases
Tessera,
Inc. v. Motorola, Inc., et al.
Motorola is a purchaser of semiconductor chips with certain ball
grid array (BGA) packaging from suppliers including
Qualcomm, Inc. (Qualcomm), Freescale Semiconductor,
Inc. (Freescale Semiconductor), ATI Technologies,
Inc. (ATI), Spansion Inc. (Spansion),
and STMicroelectronics N.V. (STMicro). On
April 17, 2007, Tessera, Inc. (Tessera) filed
patent infringement legal actions against Qualcomm, Freescale
Semiconductor, ATI, Spansion, STMicro and Motorola in the
U.S. International Trade Commission (the ITC)
(In the Matter of Certain Semiconductor Chips with Minimized
Chip Package Size and Products Containing Same, Inv.
No. 337-TA-605)
and the United States District Court, Eastern District of Texas,
Tessera, Inc. v. Motorola, Inc., Qualcomm, Inc.,
Freescale Semiconductor, Inc. and ATI Technologies, Inc.
,
alleging that certain BGA packaged semiconductors infringe
patents that Tessera claims to own. Tessera is seeking orders to
ban the importation into the U.S. of certain semiconductor
chips with BGA packaging and certain downstream
products that contain them (including Motorola products)
and/or
limit
suppliers ability to provide certain services and products
or take certain actions in the U.S. relating to the
packaged chips. On December 1, 2008, an Administrative Law
Judge issued an initial determination that Tessera failed to
prove that BGA packaged semiconductors contained in Motorola
products infringe Tesseras patent claims. On
January 30, 2009, the International Trade Commission issued
a notice that it will review the Administrative Law Judges
initial determination and a final determination on the merits is
expected on or before April 14, 2009. The patent claims
being asserted by Tessera are subject to reexamination
proceedings in the U.S. Patent and Trademark Office
(PTO).
Motorola is a defendant in various other suits, claims and
investigations that arise in the normal course of business. In
the opinion of management, and other than discussed above with
respect to the Iridium cases, the ultimate disposition of the
Companys pending legal proceedings will not have a
material adverse effect on the Companys consolidated
financial position, liquidity or results of operations.
34
|
|
Item 4:
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
Executive
Officers of the Registrant
Following are the persons who were the executive officers of
Motorola as of February 28, 2009, their ages as of
January 1, 2009, their current titles and positions they
have held during the last five years:
Gregory Q. Brown; age 48; Co-Chief Executive Officer, Motorola,
Inc. and Chief Executive Officer of Broadband Mobility Solutions
since August 2008; President and Chief Executive Officer,
Motorola, Inc. from January 2008 to August 2008;
President and Chief Operating Officer from June 2007 to
January 2008; Executive Vice President, President, Networks
and Enterprise from June 2006 to June 2007; Executive
Vice President and President, Government and Enterprise Mobility
Solutions from January 2005 to June 2006; Executive
Vice President and President, Commercial, Government and
Industrial Solutions Sector from January 2003 to
January 2005.
Dr. Sanjay K. Jha; age 45; Co-Chief Executive Officer, Motorola,
Inc. and Chief Executive Officer, Mobile Devices since August
2008; Executive Vice President and Chief Operating Officer,
Qualcomm, Inc. from December 2006 to August 2008;
Executive Vice President, Qualcomm, Inc. and President, Qualcomm
CDMA Technologies from January 2003 to December 2006.
Eugene A. Delaney; age 52; Executive Vice President,
President, Enterprise Mobility Solutions since January 2009;
Senior Vice President, Government and Public Safety from May
2007 to January 2009; Senior Vice President, International Sales
Operations, Networks and Enterprise from May 2006 to May 2007;
Senior Vice President, International Sales Operations,
Government and Enterprise Mobility Solutions from May 2005 to
May 2006; Executive Vice President and President, Global
Relations and Resources Organization, Government and Enterprise
Mobility Solutions from February 2005 to May 2005; Executive
Vice President and President, Global Relations and Resources
Organization from January 2003 to February 2005.
Edward J. Fitzpatrick; age 42; Senior Vice President,
Corporate Controller and Acting Chief Financial Officer since
February 2009; Senior Vice President, Corporate Controller since
January 2009; Corporate Vice President, Finance, Home and
Networks Mobility from January 2008 to January 2009; Vice
President, Finance, Home and Networks Mobility from June 2007 to
January 2008; Vice President, Finance and Controller, Networks
and Enterprise from April 2006 to June 2007; Vice President,
Finance and Controller, Government and Enterprise Mobility
Solutions from July 2005 to April 2006; Senior Director and
Controller, Connected Home Solutions from February 2000 to July
2005.
A. Peter Lawson; age 62; Executive Vice President,
General Counsel and Secretary since May 1998.
Gregory A. Lee; age 59; Senior Vice President, Human
Resources since January 2008; Senior Vice President, Human
Resources, Coca Cola Enterprises from August 2006 to January
2008; Independent Consultant, Talent Management Strategies from
May 2005 to August 2006; Senior Vice President, Human Resources,
Sears, Roebuck and Co., from January 2001 to May 2005.
Daniel M. Moloney; age 49; Executive Vice President,
President, Home and Networks Mobility since April 2007;
Executive Vice President, President, Connected Home Solutions
from January 2005 to April 2007; Executive Vice President and
President, Broadband Communications Sector from June 2002 to
January 2005.
Karen P. Tandy; age 55; Senior Vice President, Public
Affairs and Communications since July 2008; Senior Vice
President, Global Government Affairs & Public Policy
from November 2007 to July 2008; Administrator to the
U.S. Drug Enforcement Agency from July 2003 to November
2007.
The above executive officers will serve as executive officers of
Motorola until the regular meeting of the Board of Directors in
May 2009 or until their respective successors shall have been
elected. There is no family relationship between any of the
executive officers listed above.
35
PART II
Item 5: Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Motorolas common stock is listed on the New York and
Chicago Stock Exchanges. The number of stockholders of record of
Motorola common stock on January 31, 2009 was 76,858.
Information regarding securities authorized for issuance under
equity compensation plans is incorporated by reference to the
information under the caption Equity Compensation Plan
Information of Motorolas Proxy Statement for the
2009 Annual Meeting of Stockholders. The remainder of the
response to this Item incorporates by reference Note 17,
Quarterly and Other Financial Data (unaudited) of
the Notes to Consolidated Financial Statements appearing under
Item 8: Financial Statements and Supplementary
Data.
The following table provides information with respect to
acquisitions by the Company of shares of its common stock during
the quarter ended December 31, 2008.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
|
(or Approximate Dollar
|
|
|
|
|
|
|
|
|
|
of Shares Purchased
|
|
|
Value) of Shares that
|
|
|
|
(a) Total Number
|
|
|
(b) Average Price
|
|
|
as Part of Publicly
|
|
|
May Yet be Purchased
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
or
Programs
(1)
|
|
|
Programs
(1)
|
|
|
|
|
9/28/08 to 10/24/08
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
$
|
3,629,062,576
|
|
10/25/08 to 11/21/08
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
$
|
3,629,062,576
|
|
11/22/08 to 12/31/08
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
$
|
3,629,062,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Through actions taken on
July 24, 2006 and March 21, 2007, the Board of
Directors has authorized the Company to repurchase an aggregate
amount of up to $7.5 billion of its outstanding shares of
common stock over a period ending in June 2009. The timing and
amount of future repurchases, if any, will be based on market
and other conditions.
|
36
PERFORMANCE
GRAPH
The following graph compares the five-year cumulative total
returns of Motorola, Inc., the S&P 500 Index and the
S&P Communications Equipment Index.
This graph assumes $100 was invested in the stock or the Index
on December 31, 2003 and also assumes the reinvestment of
dividends. This graph assumes reinvestment of the Companys
distribution to its shareholders of 0.110415 shares of
Class B common stock of Freescale Semiconductor, Inc.
(Freescale Class B Shares) on December 2,
2004 for each share of Motorola common stock. For purposes of
this graph, the Freescale Semiconductor, Inc. distribution is
treated as a non-taxable cash dividend of $2.06 (the value of
0.110415 Freescale Class B Shares, based on Freescale
Semiconductors December 2, 2004 closing price of
$18.69) that would have been reinvested in Motorola common stock
at the close of business on December 2, 2004.
Five-Year
Performance Graph
37
|
|
Item 6:
|
Selected
Financial Data
|
Motorola,
Inc. and Subsidiaries
Five-Year Financial Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
(Dollars in millions, except as
noted)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
30,146
|
|
|
$
|
36,622
|
|
|
$
|
42,847
|
|
|
$
|
35,310
|
|
|
$
|
29,680
|
|
Costs of sales
|
|
|
21,751
|
|
|
|
26,670
|
|
|
|
30,120
|
|
|
|
23,881
|
|
|
|
19,715
|
|
|
|
|
|
|
|
Gross margin
|
|
|
8,395
|
|
|
|
9,952
|
|
|
|
12,727
|
|
|
|
11,429
|
|
|
|
9,965
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
4,330
|
|
|
|
5,092
|
|
|
|
4,504
|
|
|
|
3,628
|
|
|
|
3,508
|
|
Research and development expenditures
|
|
|
4,109
|
|
|
|
4,429
|
|
|
|
4,106
|
|
|
|
3,600
|
|
|
|
3,316
|
|
Other charges (income)
|
|
|
2,347
|
|
|
|
984
|
|
|
|
25
|
|
|
|
(404
|
)
|
|
|
149
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(2,391
|
)
|
|
|
(553
|
)
|
|
|
4,092
|
|
|
|
4,605
|
|
|
|
2,992
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
48
|
|
|
|
91
|
|
|
|
326
|
|
|
|
71
|
|
|
|
(200
|
)
|
Gains on sales of investments and businesses, net
|
|
|
82
|
|
|
|
50
|
|
|
|
41
|
|
|
|
1,845
|
|
|
|
460
|
|
Other
|
|
|
(376
|
)
|
|
|
22
|
|
|
|
151
|
|
|
|
(109
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(246
|
)
|
|
|
163
|
|
|
|
518
|
|
|
|
1,807
|
|
|
|
120
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
|
(2,637
|
)
|
|
|
(390
|
)
|
|
|
4,610
|
|
|
|
6,412
|
|
|
|
3,112
|
|
Income tax expense (benefit)
|
|
|
1,607
|
|
|
|
(285
|
)
|
|
|
1,349
|
|
|
|
1,893
|
|
|
|
1,013
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(4,244
|
)
|
|
|
(105
|
)
|
|
|
3,261
|
|
|
|
4,519
|
|
|
|
2,099
|
|
Earnings (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
56
|
|
|
|
400
|
|
|
|
59
|
|
|
|
(567
|
)
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(4,244
|
)
|
|
$
|
(49
|
)
|
|
$
|
3,661
|
|
|
$
|
4,578
|
|
|
$
|
1,532
|
|
|
|
Per Share Data (in dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from continuing operations per common
share
|
|
$
|
(1.87
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
1.30
|
|
|
$
|
1.79
|
|
|
$
|
0.87
|
|
Diluted earnings (loss) per common share
|
|
|
(1.87
|
)
|
|
|
(0.02
|
)
|
|
|
1.46
|
|
|
|
1.81
|
|
|
|
0.64
|
|
Diluted weighted average common shares outstanding (in millions)
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,504.2
|
|
|
|
2,527.0
|
|
|
|
2,472.0
|
|
Dividends paid per share
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
27,869
|
|
|
$
|
34,812
|
|
|
$
|
38,593
|
|
|
$
|
35,802
|
|
|
$
|
30,922
|
|
Long-term debt
|
|
|
4,092
|
|
|
|
3,991
|
|
|
|
2,704
|
|
|
|
3,806
|
|
|
|
4,581
|
|
Total debt
|
|
|
4,184
|
|
|
|
4,323
|
|
|
|
4,397
|
|
|
|
4,254
|
|
|
|
5,298
|
|
Total stockholders equity
|
|
|
9,507
|
|
|
|
15,447
|
|
|
|
17,142
|
|
|
|
16,673
|
|
|
|
13,331
|
|
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
504
|
|
|
$
|
527
|
|
|
$
|
649
|
|
|
$
|
548
|
|
|
$
|
405
|
|
% of sales
|
|
|
1.7
|
%
|
|
|
1.4
|
%
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
1.4
|
%
|
Research and development expenditures
|
|
$
|
4,109
|
|
|
$
|
4,429
|
|
|
$
|
4,106
|
|
|
$
|
3,600
|
|
|
$
|
3,316
|
|
% of sales
|
|
|
13.6
|
%
|
|
|
12.1
|
%
|
|
|
9.6
|
%
|
|
|
10.2
|
%
|
|
|
11.2
|
%
|
Year-end employment (in thousands)
|
|
|
64
|
|
|
|
66
|
|
|
|
66
|
|
|
|
69
|
|
|
|
68
|
|
|
|
38
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 7: Managements
Discussion and Analysis of Financial Condition and Results of
Operations
The following is a discussion and analysis of our financial
position and results of operations for each of the three years
in the period ended December 31, 2008. This commentary
should be read in conjunction with our consolidated financial
statements and the notes thereto appearing under
Item 8: Financial Statements and Supplementary
Data.
Executive
Overview
What
businesses are we in?
Motorola reports financial results for the following three
operating business segments:
|
|
|
|
|
The
Mobile Devices
segment designs, manufactures, sells
and services wireless handsets with integrated software and
accessory products, and licenses intellectual property. The
segments net sales in 2008 were $12.1 billion,
representing 40% of the Companys consolidated net sales.
|
|
|
|
The
Home and Networks Mobility
segment designs,
manufactures, sells, installs and services: (i) digital
video, Internet Protocol video and broadcast network interactive
set-tops, end-to-end video delivery systems, broadband access
infrastructure platforms, and associated data and voice customer
premise equipment to cable television and telecom service
providers (collectively, referred to as the home
business), and (ii) wireless access systems,
including cellular infrastructure systems and wireless broadband
systems, to wireless service providers (collectively, referred
to as the network business). The segments net
sales in 2008 were $10.1 billion, representing 33% of the
Companys consolidated net sales.
|
|
|
|
The
Enterprise Mobility Solutions
segment designs,
manufactures, sells, installs and services analog and digital
two-way radio, voice and data communications products and
systems for private networks, wireless broadband systems and
end-to-end enterprise mobility solutions to a wide range of
enterprise markets, including government and public safety
agencies (which, together with all sales to distributors of
two-way communication products, are referred to as the
government and public safety market), as well as
retail, energy and utilities, transportation, manufacturing,
healthcare and other commercial customers (which, collectively,
are referred to as the commercial enterprise
market). The segments net sales in 2008 were
$8.1 billion, representing 27% of the Companys
consolidated net sales.
|
What were
our 2008 financial results?
|
|
|
|
|
Net Sales were $30.1 Billion:
Our net sales
were $30.1 billion in 2008, down 18% compared to net sales
of $36.6 billion in 2007. Net sales decreased 36% in the
Mobile Devices segment, increased 1% in the Home and Networks
Mobility segment and increased 5% in the Enterprise Mobility
Solutions segment.
|
|
|
|
Operating Loss of $2.4 Billion:
We incurred an
operating loss of $2.4 billion in 2008, compared to an
operating loss of $553 million in 2007. Operating margin
was (7.9)% of net sales in 2008, compared to (1.5)% of net sales
in 2007. Contributing to the operating loss were:
(i) $1.8 billion of goodwill and other asset
impairment charges, (ii) $393 million of net charges
for reorganization and separation-related transaction costs,
(iii) excess inventory and other related charges of
$370 million due to a decision to consolidate software and
silicon platforms in the Mobile Devices segment, and (iv) a
$150 million charge related to the settlement of a purchase
commitment.
|
|
|
|
Loss from Continuing Operations of $4.2 Billion, or
$1.87 per Share:
We incurred a loss from
continuing operations of $4.2 billion, or $1.87 per diluted
common share, in 2008, compared to a loss from continuing
operations of $105 million, or $0.05 per diluted common
share, in 2007. Contributing to the loss from continuing
operations in 2008 were: (i) a $2.4 billion operating
loss, (ii) a $2.1 billion reserve related to our
deferred tax asset valuation allowance,
(iii) $365 million of other-than-temporary investment
impairment charges, (iv) $186 million of impairment
charges on Sigma Fund investments, and
(v) $101 million of temporary unrealized losses of
Sigma Fund investments, partially offset by: (i) the tax
benefit resulting from our operating loss, and (ii) a
$237 million curtailment gain associated with the decision
to freeze benefit accruals in the U.S. pension plans.
|
39
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
|
|
|
|
2008 Global Handset Market Share Estimated at 8%, based on
Annual Handset Shipments of 100.1 Million
Units:
We estimate our share of the global
handset market in 2008 was approximately 8%, a decrease of
approximately 6 percentage points versus 2007. We shipped
100.1 million handsets in 2008, a 37% decrease compared to
shipments of 159.1 million handsets in 2007. We estimate
our market share in the fourth quarter of 2008 was approximately
6%, a decrease of approximately 6 percentage points versus
the fourth quarter of 2007. We shipped 19.2 million
handsets in the fourth quarter of 2008, a 53% decrease compared
to shipments of 40.9 million handsets in the fourth quarter
of 2007.
|
|
|
|
Digital Entertainment Device Shipments were
18.0 Million:
We shipped 18.0 million
digital entertainment devices in 2008, an increase of 19%
compared to shipments of 15.1 million units in 2007.
|
|
|
|
Operating Cash Flow of $242 Million:
We
generated operating cash flow of $242 million in 2008,
compared to operating cash flow of $785 million in 2007.
|
What were
the financial results for our three operating business segments
in 2008?
|
|
|
|
|
In Our Mobile Devices Business:
Net sales were
$12.1 billion in 2008, a decrease of 36% compared to net
sales of $19.0 billion in 2007. On a geographic basis, net
sales decreased substantially in North America, the Europe,
Middle East and Africa region (EMEA), and Asia and,
to a lesser extent, decreased in Latin America. The decrease in
net sales was primarily driven by a 37% decrease in unit
shipments.
|
The segment incurred an operating loss of $2.2 billion in
2008, compared to an operating loss of $1.2 billion in
2007. The increase in the operating loss was primarily due to a
decrease in gross margin, driven by: (i) the 36% decrease
in net sales, (ii) excess inventory and other related
charges of $370 million in 2008 due to a decision to
consolidate software and silicon platforms, and (iii) a
$150 million charge in 2008 related to the settlement of a
purchase commitment, partially offset by: (i) the absence
in 2008 of a $277 million charge for a legal settlement in
2007, and (ii) savings from supply chain cost-reduction
initiatives. The decrease in gross margin was partially offset
by decreases in: (i) selling, general and administrative
(SG&A) expenses, primarily due to lower
marketing expenses and savings from cost-reduction initiatives,
and (ii) research and development (R&D)
expenditures, reflecting savings from cost-reduction initiatives.
|
|
|
|
|
In Our Home and Networks Mobility
Business:
Net sales were $10.1 billion in
2008, an increase of 1% compared to net sales of
$10.0 billion in 2007. On a geographic basis, net sales
increased in Latin America and Asia, and decreased in North
America and EMEA. The increase in net sales primarily reflects a
16% increase in net sales by the home business, partially offset
by an 11% decrease in net sales by the networks business.
|
Operating earnings were $918 million, an increase of 29%
compared to operating earnings of $709 million in 2007. The
increase in operating earnings was primarily due to:
(i) decreases in both SG&A and R&D expenditures,
primarily related to savings from cost-reduction initiatives,
and (ii) a decrease in reorganization of business charges,
relating primarily to lower employee severance costs. These
factors were partially offset by a decrease in gross margin,
primarily due to: (i) an unfavorable product mix, and
(ii) the absence of net sales by embedded communication
computing group (ECC) that was divested at the end
of 2007.
|
|
|
|
|
In Our Enterprise Mobility Solutions
Business:
Net sales were $8.1 billion in
2008, an increase of 5% compared to net sales of
$7.7 billion in 2007. On a geographic basis, net sales
increased in EMEA, Asia and Latin America and decreased in North
America. The increase in net sales reflects an 8% increase in
net sales to the government and public safety market, partially
offset by a 2% decrease in net sales to the commercial
enterprise market.
|
Operating earnings were $1.5 billion, an increase of 23%
compared to operating earnings of $1.2 billion in 2007. The
increase in operating earnings was primarily due to an increase
in gross margin, driven by: (i) the 5% increase in net
sales, (ii) a favorable product mix, (iii) the absence
in 2008 of an inventory-related charge in connection with the
acquisition of Symbol Technologies, Inc. (Symbol)
during the first quarter of 2007, and (iv) a decrease in
SG&A expenses, primarily related to savings from
cost-reduction initiatives. The increase in gross margin was
partially offset by increased R&D expenditures, primarily
due to developmental engineering expenditures for new product
development and investment in next-generation technologies.
40
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
What were
our major challenges and accomplishments in 2008?
|
|
|
|
|
In our Mobile Devices Business:
2008 was a
very difficult year for our Mobile Devices business. Demand for
Motorolas wireless handsets declined in 2008 primarily due
to limited product offerings in critical market segments,
particularly 3G products, including smartphones, as well as very
low-tier products. We also were impacted by the worldwide
economic downturn in the second half of 2008, as the overall
market for handsets grew at a slower rate than in 2007,
particularly in the fourth quarter. Motorola believes it lost
approximately 6 percentage points of market share and estimates
its global market share was approximately 8% for the full year
2008.
|
During 2008, the Mobile Devices business launched a number of
new products, including: new feature phones for GSM, CDMA and
UMTS technologies; additions to the ROKR family of music
devices; additions to the smartphone portfolio, including Q and
MING devices, for consumers who multi-task and want flexibility
in todays business environment; and several handsets at
affordable price points for consumers with everyday
communications needs.
The Mobile Devices business has taken significant actions in
2008 to reduce its size and cost structure, including actions to
simplify its wireless handset platforms and enhance its product
portfolio. To that end, we announced that our silicon strategy
is to use two primary silicon providers to achieve faster time
to market and reduce costs. Our software platforms will focus on
fewer operating systems, including Android (a Google-developed,
royalty-free platform) and Windows Mobile (a Microsoft
platform). Our portfolio focus will be increasingly on 3G and
smartphone devices, particularly in the mid- and high-price
tiers, while continuing to focus on our proprietary iDEN
technology and CDMA software platforms. In addition to our
portfolio streamlining and enhancement efforts, over the next
year we will also increase our focus in priority markets. These
markets will include North America, Latin America and parts of
Asia, including China.
Actions taken throughout the year, including the decisions to
reduce platforms and focus on key markets, resulted in a lower
operating expense cost structure in 2008 compared to 2007.
|
|
|
|
|
In our Home and Networks Mobility
Business:
The Home and Networks Mobility business
improved its operating margin and remained the worlds
leading provider of digital entertainment devices. Total net
sales in the home business grew by 16% in the year, which
included significant business growth outside of the U.S. The
business enhanced its portfolio of advanced video, voice, and
data platforms with several new product introductions, including
DOCSIS 3.0 products, MPEG-4 compression technology, and the
DCX-series of multimedia digital entertainment devices. The home
business completed the acquisition of Dahua Digital to increase
our position in the rapidly growing cable market in China.
|
Net sales in the networks business were lower primarily due to
the absence of net sales by ECC that was divested at the end of
2007. The networks business also experienced a decline in sales
of iDEN, CDMA and GSM technologies, while sales of WiMAX and
UMTS technologies and related services increased. Motorola
continued its investments in and focus on next-generation
wireless broadband technologies, including WiMAX and LTE. Our
first sales for WiMAX network equipment were recorded in the
fourth quarter of 2008. In addition, Motorola was the first
wireless networks infrastructure supplier to demonstrate a
handoff between CDMA EV-DO rev. A and LTE, as well as the first
over-the-air session of LTE in the 700MHz band. Despite the
challenges facing the wireless infrastructure industry,
Motorolas networks business improved its profitability
compared to 2007 and demonstrated leadership in next-generation
technologies.
|
|
|
|
|
In our Enterprise Mobility Solutions
Business:
In 2008, the Enterprise Mobility
Solutions business delivered solid results, including an
improvement in operating margin. The business continued to
maintain leading market share positions in several highly
competitive markets.
|
Within the government and public safety market, sales grew as
demand for integrated, interoperable public safety
communications increased. As new and better spectrum utilization
evolves, demand and sales have increased for high-speed data
applications, such as video surveillance, dual-mode devices,
including the MOTOTRBO product family, and other data-based
products. In addition to our continued success in the U.S., our
largest market, the business experienced significant growth in
all markets outside of the U.S. The business acquired a
controlling interest in Vertex Standard Co., Ltd. to further
expand its two-way radio portfolio and open up new market
opportunities, both in the U.S. and internationally. We
also announced
41
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
the industry leading APX family of products, including mobile
and portable radios and infrastructure, and received very
positive customer response.
During the year, the commercial enterprise business enhanced its
product portfolio by launching several new mobile computing,
wireless computing and advanced data capture products that
further strengthened our position in the commercial enterprise
marketplace. The enhanced mobile computing offerings included
the MC75 product lines, which had very successful product
launches and were well received in all regions. The portfolio
was also strengthened by the acquisition of AirDefense, a
leading provider of premium software security applications for
wireless LAN networks.
Looking
Forward
Adverse economic conditions around the world have impacted many
customers and consumers and resulted in slowing demand for many
of our businesses. However, the longer-term, fundamental trend
regarding the dissolution of boundaries between the home, work
and mobility continues to evolve. We believe our focus on
designing and delivering differentiated wireless communications
products, unique experiences and powerful networks, as well as
complementary support services, will enable consumers to have a
broader choice of when, where and how they connect to people,
information, and entertainment. While many markets we serve will
have little to no growth, or even contraction in 2009, there
still remain large numbers of businesses and consumers around
the world who have yet to experience the benefits of converged
wireless communications, mobility, and the Internet. As
economies, financial markets and business conditions improve,
this will present new opportunities to extend our brand, to
market our products and services, and to pursue profitable
growth.
In 2008, the Company announced that it was pursuing the creation
of two independent, publicly traded companies: one comprised of
our Mobile Devices business, and the other comprised of our Home
and Networks Mobility and Enterprise Mobility Solutions
businesses (collectively, referred to as Broadband
Mobility Solutions businesses). The Company also indicated
that it was targeting the third quarter of 2009 for the
separation to occur. However, due to the weakened global
economic environment and dislocation in the financial markets,
as well as changes underway in the Mobile Devices business, the
Company is no longer targeting the third quarter of 2009 to
complete the separation. The Company has made progress on
various elements of its separation plan. Management and the
Board of Directors remain committed to separation in as
expeditious a manner as possible and continue to believe this is
the best path for the Company. Goldman Sachs & Co., the
Companys primary financial advisor on this matter,
supports this direction. The Board continues to work with its
financial advisors on potential alternative separation
structures. The Board further believes that in working with its
financial advisors the Company will be able to find a structure
which will permit separation in a way that maximizes value for
all shareholders.
We expect the overall global handset market to remain intensely
competitive with lower total demand due to the continued adverse
economic environment around the world. Our strategy is focused
on simplifying product platforms, enhancing our product
portfolio in the mid- and high-tier, reducing cost structure and
strengthening our position in priority markets. To this end, in
2008, we have reduced the number of product platforms that we
support, increasing our emphasis on 3G and smartphone devices
while maintaining our focus on CDMA and iDEN technologies. We
expect our transition to a more competitive portfolio will show
progress by the fourth quarter 2009 and continue in 2010. In
addition to our portfolio streamlining and enhancement efforts,
over the next year we will also increase our focus in priority
markets. These markets will include North America, Latin America
and parts of Asia, including China. Along with our mobile
handset initiatives, we have also increased focus on our
accessories portfolio to deliver complete mobile experiences and
to complement our handset features and functionalities. In
addition to our efforts to dramatically improve the product
portfolio, we have implemented cost-reduction initiatives to
ensure that we have a more competitive cost structure. These
actions will accelerate our speed to market with new products,
allow us to offer richer consumer experiences and improve our
financial performance.
In our Home and Networks Mobility business, we are focused on
delivering personalized media experiences to consumers at home
and on-the-go and enabling service providers to operate their
networks more efficiently and profitably. We will build on our
market leading position in digital entertainment devices and
video delivery systems to capitalize on demand for high
definition TV, personalized video services, broadband
connectivity and higher speed. We will also deliver broadband
access systems and gateway products for video, voice and data
services. However, due to the impact that economic conditions,
especially in the U.S., may have on demand for services provided
by some of our customers, demand is likely to slow in 2009 in
the home business. We will continue to make investments to
position ourselves as a leading infrastructure provider of
next-generation wireless technologies. As more networks are
commercialized, we expect an increase in WiMAX sales
opportunities beginning in 2009. We expect the overall 2G and 3G
wireless infrastructure market to decline compared to 2008 and
to remain highly competitive. The Home and Networks Mobility
business will continue to optimize its cost structure and
prioritize investments in innovation and future growth
opportunities. This will position the business
42
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
for future opportunities in emerging technologies, including
video and wireline and wireless broadband, and enable the
business to maintain profitability in mature technologies.
In our Enterprise Mobility Solutions business, we will build on
our leadership position in mission-critical communications
solutions and develop next-generation products and services for
our government and public safety customers around the world.
This will enable us to address the continued high priority
placed on public safety and homeland security by our customers.
Our business-critical enterprise communications products,
including two-way communications, mobile computing, and advanced
data capture products and services, allow our customers to
reduce cost, increase worker mobility and productivity, and
enhance their customers experiences. We offer this leading
portfolio across a broad spectrum of commercial enterprise
markets, including retail, transportation, utility,
manufacturing, and healthcare industries.
Our government and enterprise customers are facing uncertainty
and volatility as a result of the ongoing global financial
crisis. This will likely lead to lower capital spending by these
customers and slowing demand in the markets served by our
Enterprise Mobility Solutions business. Over 40 U.S. states
and many local governments are facing budget deficits in 2009,
and some states may be required to significantly curtail
spending. Additionally, many governments outside the
U.S. are facing 2009 budget deficits. Although we continue
to believe that our government customers will prioritize public
safety and homeland security spending, budget constraints could
impact the timing and volume of purchases by these customers. We
believe that our comprehensive portfolio of products and
services, leadership positions in government and public safety
and commercial enterprise markets and global network of channel
partners and distributors make our Enterprise Mobility Solutions
business well positioned to meet these challenges.
On February 17, 2009, the American Recovery and
Reinvestment Act of 2009 (the Stimulus Package)
became law. The Stimulus Package implements $787 billion of
spending and investment by the U.S. federal government,
including spending in areas of infrastructure and technology
that may benefit our customers and Motorola. Our domestic
government and public safety customers may benefit from
additional funding for state and local law enforcement agencies
and homeland defense initiatives. Opportunities for our Home and
Networks Mobility business may result from Stimulus Package
funding for broadband and wireless internet initiatives. In
addition, as many foreign governments consider similar packages
as a way to combat the ongoing global financial crisis, our
foreign customers may benefit from additional funding from
stimulus packages applicable to them.
During 2008 and in January 2009, the Company initiated a number
of global actions to reduce its cost structure. These actions
were primarily focused on our Mobile Devices business, but also
included the other businesses and corporate functions. Actions
included workforce reductions, prioritization of investments,
spending controls and changes to compensation and benefit
programs. These actions are expected to result in a further
reduction in the Companys cost structure in 2009. To
ensure alignment with changing market conditions, the Company
will continually review its cost structure as it aggressively
manages costs throughout 2009 while maintaining investments in
innovation and future growth opportunities.
Our investment priorities include: next-generation wireless
converged communications products and services for enterprise
markets; advanced technologies and applications for
mission-critical communications in government and public safety
markets; broadband video systems for service providers; and
next-generation wireless handsets with application services.
These investments, together with the acquisitions of recent
years, are designed to foster continued innovation and position
us for future profitable growth opportunities.
In light of the ongoing global financial crisis and the severe
tightening in the worldwide credit markets, the Company is very
focused on the strength of its balance sheet and its overall
liquidity position. In 2009, operating cash flow improvement,
working capital management and preservation of total cash will
continue to be major focuses for the Company. We will continue
to direct our available funds, including our Sigma Fund
investments, primarily into cash or very highly-rated,
short-term securities. In February 2009, the Company announced
that its Board of Directors suspended the declaration of
quarterly stock dividends. We also plan to reduce capital
expenditures in 2009 compared to 2008.
In addition to the $2.0 billion of cash, cash equivalents,
short-term investments and Sigma Fund investments (Cash
and Sigma Funds) the Company held in the U.S. at the
end of 2008, the Company held $5.4 billion of Cash and
Sigma Funds in foreign jurisdictions. The Company repatriated
over $2 billion to the U.S. in 2008 at minimal cash
tax cost and expects to continue to efficiently repatriate funds
from international jurisdictions to the U.S. in 2009. Given
the level of Cash and Sigma Funds, the Company believes it has
more than sufficient liquidity to operate its business.
43
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We conduct our business in highly competitive markets, facing
both new and established competitors. The markets for many of
our products are characterized by rapidly changing technologies,
frequent new product introductions, changing consumer trends,
short product life cycles and evolving industry standards.
Market disruptions caused by new technologies, the entry of new
competitors into markets we serve, and frequent consolidations
among our customers and competitors, among other matters, can
introduce volatility into our operating performance and cash
flow from operations. As we enter 2009, we face a very
challenging global economic environment and with reduced
visibility and slowing demand. Meeting all of these challenges
requires consistent operational planning and execution and
investment in technology, resulting in innovative products that
meet the needs of our customers around the world. As we execute
on meeting these objectives, we remain focused taking the
necessary action to design and deliver differentiated and
innovative products and services that will advance the way the
world connects by simplifying and personalizing communications
and enhancing mobility.
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
(Dollars in millions, except
per share
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
amounts)
|
|
2008
|
|
|
sales
|
|
|
2007
|
|
|
sales
|
|
|
2006
|
|
|
sales
|
|
|
|
|
Net sales
|
|
$
|
30,146
|
|
|
|
|
|
|
$
|
36,622
|
|
|
|
|
|
|
$
|
42,847
|
|
|
|
|
|
Costs of sales
|
|
|
21,751
|
|
|
|
72.2
|
%
|
|
|
26,670
|
|
|
|
72.8
|
%
|
|
|
30,120
|
|
|
|
70.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
8,395
|
|
|
|
27.8
|
%
|
|
|
9,952
|
|
|
|
27.2
|
%
|
|
|
12,727
|
|
|
|
29.7
|
%
|
Selling, general and administrative expenses
|
|
|
4,330
|
|
|
|
14.4
|
%
|
|
|
5,092
|
|
|
|
13.9
|
%
|
|
|
4,504
|
|
|
|
10.5
|
%
|
Research and development expenditures
|
|
|
4,109
|
|
|
|
13.6
|
%
|
|
|
4,429
|
|
|
|
12.1
|
%
|
|
|
4,106
|
|
|
|
9.5
|
%
|
Other charges
|
|
|
2,347
|
|
|
|
7.7
|
%
|
|
|
984
|
|
|
|
2.7
|
%
|
|
|
25
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(2,391
|
)
|
|
|
(7.9
|
)%
|
|
|
(553
|
)
|
|
|
(1.5
|
)%
|
|
|
4,092
|
|
|
|
9.6
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
48
|
|
|
|
0
.1
|
%
|
|
|
91
|
|
|
|
0.2
|
%
|
|
|
326
|
|
|
|
0.8
|
%
|
Gains on sales of investments and businesses, net
|
|
|
82
|
|
|
|
0
.3
|
%
|
|
|
50
|
|
|
|
0.1
|
%
|
|
|
41
|
|
|
|
0.1
|
%
|
Other
|
|
|
(376
|
)
|
|
|
(1.2
|
)%
|
|
|
22
|
|
|
|
0.1
|
%
|
|
|
151
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(246
|
)
|
|
|
(0.8
|
)%
|
|
|
163
|
|
|
|
0.4
|
%
|
|
|
518
|
|
|
|
1.2
|
%
|
Earnings (loss) from continuing operations before income taxes
|
|
|
(2,637
|
)
|
|
|
(8.7
|
)%
|
|
|
(390
|
)
|
|
|
(1.1
|
)%
|
|
|
4,610
|
|
|
|
10.8
|
%
|
Income tax expense (benefit)
|
|
|
1,607
|
|
|
|
5.4
|
%
|
|
|
(285
|
)
|
|
|
(0.8
|
)%
|
|
|
1,349
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(4,244
|
)
|
|
|
(
14.1
|
)%
|
|
|
(105
|
)
|
|
|
(0.3
|
)%
|
|
|
3,261
|
|
|
|
7.6
|
%
|
Earnings from discontinued operations, net of tax
|
|
|
|
|
|
|
0.0
|
%
|
|
|
56
|
|
|
|
0.2
|
%
|
|
|
400
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(4,244
|
)
|
|
|
(14.1
|
)%
|
|
$
|
(49
|
)
|
|
|
(0.1
|
)%
|
|
$
|
3,661
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per diluted common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.87
|
)
|
|
|
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
$
|
1.30
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.87
|
)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
Geographic market sales measured by the locale of the end
customer as a percent of total net sales for 2008, 2007 and 2006
are as follows:
Geographic
Market Sales by Locale of End Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
United States
|
|
|
49
|
%
|
|
|
51
|
%
|
|
|
44
|
%
|
Latin America
|
|
|
14
|
%
|
|
|
12
|
%
|
|
|
10
|
%
|
Europe
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
15
|
%
|
Asia, excluding China
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
11
|
%
|
China
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
11
|
%
|
Other Markets
|
|
|
7
|
%
|
|
|
8
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
44
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results
of Operations2008 Compared to 2007
Net
Sales
Net sales were $30.1 billion in 2008, down 18% compared to
net sales of $36.6 billion in 2007. The decrease in net
sales reflects a $6.9 billion, or 36%, decrease in net
sales in the Mobile Devices segment, partially offset by:
(i) a $364 million, or 5%, increase in net sales in
the Enterprise Mobility Solutions segment, and (ii) a
$72 million, or 1%, increase in net sales in the Home and
Networks Mobility segment. The 36% decrease in net sales in the
Mobile Devices segment was primarily driven by a 37% decrease in
unit shipments. The 5% increase in the Enterprise Mobility
Solutions segment net sales reflects an 8% increase in net sales
to the government and public safety market, partially offset by
a 2% decrease in net sales to the commercial enterprise market.
The 1% increase in net sales in the Home and Networks Mobility
segment reflects a 16% increase in net sales in the home
business, partially offset by an 11% decrease in net sales in
the networks business.
Gross
Margin
Gross margin was $8.4 billion, or 27.8% of net sales, in
2008, compared to $10.0 billion, or 27.2% of net sales, in
2007. The decrease in gross margin reflects lower gross margin
in the Mobile Devices and Home and Networks Mobility segments,
partially offset by increased gross margin in the Enterprise
Mobility Solutions segment. The decrease in gross margin in the
Mobile Devices segment was primarily driven by: (i) the 36%
decrease in net sales, (ii) excess inventory and other
related charges recorded in 2008 of $370 million due to a
decision to consolidate software and silicon platforms, and
(iii) a $150 million charge recorded in 2008 related
to the settlement of a purchase commitment, partially offset by:
(i) the absence in 2008 of a $277 million charge for a
legal settlement recorded in 2007, and (ii) savings from
supply chain cost-reduction activities. The decrease in gross
margin in the Home and Networks Mobility segment was primarily
due to: (i) an unfavorable product mix, and (ii) the
absence of net sales by ECC that was divested at the end of
2007. The increase in gross margin in the Enterprise Mobility
Solutions segment was primarily driven by: (i) the 5%
increase in net sales, (ii) a favorable product mix, and
(iii) the absence in 2008 of an inventory-related charge in
connection with the acquisition of Symbol during the first
quarter of 2007.
The increase in gross margin as a percentage of net sales in
2008 compared to the 2007 was driven by an increase in gross
margin percentage in the Enterprise Mobility Solutions segment,
partially offset by a decrease in gross margin percentage in the
Mobile Devices and Home and Networks Mobility segments. The
Companys overall gross margin as a percentage of net sales
can be impacted by the proportion of overall net sales generated
by its various businesses.
Selling,
General and Administrative Expenses
Selling, general and administrative (SG&A)
expenses decreased 15% to $4.3 billion, or 14.4% of net
sales, in 2008, compared to $5.1 billion, or 13.9% of net
sales, in 2007. The decrease in SG&A expenses reflects
lower SG&A expenses in all segments. The decrease in the
Mobile Devices segment was primarily driven by lower marketing
expenses and savings from cost-reduction initiatives. The
decreases in the Home and Networks Mobility and Enterprise
Mobility Solutions segments were primarily due to savings from
cost-reduction initiatives. SG&A expenses as a percentage
of net sales increased in the Mobile Devices segment and
decreased in the Home and Networks Mobility and Enterprise
Mobility Solutions segments.
Research
and Development Expenditures
Research and development (R&D) expenditures
decreased 7% to $4.1 billion, or 13.6% of net sales, in
2008, compared to $4.4 billion, or 12.1% of net sales, in
2007. The decrease in R&D expenditures reflects lower
R&D expenditures in the Mobile Devices and Home and
Networks Mobility segments, partially offset by higher R&D
expenditures in the Enterprise Mobility Solutions segment. The
decreases in the Mobile Devices and Home and Networks Mobility
segments were primarily due to savings from cost-reduction
initiatives. The increase in the Enterprise Mobility Solutions
segment was primarily due to developmental engineering
expenditures for new product development and investment in
next-generation technologies. R&D expenditures as a
percentage of net sales increased in the Mobile Devices and
Enterprise Mobility Solutions segments and decreased in the Home
and Networks Mobility segment. The Company participates in very
competitive industries with constant changes in technology and,
accordingly, the Company continues to believe that a strong
commitment to R&D is required to drive long-term growth.
45
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other
Charges
The Company recorded net charges of $2.3 billion in Other
charges in 2008, compared to net charges of $1.0 billion in
2007. The net charges in 2008 include:
(i) $1.8 billion of goodwill and other asset
impairment charges, (ii) $318 million of charges
relating to the amortization of intangible assets,
(iii) $248 million of net reorganization of business
charges included in Other charges, and
(iv) $59 million of transaction costs related to the
proposed separation of the Company into two independent,
publicly traded companies, partially offset by a
$48 million gain on the sale of property, plant and
equipment. The net charges in 2007 included:
(i) $369 million of charges relating to the
amortization of intangibles, (ii) $290 million of net
reorganization of business charges included in Other charges,
(iii) $140 million of charges for legal settlements
and related insurance matters, (iv) $96 million of
acquisition-related in-process research and development charges
(IPR&D) relating to 2007 acquisitions, and
(v) $89 million of asset impairment charges. The net
reorganization of business charges are discussed in further
detail in the Reorganization of Businesses section.
Net
Interest Income
Net interest income was $48 million in 2008, compared to
net interest income of $91 million in 2007. Net interest
income in 2008 includes interest income of $272 million,
partially offset by interest expense of $224 million. Net
interest income in 2007 included interest income of
$456 million, partially offset by interest expense of
$365 million. The decrease in net interest income is
primarily attributed to lower interest income due to the
decrease in average cash, cash equivalents and Sigma Fund
balances in 2008 compared to 2007 and the significant decrease
in short-term interest rates. This decrease was partially offset
by a decrease in interest expense in 2008 due to the reversal of
$89 million of interest accruals that are no longer needed
as a result of the effective settlement of certain tax audits.
Gains on
Sales of Investments and Businesses
Gains on sales of investments and businesses were
$82 million in 2008, compared to $50 million in 2007.
In 2008, the net gain primarily relates to sales of a number of
the Companys equity investments, of which $29 million
of gain was attributed to a single investment. In 2007, the net
gain primarily reflects a gain of $34 million from the sale
of the Companys embedded communications computing group.
Other
Net charges classified as Other, as presented in Other income
(expense), were $376 million in 2008, compared to net
income of $22 million in 2007. The net charges in 2008 were
primarily comprised of: (i) $365 million of
other-than-temporary investment impairment charges of which
$138 million was attributed to an equity security held by
the Company as a strategic investment, (ii) $186 million of
impairment charges on Sigma Fund investments resulting primarily
from investments in Lehman Brothers Holdings Inc., Washington
Mutual, Inc. and Sigma Finance Corporation, an unrelated special
investment vehicle managed by United Kingdom-based Gordian Knot
Limited, (iii) $101 million of temporary unrealized
losses on Sigma Fund investments, and (iv) $84 million of
foreign currency losses, partially offset by: (i) a
$237 million curtailment gain associated with the decision
to freeze benefit accruals in the U.S. pension plans,
(ii) $56 million of gains related to the
extinguishment of a liability, and (iii) $24 million
of gains relating to several interest rate swaps not designated
as hedges. The net income in 2007 was primarily comprised of
$97 million of foreign currency gains, partially offset by
$62 million of investment impairment charges.
Effective
Tax Rate
The Company recorded $1.6 billion of net tax expense in
2008, compared to $285 million of net tax benefits in 2007.
During 2008, the Companys net tax expense was unfavorably
impacted by: (i) non-cash tax charges to establish deferred
tax asset valuation allowances, (ii) non-deductible
goodwill impairment charges, (iii) non-deductible
transaction related costs, (iv) a pension curtailment gain,
(v) a gain on sale of property, plant and equipment,
(vi) tax on the reduction of interest expense related to
the recognition of previously unrecognized tax benefit, and
(vii) a gain on the extinguishment of a liability. The
Companys net tax expense was favorably impacted by:
(i) a net reduction in unrecognized tax benefits,
(ii) excess tax benefits on repatriations from high tax
jurisdictions, and (iii) tax benefits on charges, including
charges for: a software and silicon platform consolidation, a
settlement relating to a purchase commitment, asset impairment
charges, investment impairments and
46
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
reorganization of business charges. The Companys effective
tax rate, excluding these items, was 67%. The Companys
2008 effective tax rate of 67% is higher than the comparable
2007 effective tax rate of 26%, primarily due to non-deductible
foreign exchange and translation adjustment losses incurred in
2008.
The Companys net tax benefit for 2007 was favorably
impacted by an increase in tax credits compared to 2006. The
Companys net tax benefit was also favorably impacted by:
(i) the settlement of tax positions, (ii) tax
incentives received, and (iii) reversal of deferred tax
valuation allowances, and unfavorably impacted by:
(i) adjustments to deferred taxes in
non-U.S. locations
due to enacted tax rate changes, (ii) an increase in
unrecognized tax benefits, and (iii) a non-deductible
IPR&D charge. The Companys effective tax rate
excluding the items described above and the tax impact of
restructuring charges and asset impairments, was 26%.
Loss from
Continuing Operations
The Company incurred a net loss from continuing operations
before income taxes of $2.6 billion in 2008, compared with
a net loss from continuing operations before income taxes of
$390 million in 2007. After taxes, the Company incurred a
net loss from continuing operations of $4.2 billion, or
$1.87 per diluted share, in 2008, compared to a net loss from
continuing operations of $105 million, or $0.05 per diluted
share, in 2007.
The increase in the loss from continuing operations before
income taxes in 2008 compared to 2007 was primarily attributed
to: (i) a $1.6 billion decrease in gross margin,
(ii) a $1.4 billion increase in Other charges,
(iii) a $398 million increase in charges classified as
Other, as presented in Other income (expense), and (iv) a
$43 million decrease in net interest income. These factors
were partially offset by: (i) a $762 million decrease
in SG&A expenses, (ii) a $320 million decrease in
R&D expenditures, and (iii) a $32 million
increase in gains on the sale of investments and businesses.
Results
of Operations2007 Compared to 2006
Net
Sales
Net sales were $36.6 billion in 2007, down 15% compared to
net sales of $42.8 billion in 2006. The decrease in net
sales reflected a $9.4 billion decrease in net sales by the
Mobile Devices segment, partially offset by a $2.3 billion
increase in net sales by the Enterprise Mobility Solutions
segment and an $850 million increase in net sales by the
Home and Networks Mobility segment. The 33% decrease in net
sales in the Mobile Devices segment was primarily driven by:
(i) a 27% decrease in unit shipments, (ii) a 9%
decrease in ASP, and (iii) decreased revenue from
intellectual property and technology licensing. The 43% increase
in net sales in the Enterprise Mobility Solutions segment was
primarily driven by net sales from the Symbol business acquired
in January 2007, as well as higher net sales in the government
and public safety market due to strong demand in North America.
The 9% increase in net sales in the Home and Networks Mobility
segment was primarily driven by a 51% increase in unit shipments
of digital entertainment devices, partially offset by lower net
sales of wireless networks due primarily to lower demand for
iDEN and CDMA infrastructure equipment.
Gross
Margin
Gross margin was $10.0 billion, or 27.2% of net sales, in
2007, compared to $12.7 billion, or 29.7% of net sales, in
2006. The decrease in gross margin reflects decreases in gross
margin in the Mobile Devices and Home and Networks Mobility
segments, partially offset by an increase in gross margin in the
Enterprise Mobility Solutions segment. The decrease in gross
margin in the Mobile Devices segment was primarily due to:
(i) a 9% decrease in ASP, (ii) decreased income from
intellectual property and technology licensing, (iii) a 27%
decrease in unit shipments, and (iv) a $277 million
charge for a legal settlement, partially offset by savings from
supply chain cost-reduction initiatives. The decrease in gross
margin in the Home and Networks segment was primarily due to:
(i) continuing competitive pricing pressure in the market
for GSM infrastructure equipment, and (ii) lower sales of
iDEN infrastructure equipment, partially offset by increased
sales of digital entertainment devices. The increase in gross
margin in the Enterprise Mobility Solutions segment was
primarily due to the 43% increase in net sales, driven by net
sales from the Symbol business acquired in January 2007, as well
as higher net sales in the government and public safety market
due to strong demand in North America. Gross margin as a
percentage of net sales decreased in 2007 as compared to 2006,
reflecting decreases in all three of the Companys business
segments.
47
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selling,
General and Administrative Expenses
SG&A expenses increased 13% to $5.1 billion, or 13.9%
of net sales, in 2007, compared to $4.5 billion, or 10.5%
of net sales, in 2006. In 2007 compared to 2006, SG&A
expenses increased in the Enterprise Mobility Solutions and Home
and Networks Mobility segments and decreased in the Mobile
Devices segment. The increases in the Enterprise Mobility
Solutions and Home and Networks Mobility segments were primarily
due to expenses from recently acquired businesses, partially
offset by savings from cost-reduction initiatives. The decrease
in the Mobile Devices segment was primarily due to lower
marketing expenses and savings from cost-reduction initiatives,
partially offset by increased expenditures on information
technology upgrades. SG&A expenses as a percentage of net
sales increased in the Mobile Devices and Enterprise Mobility
Solutions segments and decreased in the Home and Networks
Mobility segment.
Research
and Development Expenditures
R&D expenditures increased 8% to $4.4 billion, or
12.1% of net sales, in 2007, compared to $4.1 billion, or
9.5% of net sales, in 2006. In 2007 compared to 2006, R&D
expenditures increased in the Mobile Devices and Enterprise
Mobility Solutions segments and decreased in the Home and
Networks Mobility segment. The increase in the Mobile Devices
segment was primarily due to developmental engineering
expenditures for new product development and investment in
next-generation technologies, partially offset by savings from
cost-reduction initiatives. The increase in the Enterprise
Mobility Solutions segment was primarily due to R&D
expenditures incurred by recently acquired businesses, partially
offset by savings from cost-reduction initiatives. The decrease
in the Home and Networks Mobility segment was primarily due to
savings from cost-reduction initiatives, partially offset by
expenditures by recently acquired businesses and continued
investment in digital entertainment devices and WiMAX. R&D
expenditures as a percentage of net sales increased in the
Mobile Devices segment and decreased in the Enterprise Mobility
Solutions and Home and Networks Mobility segments.
Other
Charges (Income)
The Company recorded net charges of $984 million in Other
charges (income) in 2007, compared to net charges of
$25 million in 2006. The net charges in 2007 include:
(i) $369 million of charges relating to the
amortization of intangibles, (ii) $290 million of net
reorganization of business charges, (iii) $140 million
of charges for legal settlements and related insurance matters,
(iv) $96 million of acquisition-related in-process
research and development charges (IPR&D)
relating to 2007 acquisitions, and (v) $89 million for
asset impairment charges. The net charges in 2006 included:
(i) $172 million of net reorganization of business
charges, (ii) $100 million of charges relating to the
amortization of intangibles, (iii) an $88 million
charitable contribution to the Motorola Foundation of
appreciated equity holdings in a third party,
(iv) $50 million of legal reserves, and
(v) $33 million of acquisition-related IPR&D
charges relating to 2006 acquisitions, partially offset by
$418 million of income for payments relating to the Telsim
collection settlement.
Net
Interest Income
Net interest income was $91 million in 2007, compared to
net interest income of $326 million in 2006. Net interest
income in 2007 included interest income of $456 million,
partially offset by interest expense of $365 million. Net
interest income in 2006 included interest income of
$661 million, partially offset by interest expense of
$335 million. The decrease in net interest income was
primarily attributed to lower interest income due to the
decrease in average cash, cash equivalents and Sigma Fund
balances during 2007 compared to 2006, partially offset by
higher interest rates.
Gains on
Sales of Investments and Businesses
Gains on sales of investments and businesses were
$50 million in 2007, compared to gains of $41 million
in 2006. In 2007, the net gain primarily reflected a gain of
$34 million from the sale of the Companys embedded
communications computing group. In 2006, the net gain primarily
reflected a gain of $141 million on the sale of the
Companys remaining shares in Telus Corporation, partially
offset by a loss of $126 million on the sale of the
Companys remaining shares in Sprint Nextel Corporation
(Sprint Nextel).
48
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other
Income classified as Other, as presented in Other income
(expense), was $22 million in 2007, compared to net income
of $151 million in 2006. The net income in 2007 was
primarily comprised of $97 million of foreign currency
gains, partially offset by $44 million of
other-than-temporary investment impairment charges. The net
income in 2006 was primarily comprised of: (i) a
$99 million net gain due to an increase in market value of
a zero-cost collar derivative entered into to protect the value
of the Companys investment in Sprint Nextel, and
(ii) $60 million of foreign currency gains, partially
offset by $27 million of investment impairment charges.
Effective
Tax Rate
The Company recorded $285 million of net tax benefits in
2007, compared to $1.3 billion in net tax expense in 2006.
The Companys net tax benefit for 2007 was favorably
impacted by an increase in tax credits compared to 2006. The
Companys net tax benefit was also favorably impacted by:
(i) the settlement of tax positions, (ii) tax
incentives received, and (iii) reversal of deferred tax
valuation allowances, and unfavorably impacted by:
(i) adjustments to deferred taxes in
non-U.S. locations
due to enacted tax rate changes, (ii) an increase in
unrecognized tax benefits, and (iii) a non-deductible
IPR&D charge. The Companys effective tax rate for
continuing operations, excluding the items described above and
the tax impact of restructuring charges and asset impairments,
was 26%.
The Companys net tax expense of $1.3 billion in 2006
was favorably impacted by $348 million of net tax benefits
relating to: (i) the reduction of deferred tax asset
valuation allowances, (ii) incremental tax benefits related
to 2005 cash repatriations, (iii) favorable tax settlements
reached with foreign jurisdictions, (iv) tax benefits for
foreign earnings permanently reinvested, (v) contribution
of appreciated investments to the Companys charitable
foundation and unfavorably impacted by: (i) the incurrence
of non-deductible IPR&D charges, and
(ii) restructuring charges in low tax jurisdictions. The
effective tax rate for 2006 excluding these items was 36%.
The effective tax rate for continuing operations excluding
identified items of 26% for 2007 is less than the comparable
effective tax rate of 36% for 2006 due to an increase in tax
credits in 2007 compared to 2006 and a change in the mix of
income and loss by region.
Earnings
(Loss) from Continuing Operations
The Company incurred a net loss from continuing operations
before income taxes of $390 million in 2007, compared to
earnings from continuing operations before income taxes of
$4.6 billion in 2006. After taxes, the Company incurred a
loss from continuing operations of $105 million, or $0.05
per diluted share, in 2007, compared to earnings from continuing
operations of $3.3 billion, or $1.30 per diluted share, in
2006.
The decrease in earnings (loss) from continuing operations
before income taxes in 2007 compared to 2006 is primarily
attributed to: (i) a $2.8 billion decrease in gross
margin, driven by decreases in gross margin in the Mobile
Devices and Home and Network Mobility segments, partially offset
by an increase in gross margin in the Enterprise Mobility
Solutions segment, (ii) a $959 million increase in
Other charges (income), (iii) a $588 million increase
in SG&A expenses, (iv) a $323 million increase in
R&D expenditures, (v) a $235 million decrease in
net interest income, and (vi) a $129 million decrease
in income classified as Other, as presented in Other income
(expense).
Reorganization
of Businesses
The Company maintains a formal Involuntary Severance Plan (the
Severance Plan), which permits the Company to offer
eligible employees severance benefits based on years of service
and employment grade level in the event that employment is
involuntarily terminated as a result of a
reduction-in-force
or restructuring. The Company recognizes termination benefits
based on formulas per the Severance Plan at the point in time
that future settlement is probable and can be reasonably
estimated based on estimates prepared at the time a
restructuring plan is approved by management. Exit costs consist
of future minimum lease payments on vacated facilities and other
contractual terminations. At each reporting date, the Company
evaluates its accruals for employee separation and exit costs to
ensure the accruals are still appropriate. In certain
circumstances, accruals are no longer needed because of
efficiencies in carrying out the plans or because employees
previously identified for separation resigned from the Company
and did not receive severance or were redeployed due to
circumstances not foreseen when the
49
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
original plans were initiated. In these cases, the Company
reverses accruals through the consolidated statements of
operations where the original charges were recorded when it is
determined they are no longer needed.
The Company realized cost-saving benefits of approximately
$103 million in 2008 from the plans that were initiated
during 2008, representing: (i) $76 million of savings
in R&D expenditures, (ii) $18 million of savings
in SG&A expenses, and (iii) $9 million of savings
in Costs of sales. Beyond 2008, the Company expects the
reorganization plans initiated during 2008 to provide annualized
cost savings of approximately $426 million, representing:
(i) $222 million of savings in R&D expenditures,
(ii) $93 million of savings in SG&A expenses, and
(iii) $111 million of savings in Cost of sales.
2008
Charges
During 2008, the Company committed to implement various
productivity improvement plans aimed at achieving long-term,
sustainable profitability by driving efficiencies and reducing
operating costs. All three of the Companys business
segments, as well as corporate functions, are impacted by these
plans, with the majority of the impact in the Mobile Devices
segment. The employees affected are located in all regions. The
Company recorded net reorganization of business charges of
$334 million, including $86 million of charges in
Costs of sales and $248 million of charges under Other
charges in the Companys consolidated statements of
operations. Included in the aggregate $334 million are
charges of $324 million for employee separation costs,
$66 million for exit costs and $9 million for fixed
asset impairment charges, partially offset by $65 million
of reversals for accruals no longer needed.
The following table displays the net charges incurred by
business segment:
|
|
|
|
|
Year Ended December
31,
|
|
2008
|
|
|
|
|
Mobile Devices
|
|
$
|
216
|
|
Home and Networks Mobility
|
|
|
53
|
|
Enterprise Mobility Solutions
|
|
|
27
|
|
|
|
|
|
|
|
|
|
296
|
|
Corporate
|
|
|
38
|
|
|
|
|
|
|
|
|
$
|
334
|
|
|
|
The following table displays a rollforward of the reorganization
of businesses accruals established for exit costs and employee
separation costs from January 1, 2008 to December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at
|
|
|
2008
|
|
|
|
|
|
2008
|
|
|
Accruals at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
2008
(1)
|
|
|
Amount
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Used
|
|
|
2008
|
|
|
|
|
Exit costs
|
|
$
|
42
|
|
|
$
|
66
|
|
|
$
|
1
|
|
|
$
|
(29
|
)
|
|
$
|
80
|
|
Employee separation costs
|
|
|
193
|
|
|
|
324
|
|
|
|
(60
|
)
|
|
|
(287
|
)
|
|
|
170
|
|
|
|
|
|
$
|
235
|
|
|
$
|
390
|
|
|
$
|
(59
|
)
|
|
$
|
(316
|
)
|
|
$
|
250
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
Exit
Costs
At January 1, 2008, the Company had an accrual of
$42 million for exit costs attributable to lease
terminations. The 2008 additional charges of $66 million
are primarily related to: (i) the exit of leased facilities
in the United Kingdom by the Mobile Devices segment, and
(ii) the exit of leased facilities in Mexico by the Home
and Networks Mobility segment. The adjustments of
$1 million reflect $4 million of translation
adjustments, partially offset by $3 million of reversals of
accruals no longer needed. The $29 million used in 2008
reflects cash payments. The remaining accrual of
$80 million, which is included in Accrued liabilities in
the Companys consolidated balance sheets at
December 31, 2008, represents future cash payments,
primarily for lease termination obligations.
50
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Employee
Separation Costs
At January 1, 2008, the Company had an accrual of
$193 million for employee separation costs, representing
the severance costs for approximately 2,800 employees. The
2008 additional charges of $324 million represent severance
costs for approximately an additional 5,800 employees, of
which 2,300 are direct employees and 3,500 are indirect
employees.
The adjustments of $60 million reflect $62 million of
reversals of accruals no longer needed, partially offset by
$2 million of translation adjustments. The $62 million
of reversals represent previously accrued costs for
approximately 600 employees.
During 2008, approximately 6,200 employees, of which 3,000
were direct employees and 3,200 were indirect employees, were
separated from the Company. The $287 million used in 2008
reflects cash payments to these separated employees. The
remaining accrual of $170 million, which is included in
Accrued liabilities in the Companys consolidated balance
sheets at December 31, 2008, is expected to be paid to
approximately 2,000 employees.
2007
Charges
During 2007, the Company committed to implement various
productivity improvement plans aimed at achieving long-term,
sustainable profitability by driving efficiencies and reducing
operating costs. All three of the Companys business
segments, as well as corporate functions, were impacted by these
plans. The majority of the employees affected were located in
North America and Europe. The Company recorded net
reorganization of business charges of $394 million,
including $104 million of charges in Costs of sales and
$290 million of charges under Other charges (income) in the
Companys consolidated statements of operations. Included
in the aggregate $394 million were charges of
$401 million for employee separation costs,
$42 million for fixed asset impairment charges and
$19 million for exit costs, offset by reversals for
accruals no longer needed.
The following table displays the net reorganization of business
charges by segment:
|
|
|
|
|
Year Ended December
31,
|
|
2007
|
|
|
|
|
Mobile Devices
|
|
$
|
229
|
|
Home and Networks Mobility
|
|
|
71
|
|
Enterprise Mobility Solutions
|
|
|
30
|
|
|
|
|
|
|
|
|
|
330
|
|
General Corporate
|
|
|
64
|
|
|
|
|
|
|
|
|
$
|
394
|
|
|
|
The following table displays a rollforward of the reorganization
of businesses accruals established for exit costs and employee
separation costs from January 1, 2007 to December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at
|
|
|
2007
|
|
|
|
|
|
2007
|
|
|
Accruals at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
2007
(1)(2)
|
|
|
Amount
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Used
|
|
|
2007
|
|
|
|
|
Exit costs
|
|
$
|
54
|
|
|
$
|
19
|
|
|
$
|
2
|
|
|
$
|
(33
|
)
|
|
$
|
42
|
|
Employee separation costs
|
|
|
104
|
|
|
|
401
|
|
|
|
(64
|
)
|
|
|
(248
|
)
|
|
|
193
|
|
|
|
|
|
$
|
158
|
|
|
$
|
420
|
|
|
$
|
(62
|
)
|
|
$
|
(281
|
)
|
|
$
|
235
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
|
(2)
|
|
Includes $6 million of accruals established through
purchase accounting for businesses acquired, covering exit costs
and separation costs for approximately 200 employees.
|
Exit
Costs
At January 1, 2007, the Company had an accrual of
$54 million for exit costs attributable to lease
terminations. The 2007 additional charges of $19 million
are primarily related to the exit of certain activities and
leased facilities in Ireland by the Home and Networks Mobility
segment. The 2007 adjustments of $2 million represent
accruals for exit costs established through purchase accounting
for businesses acquired. The $33 million
51
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
used in 2007 reflects cash payments. The remaining accrual of
$42 million, which was included in Accrued liabilities in
the Companys consolidated balance sheets at
December 31, 2007, represented future cash payments for
lease termination obligations.
Employee
Separation Costs
At January 1, 2007, the Company had an accrual of
$104 million for employee separation costs, representing
the severance costs for approximately 2,300 employees. The
2007 additional charges of $401 million represent severance
costs for approximately 6,700 employees, of which 2,400
were direct employees and 4,300 were indirect employees.
The adjustments of $64 million reflect $68 million of
reversals of accruals no longer needed, partially offset by
$4 million of accruals for severance plans established
through purchase accounting for businesses acquired. The
$68 million of reversals represent previously accrued costs
for 1,100 employees, and primarily relates to a strategic
change regarding a plant closure and specific employees
previously identified for separation who resigned from the
Company and did not receive severance or who were redeployed due
to circumstances not foreseen when the original plans were
approved. The $4 million of accruals represents severance
plans for approximately 200 employees established through
purchase accounting for businesses acquired.
During 2007, approximately 5,300 employees, of which 1,700
were direct employees and 3,600 were indirect employees, were
separated from the Company. The $248 million used in 2007
reflects cash payments to these separated employees. The
remaining accrual of $193 million was included in Accrued
liabilities in the Companys consolidated balance sheets at
December 31, 2007.
2006
Charges
During 2006, the Company committed to implement various
productivity improvement plans aimed principally at:
(i) reducing costs in its supply-chain activities,
(ii) integration synergies, and (iii) reducing other
operating expenses, primarily relating to engineering and
development costs. The Company recorded net reorganization of
business charges of $213 million, including
$41 million of charges in Costs of sales and
$172 million of charges under Other charges in the
Companys consolidated statement of operations. Included in
the aggregate $213 million are charges of $191 million
for employee separation costs, $15 million for fixed asset
impairment charges and $30 million for exit costs,
partially offset by $23 million of reversals for accruals
no longer needed.
The following table displays the net reorganization of business
charges by segment:
|
|
|
|
|
Year Ended December
31,
|
|
2006
|
|
|
|
|
Mobile Devices
|
|
$
|
(1
|
)
|
Home and Networks Mobility
|
|
|
124
|
|
Enterprise Mobility Solutions
|
|
|
83
|
|
|
|
|
|
|
|
|
|
206
|
|
General Corporate
|
|
|
7
|
|
|
|
|
|
|
|
|
$
|
213
|
|
|
|
The following table displays a rollforward of the reorganization
of business accruals established for exit costs and employee
separation costs from January 1, 2006 to December 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at
|
|
|
2006
|
|
|
|
|
|
2006
|
|
|
Accruals at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
2006
(1)
|
|
|
Amount
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Used
|
|
|
2006
|
|
|
|
|
Exit costs
|
|
$
|
50
|
|
|
$
|
30
|
|
|
$
|
(7
|
)
|
|
$
|
(19
|
)
|
|
$
|
54
|
|
Employee separation costs
|
|
|
53
|
|
|
|
191
|
|
|
|
(16
|
)
|
|
|
(124
|
)
|
|
|
104
|
|
|
|
|
|
$
|
103
|
|
|
$
|
221
|
|
|
$
|
(23
|
)
|
|
$
|
(143
|
)
|
|
$
|
158
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
52
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Exit
Costs
At January 1, 2006, the Company had an accrual of
$50 million for exit costs attributable to lease
terminations. The 2006 additional charges of $30 million
were primarily related to a lease cancellation by the Enterprise
Mobility Solutions segment. The 2006 adjustments of
$7 million represented reversals of accruals no longer
needed. The $19 million used in 2006 reflects cash payments
to lessors. The remaining accrual of $54 million, which was
included in Accrued liabilities in the Companys
consolidated balance sheets at December 31, 2006,
represented future cash payments for lease termination
obligations.
Employee
Separation Costs
At January 1, 2006, the Company had an accrual of
$53 million for employee separation costs, representing the
severance costs for approximately 1,600 employees, of which
1,100 were direct employees and 500 were indirect employees. The
2006 additional charges of $191 million represented costs
for an additional 3,900 employees, of which 1,700 were
direct employees and 2,200 were indirect employees. The
adjustments of $16 million represented reversals of
accruals no longer needed.
During 2006, approximately 3,200 employees, of which 1,400
were direct employees and 1,800 were indirect employees, were
separated from the Company. The $124 million used in 2006
reflects cash payments to these separated employees. The
remaining accrual of $104 million was included in Accrued
liabilities in the Companys consolidated balance sheets at
December 31, 2006.
Liquidity
and Capital Resources
As highlighted in the consolidated statements of cash flows, the
Companys liquidity and available capital resources are
impacted by four key components: (i) current cash and cash
equivalents, (ii) operating activities,
(iii) investing activities, and (iv) financing
activities.
Cash
and Cash Equivalents
At December 31, 2008, the Companys cash and cash
equivalents (which are highly-liquid investments with an
original maturity of three months or less) were
$3.1 billion, an increase of $312 million compared to
$2.8 billion at December 31, 2007. At
December 31, 2008, $311 million of this amount was
held in the U.S. and $2.8 billion was held by the
Company or its subsidiaries in other countries. The Company
continues to analyze and review various repatriation strategies
to continue to efficiently repatriate funds. At
December 31, 2008, restricted cash was $343 million
(including $279 million held outside of the U.S.), compared
to $158 million (including $91 million held outside of
the U.S.) at December 31, 2007.
The Company has approximately $2.9 billion of earnings in
foreign subsidiaries that are not permanently reinvested and may
be repatriated without additional U.S. federal income tax
charges to the Companys consolidated statements of
operations, given the U.S. federal tax provisions accrued
on undistributed earnings and the utilization of available
foreign tax credits. On a cash basis, these repatriations from
the Companys
non-U.S. subsidiaries
could require the payment of additional foreign taxes, which
would be creditable against U.S. federal income taxes.
While the Company regularly repatriates funds and a significant
portion of the funds currently offshore can be repatriated
quickly with minimal adverse financial impact, repatriation of
some of these funds could be subject to delay for local country
approvals and could have potential adverse tax consequences.
Operating
Activities
The cash provided by operating activities from continuing
operations in 2008 was $242 million, compared to
$785 million provided in 2007, and $3.5 billion
provided in 2006. The primary contributors to cash flow from
operations in 2008 were: (i) a $1.9 billion decrease
in accounts receivable, (ii) earnings from continuing
operations (adjusted for non-cash items) of $1.0 billion,
and (iii) a $466 million decrease in other current
assets. These positive contributors to operating cash flow were
partially offset by: (i) a $1.6 billion decrease in
accounts payable and accrued liabilities, (ii) a
$1.5 billion net cash outflow due to changes in other
assets and liabilities, and (iii) a $54 million net
cash outflow due to changes in inventories.
Accounts Receivable:
The Companys net
accounts receivable were $3.5 billion at December 31,
2008, compared to $5.3 billion at December 31, 2007.
The decrease in net accounts receivable reflects a substantial
53
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
decrease in accounts receivable in the Mobile Devices segment,
primarily related to a significant decrease in net sales, and
decreases in accounts receivable in the Enterprise Mobility
Solutions and Home and Network Mobility segments. The
Companys businesses sell their products in a variety of
markets throughout the world and payment terms can vary by
market type and geographic location. Accordingly, the
Companys levels of net accounts receivable can be impacted
by the timing and level of sales that are made by its various
businesses and by the geographic locations in which those sales
are made.
In addition, from time to time, the Company elects to sell
accounts receivable to third parties. The Companys levels
of net accounts receivable can be impacted by the timing and
amount of such sales, which can vary by period and can be
impacted by numerous factors. Although the Company was not
limited in its ability to sell receivables during 2008, the
severe tightening in the credit markets and the ongoing global
financial crisis may limit the Companys ability to sell
receivables in the future, particularly if the creditworthiness
of our customers declines. As further described under
Sales of Receivables, subsequent to the end of 2008,
one of the Companys committed receivables facilities
expired and was not renewed.
Inventory:
The Companys net inventory
was $2.7 billion at December 31, 2008, compared to
$2.8 billion at December 31, 2007. The decrease in net
inventory reflects a decrease in net inventory in the Mobile
Devices segment, partially offset by increases in net inventory
in the Enterprise Mobility Solutions and Home and Networks
Mobility segments. Inventory management continues to be an area
of focus as the Company balances the need to maintain strategic
inventory levels to ensure competitive delivery performance to
its customers against the risk of inventory excess and
obsolescence due to rapidly changing technology and customer
spending requirements.
Accounts Payable:
The Companys accounts
payable were $3.2 billion at December 31, 2008,
compared to $4.2 billion at December 31, 2007. The
decrease in accounts payable reflects a decrease in accounts
payable in the Mobile Devices segment, partially offset by
increases in accounts payable in the Enterprise Mobility
Solutions and Home and Networks Mobility segments. The Company
buys products in a variety of markets throughout the world and
payment terms can vary by market type and geographic location.
Accordingly, the Companys levels of accounts payable can
be impacted by the timing and level of purchases made by its
various businesses and by the geographic locations in which
those purchases are made.
Reorganization of Businesses:
The Company has
implemented reorganization of businesses plans. Cash payments
for exit costs and employee separations in connection with a
number of these plans were $316 million in 2008, as
compared to $281 million in 2007. Of the $250 million
reorganization of businesses accrual at December 31, 2008,
$170 million relates to employee separation costs and is
expected to be paid in 2009. The remaining $80 million in
accruals relate to lease termination obligations that are
expected to be paid over a number of years.
Benefit Plan Contributions:
The Company
contributed $243 million to its U.S. pension plans
during 2008, compared to $274 million contributed in 2007.
The Company contributed $54 million to its
non-U.S. pension
plans during 2008, compared to $135 million contributed in
2007. During 2009, the Company expects to make cash
contributions of approximately $180 million to its
U.S. pension plans and approximately $50 million to
its
non-U.S. pension
plans.
The Company has amended its U.S. pension plans such that:
(i) no participant shall accrue any benefits or additional
benefits on or after March 1, 2009, and (ii) no
compensation increases earned by a participant on or after
March 1, 2009 shall be used to compute any accrued benefit.
The Company contributed $16 million to its retiree health
care plan in 2008, compared to $15 million in 2007, and
expects to make no contributions to this plan in 2009.
Retirement-related benefits are further discussed below in the
Significant Accounting PoliciesRetirement-Related
Benefits section.
Investing
Activities
The most significant components of the Companys investing
activities in 2008 include: (i) net proceeds from sales of
Sigma Fund investments, (ii) capital expenditures,
(iii) purchases of short-term investments,
(iv) strategic acquisitions of, or investments in, other
companies, and (v) proceeds from the sales of investments
and businesses.
Net cash provided by investing activities from continuing
operations was $794 million in 2008, compared to net cash
provided of $2.4 billion in 2007 and net cash used of
$1.4 billion in 2006. The $1.6 billion decrease in
cash provided by investing activities in 2008 as compared to
2007 was primarily due to: (i) a $6.0 billion decrease
54
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
in cash received from net sales of Sigma Fund investments, and
(ii) a $318 million decrease in proceeds from the
sales of investments and businesses, partially offset by:
(i) a $4.3 billion decrease in cash used for
acquisitions and investments, and (ii) a $380 million
increase in sales of short-term investments.
Sigma Fund:
The Company and its wholly-owned
subsidiaries invest most of their U.S. dollar-denominated
cash in a fund (the Sigma Fund) that is designed to
provide investment returns similar to a money market fund. The
Company received $853 million in net proceeds from sales of
Sigma Fund investments in 2008, compared to $6.9 billion in
net proceeds from sales of Sigma Fund investments in 2007 and
$1.3 billion in net cash used to purchase Sigma Fund
investments in 2006. The Sigma Fund aggregate balances were
$4.2 billion at December 31, 2008 (including
$2.4 billion held by the Company or its subsidiaries
outside of the U.S.), compared to $5.2 billion at
December 31, 2007 (including $3.5 billion held by the
Company or its subsidiaries outside of the U.S.). While the
Company regularly repatriates funds and a significant portion of
the Sigma Fund investments currently offshore can be repatriated
quickly and with minimal adverse financial impact, repatriation
of some of these funds could be subject to delay and could have
potential adverse tax consequences. The Company continues to
analyze and review various repatriation strategies to continue
to efficiently repatriate non-U.S. funds, including Sigma Fund
investments.
The Sigma Fund portfolio is managed by four premier independent
investment management firms. The investment guidelines of the
Sigma Fund require that purchased investments must be in
high-quality, investment grade (rated at least
A/A-1
by
Standard & Poors or
A2/P-1
by
Moodys Investors Service), U.S. dollar-denominated
debt obligations, including certificates of deposit, commercial
paper, government bonds, corporate bonds and asset- and
mortgage-backed securities. Under the Sigma Funds
investment policies, except for debt obligations of the
U.S. treasury and U.S. agencies, no more than 5% of
the Sigma Fund portfolio is to consist of debt obligations of
any one issuer. The Sigma Funds investment policies
further require that floating rate investments must have a
maturity at purchase date that does not exceed thirty-six months
with an interest rate that is reset at least annually. The
average interest rate reset of the investments held by the funds
must be 120 days or less. The actual average interest rate
reset of the portfolio (excluding cash and impaired securities)
was 38 days and 39 days at December 31, 2008 and
2007, respectively.
Investments in the Sigma Fund are carried at fair value. The
Company primarily relies on valuation pricing models and broker
quotes to determine the fair value of investments in the Sigma
Fund. The valuation models are developed and maintained by
third-party pricing services, and use a number of standard
inputs, including benchmark yields, reported trades,
broker/dealer quotes where the counterparty is standing ready
and able to transact, issuer spreads, benchmark securities,
bids, offers and other reference data. For each asset class,
quantifiable inputs related to perceived market movements and
sector news may be considered in addition to the standard inputs.
At December 31, 2008 and 2007, $3.7 billion and
$5.2 billion, respectively, of the Sigma Fund investments
were classified as current in the Companys consolidated
balance sheets. The weighted average maturity of the Sigma Fund
investments classified as current was 5 months (excluding
cash of $1.1 billion and impaired securities) at
December 31, 2008, compared to 12 months (excluding
cash of $16 million and impaired securities) at
December 31, 2007.
The fair market value of investments in the Sigma Fund was
$4.2 billion and $5.2 billion at December 31,
2008 and 2007, respectively. The Company considers unrealized
losses in the Sigma Fund to be temporary, as these losses have
resulted primarily from the ongoing disruptions in the capital
markets. On the securities for which the unrealized losses are
considered temporary (excluding impaired securities), the
Company believes it is probable that it will be able to collect
all amounts it is owed according to their contractual terms,
which may be at maturity. Temporary unrealized losses in the
Sigma Fund were $101 million and $57 million at
December 31, 2008 and 2007, respectively.
If it becomes probable the Company will not collect amounts it
is owed on securities according to their contractual terms, the
Company considers the security to be impaired and adjusts the
cost basis of the security accordingly. During 2008 and 2007,
impairment charges in the Sigma Fund were $186 million and
$18 million, respectively. The impairment charges were
primarily related to investments in Lehman Brothers Holdings,
Inc., Washington Mutual, Inc., and Sigma Finance Corporation, an
unrelated special investment vehicle managed by United
Kingdom-based Gordian Knot, Limited.
Securities with a significant temporary unrealized loss and a
maturity greater than 12 months and impaired securities
have been classified as non-current in the Companys
consolidated balance sheets. At December 31, 2008,
$466 million of the Sigma Fund investments were classified
as non-current, and the weighted average
55
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
maturity of the Sigma Fund investments classified as non-current
(excluding impaired securities) was 16 months. At
December 31, 2007, none of the Sigma Fund investments were
classified as non-current.
Prior to the fourth quarter of 2008, the Company recognized
impairment charges from Sigma Fund investments in its
consolidated statements of operations and temporary unrealized
losses in Sigma Fund investments as a component of Non-owner
changes to equity in the consolidated statements of
stockholders equity. During the fourth quarter of 2008,
the Company determined that temporary unrealized losses in Sigma
Fund investments should also be recognized in the Companys
consolidated statements of operations, even though the related
securities were not considered impaired. Because the Sigma Fund
uses investment-company accounting in its stand-alone financial
statements, it marks the investments in the fund to market and
records all unrealized gains or losses in earnings, whether or
not the related securities are considered impaired. The Company
has determined that the stand-alone accounting policies of the
Sigma Fund should be retained in its consolidated financial
statements. Accordingly, the Company recorded $101 million
of accumulated temporary unrealized losses in Sigma Fund
investments in the Companys consolidated statements of
operations during the fourth quarter of 2008, which represents
all of the temporary unrealized gains and losses that have
accumulated in Sigma Fund investments as of December 31,
2008. Portions of the temporary unrealized losses recognized in
the fourth quarter of 2008 arose in periods prior to the fourth
quarter of 2008 and should have been reflected in the
Companys consolidated statements of operations in the
periods in which they arose. The Company has determined that the
impact of the amounts that arose in prior periods is not
material to the consolidated results of operations of those
prior periods.
During 2008, the Company recorded total charges related to Sigma
Fund investments, including temporary unrealized losses and
impairment charges, of $287 million in its consolidated
statement of operations. During 2007, the Company recorded total
charges of $18 million, all of which were impairment
charges, in its consolidated statements of operations. There
were no temporary unrealized losses or impairment charges in the
Sigma Fund investment portfolio during 2006.
The Company continuously assesses its cash needs and continues
to believe that the balance of cash and cash equivalents,
short-term investments and investments in the Sigma Fund
classified as current are more than adequate to meet its current
operating requirements over the next twelve months. Therefore,
the Company believes it is prudent to hold the $466 million
of securities classified as non-current to maturity (or until
they recover to cost), at which time we anticipate the
securities will liquidate at cost.
Strategic Acquisitions and Investments:
The
Company used net cash for acquisitions and new investment
activities of $282 million in 2008, compared to net cash
used of $4.6 billion in 2007 and net cash used of
$1.1 billion in 2006. During 2008, the Company:
(i) acquired a controlling interest in Vertex Standard Co.
Ltd. (part of the Enterprise Mobility Solutions segment),
(ii) acquired the assets related to digital cable set-top
products of Zhejiang Dahua Digital Technology Co., LTD. and
Hangzhou Image Silicon, known collectively as Dahua Digital
(part of the Home and Networks Mobility segment),
(iii) completed the acquisition of Soundbuzz Pte. Ltd.
(part of the Mobile Devices segment), and (iv) completed
the acquisition of AirDefense, Inc. (part of the Enterprise
Mobility Solutions segment). The largest components of the
$4.6 billion in 2007 expenditures were:
(i) $3.5 billion for the acquisition of Symbol
Technologies, Inc. (part of the Enterprise Mobility Solutions
segment), (ii) $438 million for the acquisition of
Good Technology, Inc. (part of the Enterprise Mobility Solutions
segment), (iii) $183 million for the acquisition of
Netopia, Inc. (part of the Home and Networks Mobility segment),
(iv) $137 million for the acquisition of Terayon
Communications Systems (part of the Home and Networks Mobility
segment), (v) the acquisition of Tut Systems, Inc. (part of
the Home and Networks Mobility segment), (vi) the
acquisition of Modulus Video, Inc. (part of the Home and
Networks Mobility segment), and (vii) the acquisition of
Leapstone Systems, Inc. (part of the Home and Networks Mobility
segment).
Capital Expenditures:
Capital expenditures
were $504 million in 2008, compared to $527 million in
2007 and $649 million in 2006. The Companys emphasis
in making capital expenditures is to focus on strategic
investments driven by customer demand and new design capability.
Sales of Investments and Businesses:
The
Company received $93 million in proceeds from the sales of
investments and businesses in 2008, compared to proceeds of
$411 million in 2007 and proceeds of $2.0 billion in
2006. The $93 million in proceeds in 2008 were primarily
comprised of net proceeds received in connection with the sales
of certain of the Companys equity investments. The
$411 million in proceeds in 2007 were primarily comprised
of $346 million from the sale of the Companys
embedded communications computing business. During the first
half of 2009, the Company expects to close on the sale of its
biometrics business.
Short-Term Investments:
At December 31,
2008, the Company had $225 million in short-term
investments (which are highly-liquid fixed-income investments
with an original maturity greater than three months but less
than one year), compared to $612 million of short-term
investments at December 31, 2007.
56
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Investments:
In addition to available cash and
cash equivalents, Sigma Fund balances (current and non-current)
and short-term investments, the Company views its investments as
an additional source of liquidity. The majority of these
securities are available-for-sale and
cost-method
investments in technology companies. The fair market values of
these securities are subject to substantial price volatility. In
addition, the realizable value of these securities is subject to
market and other conditions. At December 31, 2008, the
Companys available-for-sale equity securities portfolio
had an approximate fair market value of $128 million, which
represented a cost basis of $125 million and a net
unrealized gain of $3 million. At December 31, 2007,
the Companys available-for-sale securities portfolio had
an approximate fair market value of $333 million, which
represented a cost basis of $372 million and a net
unrealized loss of $39 million. At December 31, 2008
and 2007, the Companys cost-method investment portfolio
had an approximate recorded value of $296 million and
$414 million, respectively.
Financing
Activities
The most significant components of the Companys financing
activities are: (i) payment of dividends,
(ii) repayment and repurchase of debt, (iii) issuance
of common stock, and (iv) purchases of the Companys
common stock under its share repurchase program.
Net cash used for financing activities from continuing
operations was $645 million in 2008, compared to
$3.3 billion of cash used in 2007 and $3.2 billion of
cash used in 2006. Cash used for financing activities from
continuing operations in 2008 was primarily:
(i) $453 million of cash used to pay dividends,
(ii) $225 million of cash used for the repayment and
repurchase of debt, (iii) $138 million of cash used to
purchase approximately 9.0 million shares of the
Companys common stock under the share repurchase program,
all during the first quarter of 2008, (iv) $90 million
in distributions to discontinued operations, and
(v) $50 million of net cash used for the repayment of
short-term borrowings, partially offset by:
(i) $158 million of proceeds from the termination of
interest rate swaps, and (ii) $145 million of net cash
received from the issuance of common stock in connection with
the Companys employee stock option plans and employee
stock purchase plan.
Net cash used for financing activities from continuing
operations in 2007 was primarily: (i) $3.0 billion of
cash used to purchase 171.2 million shares of the
Companys common stock under the share repurchase program,
(ii) $1.4 billion of cash used for the repayment of
maturing debt, (iii) $468 million of cash used to pay
dividends, (iv) $242 million of net cash used for the
repayment of commercial paper and short-term borrowings, and
(v) $75 million in distributions to discontinued
operations, partially offset by proceeds of:
(i) $1.4 billion received from the issuance of
long-term debt, (ii) $440 million received from the
issuance of common stock in connection with the Companys
employee stock option plans and employee stock purchase plan,
and (iii) $50 million in excess tax benefits from
share-based compensation.
Commercial Paper and Other Short-Term Debt:
At
December 31, 2008, the Companys outstanding notes
payable and current portion of long-term debt was
$92 million, compared to $332 million at
December 31, 2007. In March 2008, the Company repaid, at
maturity, the entire $114 million outstanding of
6.50% Senior Notes due March 1, 2008. In October 2008,
the Company repaid, at maturity, the entire $84 million
outstanding of 5.80% Notes due October 15, 2008.
In November 2007, the Company repaid, at maturity, the entire
$1.2 billion aggregate principal amount outstanding of its
4.608% Senior Notes due November 16, 2007. In January
2007, the Company repaid, at maturity, the entire
$118 million aggregate principal amount outstanding of its
7.6% Notes due January 1, 2007.
Net cash used for the repayment of short-term borrowings was
$50 million in 2008, compared to repayment of
$242 million of commercial paper and short-term borrowings
in 2007. At December 31, 2008 and 2007, the Company had no
commercial paper outstanding. The capital and credit markets
have been experiencing extreme volatility and reduced liquidity
for the past 12 months. Routine access to the commercial
paper market has been limited for issuers like the Company,
which have non-rated or split short-term ratings. If the Company
were to issue commercial paper under the current market
conditions, the funding costs the Company would have to pay to
issue commercial paper would be much higher than historical
levels, and the tenors would likely be limited to overnight
borrowings.
Long-term Debt:
At December 31, 2008, the
Company had outstanding long-term debt of $4.1 billion,
compared to $4.0 billion at December 31, 2007.
Although we believe that we will be able to maintain sufficient
access to the capital markets, the current volatility and
reduced liquidity in the financial markets may result in periods
of time when access to the capital markets is limited for all
issuers or issuers with credit ratings similar to the
Companys.
57
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In December 2008, the Company completed the open market purchase
of $42 million of the $400 million aggregate principal
amount outstanding of its 7.50% Debentures due in 2025 (the
2025 Debentures). The $42 million principal
amount of 2025 Debentures was purchased for an aggregate
purchase price of approximately $28 million, including
accrued interest. During 2008, the Company recognized a gain of
approximately $14 million related to this open market
purchase in Other within Other income (expense) in the
consolidated statements of operations.
In November 2007, the Company issued an aggregate face principal
amount of: (i) $400 million of 5.375% Senior
Notes due November 15, 2012, (ii) $400 million of
6.00% Senior Notes due November 15, 2017, and
(iii) $600 million of 6.625% Senior Notes due
November 15, 2037.
The Company may from time to time seek to retire certain of its
outstanding debt through open market cash purchases,
privately-negotiated transactions or otherwise. Such
repurchases, if any, will depend on prevailing market
conditions, the Companys liquidity requirements,
contractual restrictions and other factors.
Share Repurchase Program:
During 2008, the
Company paid an aggregate of $138 million, including
transaction costs, to repurchase 9.0 million shares of the
Companys common stock at an average price of $15.32, all
of which shares were repurchased during the first quarter.
During 2007, the Company repurchased 171.2 million of its
common shares at an aggregate cost of $3.0 billion, or an
average cost of $17.74 per share. During 2006, the Company
repurchased a total of 171.7 million of its common shares
at an aggregate cost of $3.8 billion, or an average cost of
$22.29 per share.
Through actions taken in July 2006 and March 2007, the Board of
Directors authorized the Company to repurchase an aggregate
amount of up to $7.5 billion of its outstanding shares of
common stock over a period ending in June 2009. The timing and
amount of future repurchases will be based on market and other
conditions. As of December 31, 2008, the Company remained
authorized to purchase an aggregate amount of up to
$3.6 billion of additional shares under the current stock
repurchase program. All repurchased shares have been retired.
Payment of Dividends:
The Company paid
$453 million in cash dividends to holders of its common
stock in 2008. In January 2009, the Company paid
$114 million in cash dividends that were declared in
November 2008. In February 2009, the Company announced
that its Board of Directors voted to suspend the declaration of
quarterly dividends on the Companys common stock. The
Company does not currently expect to pay any additional cash
dividends during the remainder of 2009.
Credit Ratings:
Three independent credit
rating agencies, Fitch Ratings (Fitch), Moodys
Investors Service (Moodys), and
Standard & Poors (S&P), assign
ratings to the Companys short-term and long-term debt. The
following chart reflects the current ratings assigned to the
Companys senior unsecured non-credit enhanced long-term
debt and the Companys commercial paper by each of these
agencies.
|
|
|
|
|
|
|
Name of
|
|
|
|
|
|
|
Rating
|
|
Long-Term Debt
|
|
Commercial Paper
|
|
|
Agency
|
|
Rating
|
|
Rating
|
|
Date and Recent Actions Taken
|
|
|
Fitch
|
|
BBB-
|
|
F-3
|
|
February 3, 2009,
downgraded
long-term debt to BBB- (negative outlook) from BBB (negative
outlook) and downgraded short-term debt to
F-3
(negative outlook) from F2 (negative outlook).
|
|
|
|
|
|
|
|
Moodys
|
|
Baa3
|
|
P-3
|
|
February 3, 2009,
downgraded
long-term debt to Baa3 (negative outlook) from Baa2 (review for
downgrade) and downgraded short-term debt to P-3 (negative
outlook) from P-2 (review for downgrade).
|
|
|
|
|
|
|
|
S&P
|
|
BB+
|
|
|
|
December 5, 2008,
downgraded
long-term debt to BB+ (stable outlook) from BBB (credit watch
negative) and withdrew the rating on commercial paper from A-2
(credit watch negative).
|
|
|
Since the Company has investment grade ratings from Fitch and
Moodys and a non-investment grade rating from S&P, it
is referred to as a split rated credit.
Credit
Facilities
At December 31, 2008, the Company maintained a
$2.0 billion five-year domestic syndicated revolving credit
facility that matures in December 2011 (as amended, the
5-Year
Credit Facility), which is not utilized. In order
58
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
to borrow funds under the
5-Year
Credit Facility, the Company must be in compliance with various
representations, conditions and covenants contained in the
agreement, including a financial covenant relating to the ratio
of total debt to adjusted EBITDA (the Financial
Covenant). The Company was in compliance with the terms of
the
5-Year
Credit Facility at December 31, 2008. If the Company
borrows under the
5-Year
Credit Facility, it is required to remain in compliance with the
terms of the agreement. Therefore, the amount of incremental
liquidity available from borrowing under the 5-Year Credit
Facility is contingent on the Company maintaining compliance
with the Financial Covenant at the end of each quarter.
Events over the past several months, including recent failures
and near failures of a number of large financial service
companies, have made the capital markets increasingly volatile.
The Company also has access to uncommitted non-U.S. credit
facilities (uncommitted facilities), but in light of
the state of the financial services industry and the
Companys current financial condition, the Company does not
believe it is prudent to assume the same level of funding will
be available under these facilities going forward as has been
available historically.
Contractual
Obligations and Other Purchase Commitments
Summarized in the table below are the Companys obligations
and commitments to make future payments under long-term debt
obligations (assuming earliest possible exercise of put rights
by holders), lease obligations, purchase obligations and tax
obligations as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by
Period
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain
|
|
|
|
|
(in millions)
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Timeframe
|
|
|
Thereafter
|
|
|
|
|
Long-Term Debt Obligations
|
|
$
|
4,008
|
|
|
$
|
3
|
|
|
$
|
536
|
|
|
$
|
609
|
|
|
$
|
410
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
2,439
|
|
Lease Obligations
|
|
|
770
|
|
|
|
234
|
|
|
|
175
|
|
|
|
129
|
|
|
|
78
|
|
|
|
48
|
|
|
|
|
|
|
|
106
|
|
Purchase Obligations
|
|
|
724
|
|
|
|
597
|
|
|
|
98
|
|
|
|
20
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Tax Obligations
|
|
|
914
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
6,416
|
|
|
$
|
884
|
|
|
$
|
809
|
|
|
$
|
758
|
|
|
$
|
493
|
|
|
$
|
63
|
|
|
$
|
864
|
|
|
$
|
2,545
|
|
|
|
|
|
|
(1)
|
|
Amounts included represent firm, non-cancelable commitments.
|
Long-Term Debt Obligations:
The Companys
long-term debt obligations, including the current portion of
long-term debt, totaled $4.0 billion at December 31,
2008, compared to $4.2 billion at December 31, 2007. A
table of all outstanding long-term debt securities can be found
in Note 4, Debt and Credit Facilities, to the
Companys consolidated financial statements.
Lease Obligations:
The Company owns most of
its major facilities, but does lease certain office, factory and
warehouse space, land, and information technology and other
equipment, principally under non-cancelable operating leases. At
December 31, 2008, future minimum lease obligations, net of
minimum sublease rentals, totaled $770 million. Rental expense,
net of sublease income, was $181 million in 2008,
$231 million in 2007 and $241 million in 2006.
Purchase Obligations:
The Company has entered
into agreements for the purchase of inventory, license of
software, promotional activities, and research and development,
which are firm commitments and are not cancelable. At
December 31, 2008, the Companys obligations in
connection with these agreements run through 2013, and the total
payments expected to be made under these agreements total
$724 million during that period.
The Company enters into a number of arrangements for the
sourcing of supplies and materials with take-or-pay obligations.
The Companys obligations with these suppliers run through
2012 and total a minimum purchase obligation of
$127 million during that period. The Company does not
anticipate the cancellation of any of these agreements in the
future and estimates that purchases from these suppliers will
exceed the minimum obligations during the agreement periods.
Tax Obligations:
The Company has approximately
$914 million of unrecognized income tax benefits relating
to multiple tax jurisdictions and tax years. A significant
portion of the unrecognized tax benefits, if settled, would not
result in current or future payments as tax carry forwards are
available for utilization. The Company anticipates that it is
reasonably possible that $50 million of unrecognized tax
benefits could be settled in 2009. However, it is not possible
to estimate the timing of any other potential settlements.
Commitments Under Other Long-Term
Agreements:
The Company has entered into certain
long-term agreements to purchase software, components, supplies
and materials from suppliers. Most of the agreements
59
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
extend for periods of one to three years (three to five years
for software). However, generally these agreements do not
obligate the Company to make any purchases, and many permit the
Company to terminate the agreement with advance notice (usually
ranging from 60 to 180 days). If the Company were to
terminate these agreements, it generally would be liable for
certain termination charges, typically based on work performed
and supplier on-hand inventory and raw materials attributable to
canceled orders. The Companys liability would only arise
in the event it terminates the agreements for reasons other than
cause.
The Company outsources certain corporate functions, such as
benefit administration and information technology-related
services. These contracts are expected to expire in 2013. At
December 31, 2008, the total remaining payments under these
contracts are approximately $953 million over the remaining
life of the contracts; however, these contracts can be
terminated. Termination would result in a penalty substantially
less than the remaining annual contract payments. The Company
would also be required to find another source for these
services, including the possibility of performing them in-house.
As is customary in bidding for and completing network
infrastructure projects and pursuant to a practice the Company
has followed for many years, the Company has a number of
performance/bid bonds, standby letters of credit and surety
bonds outstanding (collectively, referred to as
Performance Bonds), primarily relating to projects
of the Enterprise Mobility Solutions and Home and Networks
Mobility segments. These Performance Bonds normally have
maturities of up to three years and are standard in the industry
as a way to give customers a convenient mechanism to seek
resolution if a contractor does not satisfy performance
requirements under a contract. A customer can draw on the
Performance Bond only if the Company does not fulfill all terms
of a project contract. If such an occasion occurred, the Company
would be obligated to reimburse the financial institution that
issued the Performance Bond for the amounts paid. In its long
history, it has been rare for the Company to have a Performance
Bond drawn upon. At December 31, 2008, outstanding
Performance Bonds totaled approximately $1.8 billion,
compared to $1.7 billion at the end of 2007. As a result of
the Companys current credit ratings, issuers of these
Performance Bonds may be less likely to provide Performance
Bonds on the Companys behalf in the future, unless the
Company provides collateral. These limitations on issuance may
apply to the renewal and extension of existing Performance
Bonds, as well as the issuance of new Performance Bonds. Such
collateral requirements could result in less liquidity for other
operational needs. Also, as a result of the Companys
current credit ratings, there has been an increase in the cost
of issuance of Performance Bonds.
Off-Balance Sheet Arrangements:
Under the
definition contained in Item 303(a)(4)(ii) of
Regulation S-K,
the Company does not have any off-balance sheet arrangements.
Long-term
Customer Financing Commitments
Outstanding Commitments:
Certain purchasers of
the Companys infrastructure equipment continue to request
that suppliers provide long-term financing, defined as financing
with terms greater than one year, in connection with equipment
purchases. These requests may include all or a portion of the
purchase price of the equipment. However, the Companys
obligation to provide long-term financing is often conditioned
on the issuance of a letter of credit in favor of the Company by
a reputable bank to support the purchasers credit or a
pre-existing commitment from a reputable bank to purchase the
long-term receivables from the Company. The Company had
outstanding commitments to provide long-term financing to third
parties totaling $370 million and $610 million at
December 31, 2008 and 2007, respectively. Of these amounts,
$266 million and $454 million were supported by
letters of credit or by bank commitments to purchase long-term
receivables at December 31, 2008 and 2007, respectively. In
response to the recent tightening in the credit markets, certain
customers of the Company have requested financing in connection
with equipment purchases, and these types of requests have
increased in volume and scope. Motorola may increase its
commitments to provide financing in light of these requests.
Guarantees of Third-Party Debt:
In addition to
providing direct financing to certain equipment customers, the
Company also assists customers in obtaining financing directly
from banks and other sources to fund equipment purchases. The
Company had committed to provide financial guarantees relating
to customer financing totaling $43 million and
$42 million at December 31, 2008 and 2007,
respectively (including $23 million at both
December 31, 2008 and 2007 relating to the sale of
short-term receivables). Customer financing guarantees
outstanding were $6 million and $3 million at
December 31, 2008 and 2007, respectively (including
$4 million and $0 million at December 31, 2008
and 2007, respectively, relating to the sale of short-term
receivables).
Outstanding Long-Term Receivables:
The Company
had net long-term receivables, less allowance for losses, of
$162 million and $118 million at December 31,
2008 and 2007, respectively (net of allowances for losses of
$7 million and $5 million at December 31, 2008
and 2007, respectively). These long-term receivables are
generally
60
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
interest bearing, with interest rates ranging from 4% to 14%.
Interest income recognized on long-term receivables for the
years ended December 31, 2008, 2007 and 2006 was
$3 million, $7 million and $9 million,
respectively.
Sales
of Receivables
The Company sells accounts receivables and long-term receivables
to third parties in transactions that qualify as
true-sales. Certain of these accounts receivables
and long-term receivables are sold to third parties on a
one-time, non-recourse basis, while others are sold to third
parties under committed facilities that involve contractual
commitments from these parties to purchase qualifying
receivables up to an outstanding monetary limit. Committed
facilities may be revolving in nature and, typically, must be
renewed on an annual basis. The Company may or may not retain
the obligation to service the sold accounts receivable and
long-term receivables.
In the aggregate, at December 31, 2008, these committed
facilities provided for up to $967 million to be
outstanding with the third parties at any time, as compared to
up to $1.4 billion and $1.3 billion provided at
December 31, 2007 and 2006, respectively. As of
December 31, 2008, $759 million of the Companys
committed facilities were utilized, compared to
$497 million and $817 million utilized at
December 31, 2007 and 2006, respectively. Of the
$967 million of committed facilities at December 31,
2008, $532 million were primarily revolving facilities
associated with the sale of accounts receivable (of which
$497 million was utilized at December 31, 2008), and
$435 million were primarily committed facilities associated
with the sale of specific
long-term
financing transactions to a single customer (of which
$262 million was utilized at December 31, 2008). In
addition, before receivables can be sold under certain of the
revolving committed facilities, they may need to meet
contractual requirements, such as credit quality or insurability.
For many years the Company has utilized a number of receivables
programs to sell a broadly-diversified group of accounts
receivables to third parties. Certain of the accounts
receivables were sold to a multi-seller commercial paper
conduit. This program provided for up to $400 million of
accounts receivables to be outstanding with the conduit at any
time. Subsequent to December 31, 2008, this
$400 million committed facility expired and the Company is
negotiating a replacement facility under different terms. The
Company is also negotiating an additional committed revolving
receivable sales facility for European receivables, with the
intent that the combined capacity of the two new facilities will
be greater than the facility that expired. However, it is not
certain when or if the Company will be successful in securing
such facilities.
For the year ended December 31, 2008, 2007 and 2006, total
accounts receivables and long-term receivables sold by the
Company were $3.7 billion, $4.9 billion and
$6.4 billion, respectively (including $3.4 billion,
$4.7 billion and $6.2 billion, respectively, of
accounts receivables). As of December 31, 2008 and 2007,
there were $1.0 billion and $978 million,
respectively, of receivables outstanding under these programs
for which the Company retained servicing obligations (including
$621 million and $587 million, respectively, of
accounts receivable).
Under certain receivables programs, the value of the receivables
sold is covered by credit insurance obtained from independent
insurance companies, less deductibles or self-insurance
requirements under the policies (with the Company retaining
credit exposure for the remaining portion). Although credit
insurance remains generally available to the Company, it has
become more expensive to obtain and often requires higher
deductibles. The Companys total credit exposure to
outstanding short-term receivables that have been sold was
$23 million at both December 31, 2008 and 2007.
Reserves of $4 million and $1 million were recorded
for potential losses at December 31, 2008 and 2007,
respectively.
Adequate
Internal Funding Resources
The Company believes that it has adequate internal resources
available to fund expected working capital and capital
expenditure requirements for the next twelve months as supported
by the level of cash, cash equivalents, short-term investments
and Sigma Fund balances in the U.S. and the ability to
repatriate cash, cash equivalents, short-term investments and
Sigma Fund balances from foreign jurisdictions.
Other
Contingencies
Potential Contractual Damage Claims in Excess of Underlying
Contract Value:
In certain circumstances, our
businesses may enter into contracts with customers pursuant to
which the damages that could be claimed by the other party for
failed performance might exceed the revenue the Company receives
from the contract. Contracts
61
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
with these types of uncapped damage provisions are fairly rare,
but individual contracts could still represent meaningful risk.
There is a possibility that a damage claim by a counterparty to
one of these contracts could result in expenses to the Company
that are far in excess of the revenue received from the
counterparty in connection with the contract.
Indemnification Provisions:
In addition, the
Company may provide indemnifications for losses that result from
the breach of general warranties contained in certain
commercial, intellectual property and divestiture agreements.
Historically, the Company has not made significant payments
under these agreements, nor have there been significant claims
asserted against the Company. However, there is an increasing
risk in relation to intellectual property indemnities given the
current legal climate. In indemnification cases, payment by the
Company is conditioned on the other party making a claim
pursuant to the procedures specified in the particular contract,
which procedures typically allow the Company to challenge the
other partys claims. Further, the Companys
obligations under these agreements for indemnification based on
breach of representations and warranties are generally limited
in terms of duration, typically not more than 24 months,
and for amounts not in excess of the contract value, and in some
instances the Company may have recourse against third parties
for certain payments made by the Company.
Legal Matters:
The Company is a defendant in
various lawsuits, claims and actions, which arise in the normal
course of business. These include actions relating to products,
contracts and securities, as well as matters initiated by third
parties or Motorola relating to infringements of patents,
violations of licensing arrangements and other intellectual
property-related matters. In the opinion of management, the
ultimate disposition of these matters will not have a material
adverse effect on the Companys consolidated financial
position, liquidity or results of operations.
Segment
Information
The following commentary should be read in conjunction with the
financial results of each reporting segment as detailed in
Note 12, Information by Segment and Geographic
Region, to the Companys consolidated financial
statements. Net sales and operating results for the
Companys three operating segments for 2008, 2007 and 2006
are presented below.
Mobile
Devices Segment
The
Mobile Devices
segment designs, manufactures, sells
and services wireless handsets with integrated software and
accessory products, and licenses intellectual property. In 2008,
the segments net sales represented 40% of the
Companys consolidated net sales, compared to 52% in 2007
and 66% in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
Percent Change
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
2006
|
|
20082007
|
|
20072006
|
|
|
Segment net sales
|
|
$
|
12,099
|
|
|
$
|
18,988
|
|
|
$
|
28,383
|
|
|
|
(36
|
)%
|
|
|
(33
|
)%
|
Operating earnings (loss)
|
|
|
(2,199
|
)
|
|
|
(1,201
|
)
|
|
|
2,690
|
|
|
|
83
|
%
|
|
|
***
|
|
|
|
|
|
|
***
|
|
Percentage change is not meaningful.
|
Segment
Results2008 Compared to 2007
In 2008, the segments net sales were $12.1 billion, a
decrease of 36% compared to net sales of $19.0 billion in
2007. The 36% decrease in net sales was primarily driven by a
37% decrease in unit shipments. The segments net sales
were negatively impacted by the segments limited product
offerings in critical market segments, particularly 3G products,
including smartphones, as well as very low-tier products. In
addition, the segments net sales were impacted by the
global economic downturn in the second half of 2008, which
resulted in the slowing of end user demand. On a product
technology basis, net sales decreased substantially for GSM and
CDMA technologies and, to a lesser extent, decreased for iDEN
and 3G technologies. On a geographic basis, net sales decreased
substantially in North America, the Europe, Middle East and
Africa region (EMEA) and Asia and, to a lesser
extent, decreased in Latin America.
The segment incurred an operating loss of $2.2 billion in
2008, compared to an operating loss of $1.2 billion in
2007. The increase in the operating loss was primarily due to a
decrease in gross margin, driven by: (i) a 36% decrease in
net sales, (ii) excess inventory and other related charges
of $370 million in 2008 due to a decision to
62
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
consolidate software and silicon platforms, and (iii) a
$150 million charge in 2008 related to the settlement of a
purchase commitment, partially offset by: (i) the absence in
2008 of a $277 million charge for a legal settlement
recorded in 2007, and (ii) savings from supply chain
cost-reduction initiatives. The decrease in gross margin was
partially offset by decreases in: (i) selling, general and
administrative (SG&A) expenses, primarily due
to lower marketing expenses and savings from cost-reduction
initiatives, and (ii) research and development
(R&D) expenditures, reflecting savings from
cost-reduction initiatives. The segments industry
typically experiences short life cycles for new products.
Therefore, it is vital to the segments success that new,
compelling products are constantly introduced. Accordingly, a
strong commitment to R&D is required to fuel long-term
growth. As a percentage of net sales in 2008 as compared to
2007, R&D and SG&A expenses increased and gross margin
decreased.
The segments backlog was $290 million at
December 31, 2008, compared to $647 million at
December 31, 2007. This decrease in backlog is primarily
due to a decline in customer demand, primarily driven by the
segments limited product portfolio, as well as the global
economic downturn.
Unit shipments in 2008 were 100.1 million units, a 37%
decrease compared to shipments of 159.1 million units in
2007. The overall decrease reflects decreased unit shipments of
products for all technologies. For the full year 2008, unit
shipments decreased substantially in North America, EMEA and
Asia and, to a lesser extent, decreased in Latin America.
Although unit shipments by the segment decreased in 2008, total
unit shipments in the worldwide handset market increased by
approximately 5%. The segment estimates its worldwide market
share to be approximately 8% in 2008, a decrease of
approximately 6 percentage points versus 2007, reflecting a
significant decline in market share in North America.
In 2008, average selling price (ASP) was flat
compared to 2007. By comparison, ASP decreased approximately 9%
in 2007 and 11% in 2006. ASP is impacted by numerous factors,
including product mix, market conditions and competitive product
offerings, and ASP trends often vary over time.
The segment has several large customers located throughout the
world. In 2008, aggregate net sales to the segments five
largest customers accounted for approximately 41% of the
segments net sales. Besides selling directly to carriers
and operators, the segment also sells products through a variety
of third-party distributors and retailers, which account for
approximately 24% of the segments net sales. The loss of
any of the segments key customers could have a significant
impact on the segments business.
Although the U.S. market continued to be the segments
largest individual market, many of our customers and 56% of our
segments 2008 net sales were outside the
U.S. The largest of these international markets are Brazil,
China and Mexico.
As the segments revenue transactions are largely
denominated in local currencies, we are impacted by the
weakening in the value of these local currencies against the
U.S. dollar. A number of our more significant international
markets, particularly in Latin America, were impacted by this
trend in late 2008. We anticipate volatility in the currency
markets to continue in 2009.
Segment
Results2007 Compared to 2006
In 2007, the segments net sales were $19.0 billion, a
decrease of 33% compared to net sales of $28.4 billion in
2006. The 33% decrease in net sales was primarily driven by:
(i) a 27% decrease in unit shipments, (ii) a 9%
decrease in ASP, and (iii) decreased revenue from
intellectual property and technology licensing. The
segments product sales were negatively impacted by
limitations in the segments product portfolio, including
3G products and products for the Multimedia and Mass Market
product segments, as well as an aging product portfolio. On a
product technology basis, net sales of products for:
(i) GSM technology decreased substantially, (ii) iDEN
and CDMA technologies decreased, and (iii) 3G technologies
increased slightly. On a geographic basis, net sales decreased
in all regions, and decreased substantially in Asia and EMEA.
The substantial decrease in Asia, particularly in China, as well
as in other emerging markets, was due to lower demand for our
products as a result of an aging product portfolio and increased
industry-wide competition. The substantial decrease in EMEA was
due to limitations in our product portfolio, particularly 3G
products.
The segment incurred an operating loss of $1.2 billion in
2007, compared to operating earnings of $2.7 billion in
2006. The operating loss was primarily due to a decrease in
gross margin, driven by: (i) a 9% decrease in ASP,
(ii) decreased income from intellectual property and
technology licensing, (iii) a 27% decrease in unit
shipments, and (iv) a $277 million charge for a legal
settlement, partially offset by savings from supply chain
cost-reduction initiatives. R&D expenditures increased,
driven by increased expenditures on developmental engineering
for new
63
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
products and software, as well as ongoing investment in
next-generation technologies, partially offset by savings from
cost-reduction initiatives. Reorganization of business charges
increased due to employee severance costs and expenses related
to the exit of a facility. SG&A expenses decreased,
primarily due to lower marketing expenses and savings from
cost-reduction initiatives, partially offset by increased
expenditures on information technology upgrades. As a percentage
of net sales in 2007 as compared to 2006, gross margin and
operating margin decreased, and SG&A expenses and R&D
expenditures increased.
The segments backlog was $647 million at
December 31, 2007, compared to $1.4 billion at
December 31, 2006. This decrease in backlog was primarily
due to a decline in customer demand driven by the segments
limited product portfolio.
The segment shipped 159.1 million units in 2007, a 27%
decrease compared to shipments of 217.4 million units in
2006. The overall decrease reflects decreased unit shipments of
products for all technologies. For the full year 2007, unit
shipments: (i) decreased substantially in Asia and EMEA,
(ii) decreased in North America, and (iii) increased
in Latin America. Although unit shipments by the segment
decreased in 2007, total unit shipments in the worldwide handset
market increased by approximately 16%. The segment estimates its
worldwide market share was approximately 14% for the full year
2007, a decrease of approximately 8 percentage points
versus full year 2006.
In 2007, ASP decreased approximately 9% compared to 2006. The
overall decrease in ASP was driven primarily by changes in the
product-tier and geographic mix of sales. By comparison, ASP
decreased approximately 11% in 2006 and 10% in 2005.
The segment has several large customers located throughout the
world. In 2007, aggregate net sales to the segments five
largest customers accounted for approximately 42% of the
segments net sales. Besides selling directly to carriers
and operators, the segment also sells products through a variety
of third-party distributors and retailers, which account for
approximately 33% of the segments net sales. The largest
of these distributors was Brightstar Corporation.
Although the U.S. market continued to be the segments
largest individual market, many of our customers, and more than
54% of our segments 2007 net sales, were outside the
U.S. The largest of these international markets were
Brazil, China and Mexico.
Home and
Networks Mobility Segment
The
Home and Networks Mobility
segment designs,
manufactures, sells, installs and services: (i) digital
video, Internet Protocol video and broadcast network interactive
set-tops, end-to-end video delivery systems, broadband access
infrastructure platforms, and associated data and voice customer
premise equipment to cable television and telecom service
providers (collectively, referred to as the home
business), and (ii) wireless access systems,
including cellular infrastructure systems and wireless broadband
systems, to wireless service providers (collectively, referred
to as the network business). In 2008, the
segments net sales represented 33% of the Companys
consolidated net sales, compared to 27% in 2007 and 21% in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
Percent Change
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
2006
|
|
20082007
|
|
20072006
|
|
|
Segment net sales
|
|
$
|
10,086
|
|
|
$
|
10,014
|
|
|
$
|
9,164
|
|
|
|
1
|
%
|
|
|
9
|
%
|
Operating earnings
|
|
|
918
|
|
|
|
709
|
|
|
|
787
|
|
|
|
29
|
%
|
|
|
(10
|
)%
|
|
|
Segment
Results2008 Compared to 2007
In 2008, the segments net sales increased 1% to
$10.1 billion, compared to $10.0 billion in 2007. The
1% increase in net sales primarily reflects a 16% increase in
net sales in the home business, partially offset by an 11%
decrease in net sales in the networks business. The 16% increase
in net sales in the home business is primarily driven by a 17%
increase in net sales of digital entertainment devices,
reflecting a 19% increase in unit shipments to 18.0 million
units, partially offset by lower ASP due to product mix shift
and pricing pressure. The 11% decrease in net sales in the
networks business was primarily driven by: (i) the absence
of net sales by the embedded communication computing group
(ECC) that was divested at the end of 2007, and
(ii) lower net sales of iDEN, GSM and CDMA infrastructure
equipment, partially offset by higher net sales of UMTS
infrastructure equipment.
On a geographic basis, the 1% increase in net sales was
primarily driven by higher net sales in Latin America and Asia,
partially offset by lower net sales in North America. The
increase in net sales in Latin America was
64
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
primarily due to higher net sales in the home business. The
increase in net sales in Asia was primarily driven by higher net
sales of UMTS and CDMA infrastructure equipment, partially
offset by lower net sales of GSM infrastructure. The decrease in
net sales in North America was primarily due to lower net sales
of iDEN and CDMA infrastructure equipment, partially offset by
higher net sales in the home business. Net sales in
North America accounted for approximately 50% of the
segments total net sales in 2008, compared to
approximately 52% of the segments total net sales in 2007.
The regional shift in 2008 as compared to 2007 reflects a 5%
aggregate growth in net sales outside of North America and a 3%
decline in net sales in North America.
The segment had operating earnings of $918 million in 2008,
compared to operating earnings of $709 million in 2007. The
increase in operating earnings was primarily due to:
(i) decreases in both SG&A and R&D expenditures,
primarily related to savings from cost-reduction initiatives,
and (ii) a decrease in reorganization of business charges,
relating primarily to lower employee severance costs. These
factors were partially offset by a decrease in gross margin,
primarily due to: (i) an unfavorable product mix, and (ii) the
absence of net sales by ECC. As a percentage of net sales in
2008 as compared to 2007, gross margin, SG&A expenses and
R&D expenditures all decreased and operating margin
increased. The segments gross margin percentages differ
among its services, software and equipment products.
Accordingly, the aggregate gross margin of the segment can
fluctuate from period to period depending upon the relative mix
of sales in the given period.
Due to the nature of the segments business, many of the
agreements we enter into are long-term contracts that require
sizeable investments by our customers. The segment is dependent
upon a small number of customers for a significant portion of
its sales. In 2008, sales to the segments top five
customers represented approximately 45% of the segments
net sales. The loss of one of these major customers could have a
significant impact on the segments business and, because
many of these contracts are long-term in nature, could impact
revenue and earnings over several quarters. The segments
backlog was $2.3 billion at December 31, 2008,
compared to $2.6 billion at December 31, 2007.
In the home business, demand for the segments products
depends primarily on the level of capital spending by broadband
operators for constructing, rebuilding or upgrading their
communications systems, and for offering advanced services.
Additionally, in 2008, our digital video customers significantly
increased their purchases of the segments products and
services, primarily due to increased demand for digital
entertainment devices, particularly IP and HD/DVR devices.
In the networks business, the segment has been a long-standing
proponent of WiMAX and is now commercially deploying this
technology to multiple customers on a global basis. The segment
is developing infrastructure equipment utilizing LTE technology.
LTE has widespread industry support, not only from current
GSM/UMTS operators, but also from CDMA/EV-DO based carriers.
In February 2008, the segment acquired the assets related to
digital cable set-top products of Zhejiang Dahua Digital
Technology Co., LTD and Hangzhou Image Silicon, (known
collectively as Dahua Digital), a developer, manufacturer and
marketer of cable set-tops and related low cost integrated
circuits for the emerging Chinese cable business. The
acquisition helps the segment strengthen its position in the
rapidly growing cable market in China.
Segment
Results2007 Compared to 2006
In 2007, the segments net sales increased 9% to
$10.0 billion, compared to $9.2 billion in 2006. The
9% increase in net sales reflects a 27% increase in net sales in
the home business, partially offset by a 1% decrease in net
sales in the network business. The 27% increase in net sales in
the home business was primarily driven by: (i) a 43%
increase in net sales of digital entertainment devices,
reflecting a 50% increase in unit shipments to 15.1 million
units, partially offset by a decline in ASP due to a product mix
shift towards all-digital set-tops, and (ii) a 6% increase
in net sales of broadband gateways, primarily due to higher net
sales of data modems, driven by net sales from the Netopia, Inc.
business acquired in February 2007. The 1% decrease in net sales
in the networks business was primarily driven by lower net sales
of iDEN and CDMA infrastructure equipment, partially offset by
higher net sales of GSM infrastructure equipment, despite
competitive pricing pressure.
On a geographic basis, the 9% increase in net sales reflects
higher net sales in all geographic regions. The increase in net
sales in North America was driven primarily by higher sales of
digital entertainment devices, partially offset by lower net
sales of iDEN and CDMA infrastructure equipment. The increase in
net sales in Asia was primarily due to higher net sales of GSM
infrastructure equipment, partially offset by lower net sales of
CDMA infrastructure equipment. The increase in net sales in EMEA
was primarily due to higher net sales of GSM infrastructure
equipment, partially offset by lower demand for iDEN and CDMA
infrastructure equipment. Net sales in North America continued
to comprise a significant portion of the segments
business, accounting for 52% of the segments total net
sales in 2007, compared to 56% of the segments total net
sales in 2006.
65
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The segment had operating earnings of $709 million in 2007,
compared to operating earnings of $787 million in 2006. The
decrease in operating earnings was primarily due to a decrease
in gross margin, driven by: (i) lower net sales of iDEN
infrastructure equipment, and (ii) continued competitive
pricing pressure in the market for GSM infrastructure equipment,
partially offset by: (i) increased net sales of digital
entertainment devices, and (ii) the reversal of
reorganization of business accruals recorded in 2006 relating to
employee severance which were no longer needed. SG&A
expenses increased primarily due to the expenses from recently
acquired businesses, partially offset by savings from
cost-reduction initiatives. R&D expenditures decreased
primarily due to savings from cost-reduction initiatives,
partially offset by expenditures by recently acquired businesses
and continued investment in digital entertainment devices and
WiMAX. As a percentage of net sales in 2007 as compared to 2006,
gross margin, SG&A expenses, R&D expenditures and
operating margin all decreased.
In 2007, sales to the segments top five customers
represented approximately 43% of the segments net sales.
The segments backlog was $2.6 billion at
December 31, 2007, compared to $3.2 billion at
December 31, 2006.
In the home business, demand for the segments products
depends primarily on the level of capital spending by broadband
operators for constructing, rebuilding or upgrading their
communications systems, and for offering advanced services.
During the second quarter of 2007, the segment began shipping
digital set-tops that support the Federal Communications
Commission (FCC) mandated separable
security requirement. FCC regulations mandating the separation
of security functionality from set-tops went into effect on
July 1, 2007. As a result of these regulations, many cable
service providers accelerated their purchases of set-tops in the
first half of 2007. Additionally, in 2007, our digital video
customers significantly increased their purchases of the
segments products and services, primarily due to increased
demand for digital entertainment devices, particularly HD/DVR
devices.
During 2007, the segment completed the acquisitions of:
(i) Netopia, Inc., a broadband equipment provider for DSL
customers, which allows for phone, TV and fast Internet
connections, (ii) Tut Systems, Inc., a leading developer of
edge routing and video encoders, (iii) Modulus Video, Inc.,
a provider of MPEG-4 Advanced Coding compression systems
designed for delivery of high-value video content in IP set-top
devices for the digital video, broadcast and satellite
marketplaces, (iv) Terayon Communication Systems, Inc., a
provider of real-time digital video networking applications to
cable, satellite and telecommunication service providers
worldwide, and (v) Leapstone Systems, Inc., a provider of
intelligent multimedia service delivery and content management
applications to networks operators. These acquisitions enhance
our ability to provide complete end-to-end systems for the
delivery of advanced video, voice and data services. In December
2007, Motorola completed the sale of ECC to Emerson for
$346 million in cash.
Enterprise
Mobility Solutions Segment
The
Enterprise Mobility Solutions
segment designs,
manufactures, sells, installs and services analog and digital
two-way radio, voice and data communications products and
systems for private networks, wireless broadband systems and
end-to-end enterprise mobility solutions to a wide range of
enterprise markets, including government and public safety
agencies (which, together with all sales to distributors of
two-way communication products, are referred to as the
government and public safety market), as well as
retail, energy and utilities, transportation, manufacturing,
healthcare and other commercial customers (which, collectively,
are referred to as the commercial enterprise
market). In 2008, the segments net sales represented
27% of the Companys consolidated net sales, compared to
21% in 2007 and 13% in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
Percent Change
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
2006
|
|
20082007
|
|
20072006
|
|
|
Segment net sales
|
|
$
|
8,093
|
|
|
$
|
7,729
|
|
|
$
|
5,400
|
|
|
|
5
|
%
|
|
|
43
|
%
|
Operating earnings
|
|
|
1,496
|
|
|
|
1,213
|
|
|
|
958
|
|
|
|
23
|
%
|
|
|
27
|
%
|
|
|
Segment
Results2008 Compared to 2007
In 2008, the segments net sales increased 5% to
$8.1 billion, compared to $7.7 billion in 2007. The 5%
increase in net sales reflects an 8% increase in net sales to
the government and public safety market, partially offset by a
2% decrease in net sales to the commercial enterprise market.
The increase in net sales to the government and public safety
market was primarily driven by: (i) increased net sales
outside of North America, and (ii) the net sales generated
by Vertex Standard Co., Ltd., a business the Company acquired a
controlling interest of in January 2008, partially offset by
lower net sales in North America. On a geographic basis, the
segments net sales were higher in EMEA, Asia and Latin
America and lower in North America.
66
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The segment had operating earnings of $1.5 billion in 2008,
compared to operating earnings of $1.2 billion in 2007. The
increase in operating earnings was primarily due to an increase
in gross margin, driven by: (i) the 5% increase in net
sales, (ii) a favorable product mix, (iii) the absence
in 2008 of an inventory-related charge in connection with the
acquisition of Symbol Technologies, Inc. (Symbol)
during the first quarter of 2007, and (iv) a decrease in
SG&A expenses, primarily related to savings from
cost-reduction initiatives. The increase in gross margin was
partially offset by increased R&D expenditures, primarily
due to developmental engineering expenditures for new product
development and investment in next-generation technologies. As a
percentage of net sales in 2008 as compared to 2007, gross
margin, R&D expenditures and operating margin increased,
and SG&A expenses decreased.
Net sales in North America continued to comprise a significant
portion of the segments business, accounting for
approximately 57% of the segments net sales in 2008,
compared to approximately 62% in 2007. The regional shift in
2008 as compared to 2007 reflects 19% growth in net sales
outside of North America and a 4% decline in net sales in North
America. Our products and services are sold worldwide to a
diverse set of customers, including customers involved in:
government and public safety (police, fire, emergency management
services), military, utilities, retail, transportation and
logistics, manufacturing, wholesale and distribution, and
healthcare. The segments backlog was $2.4 billion at
December 31, 2008, compared to $2.3 billion at
December 31, 2007.
In the government and public safety market, we see a continued
emphasis on mission-critical systems as we face ongoing natural
disasters and world-wide terrorist-related events. We have led
new innovations in the market this past year, through the
continued success of our MOTOTRBO line and the introduction of
the
APX
tm
family of products, an industry first in many features. While
spending by the segments government and public safety
market customers is affected by government budgets at the
national, state and local levels, we have seen the scope and
size of systems requested by some of the segments
customers continue to increase. We have had many significant
wins across the globe, such as several city and state-wide
communications systems in the United States, several competitive
TETRA system wins with major international airport customers in
Europe and Asia, and our largest award ever within Asia for the
digital migration of the Royal Malaysian Police. These larger
systems are more complex and include a wide range of
capabilities that our technological innovations are able to
provide.
We are also a market leader within the commercial enterprise
markets. We continue to help our customers move information
where it needs to be, as in the product launch of the MC75, an
enterprise digital assistant targeted to the mobile workforce.
During 2008, the segment also: (i) acquired a controlling
interest in Vertex Standard Co., Ltd., a global provider of
two-way radio communication solutions, and (ii) completed
the acquisition of AirDefense Inc., a leading wireless local
area network (WLAN) security provider.
Segment
Results2007 Compared to 2006
In 2007, the segments net sales increased 43% to
$7.7 billion, compared to $5.4 billion in 2006. The
43% increase in net sales was primarily due to increased net
sales in the commercial enterprise market, driven by the net
sales from the Symbol business acquired in January 2007. Net
sales in the government and public safety market increased 6%,
primarily due to strong demand in North America. On a geographic
basis, net sales increased in all regions.
The segment had operating earnings of $1.2 billion in 2007,
compared to operating earnings of $958 million in 2006. The
increase in operating earnings was primarily due to an increase
in gross margin in both: (i) the commercial enterprise
market, driven by net sales from the Symbol business acquired in
January 2007, and (ii) the government and public safety
market, driven by strong net sales in North America. This
improvement in gross margin was partially offset by: (i) an
inventory-related charge in connection with the acquisition of
Symbol, and (ii) increases in SG&A and R&D
expenses, primarily due to expenses from recently acquired
businesses, partially offset by savings from cost-reduction
initiatives. As a percentage of net sales in 2007 as compared
2006, gross margin, R&D expenditures and operating margin
decreased, and SG&A expenses increased.
Net sales in North America continued to comprise a significant
portion of the segments business, accounting for
approximately 62% of the segments net sales in 2007,
compared to approximately 63% in 2006. The segments
backlog was $2.3 billion at December 31, 2007,
compared to $2.0 billion at December 31, 2006.
During 2007, the segment completed the acquisition of:
(i) Symbol Technologies, Inc., a leader in designing,
developing, manufacturing and servicing products and systems
used in end-to-end enterprise mobility solutions, and
(ii) Good Technology, Inc., a provider of enterprise mobile
computing software and services.
67
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Significant
Accounting Policies
Managements Discussion and Analysis of Financial Condition
and Results of Operations discusses the Companys
consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period.
Management bases its estimates and judgments on historical
experience, current economic and industry conditions and on
various other factors that are believed to be reasonable under
the circumstances. This forms the basis for making judgments
about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Management believes the following significant accounting
policies require significant judgment and estimates:
Revenue recognition
Inventory valuation
Income taxes
Valuation of Sigma Fund and investment portfolios
Restructuring activities
Retirement-related benefits
Valuation and recoverability of goodwill and
long-lived assets
Revenue
Recognition
The Companys arrangements with customers may differ in
nature and complexity and may contain multiple deliverables,
including products, equipment, services and software that may be
essential to the functionality of the other deliverables,
requiring the Company to make judgments and estimates in
recognizing revenues.
Product and equipment sales may contain discounts, price
protection, return provisions and other customer incentives. The
Companys recorded revenues are reduced by allowances for
these items at the time the sales are recorded. The allowances
are based on managements best estimate of the amount of
allowances that the customer will ultimately earn and was based
on historical experience taking into account the type of
products sold, the type of customer and the type of transaction
specific to each arrangement. Where customer incentives cannot
be reliably estimated, the Company recognizes revenue at the
time the product sells through the distribution channel to the
end customer.
The Companys long-term contracts may involve the design,
engineering, manufacturing and installation of wireless and
wireline networks and two-way radio voice and data systems.
These systems are designed to meet specific customer
requirements and specifications and generally require extended
periods to complete. If the Company can reliably estimate
revenues and contract costs and the technology is considered
proven, revenue is recognized under the percentage of completion
method as work progresses towards completion; otherwise, the
revenue is recognized under the completed contract method.
Estimates of contract revenues, contract costs and progress
towards completion are based on estimates that consider
historical experience and other factors believed to be relevant
under the circumstances. Management regularly reviews these
estimates and considers the impact of recurring business risks
and uncertainties inherent in the contracts, such as system
performance and implementation delays due to factors within or
outside the control of management.
Generally, multiple element arrangements are separated into
specific accounting units when: (i) delivered elements have
value to the customer on a stand-alone basis,
(ii) objective and reliable evidence of fair value exists
for the undelivered element(s), and (iii) delivery of the
undelivered element(s) is probable and substantially within the
control of the Company. Total arrangement consideration is
allocated to the separate accounting units based on their
relative fair values (if the fair value of each accounting unit
is known) or using the residual method (if the fair value of the
undelivered element(s) is known). Revenue is recognized for a
separate accounting unit when the revenue recognition criteria
are met for that unit. In certain situations, judgment is
required in determining both the number of accounting units and
fair value of the elements, although generally the fair value of
an element can be objectively determined if the Company sells
the element on a stand-alone basis. Multiple element
arrangements that include software are separated into more than
one unit of accounting when the following criteria are met:
(i) the functionality of the delivered element(s) is not
dependent on the undelivered element(s), (ii) there is
vendor-
68
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
specific objective evidence of the fair value of the undelivered
element(s), and (iii) general revenue recognition criteria
related to the delivered element(s) have been met.
Changes in cost estimates and the fair values of certain
deliverables could negatively impact the Companys
operating results. In addition, unforeseen conditions could
arise over the contract term that may have a significant impact
on operating results.
Inventory
Valuation
The Company records valuation reserves on its inventory for
estimated excess or obsolescence. The amount of the reserve is
equal to the difference between the cost of the inventory and
the estimated market value based upon assumptions about future
demand and market conditions. On a quarterly basis, management
in each segment performs an analysis of the underlying inventory
to identify reserves needed for excess and obsolescence.
Management uses its best judgment to estimate appropriate
reserves based on this analysis. In addition, the Company
adjusts the carrying value of inventory if the current market
value of that inventory is below its cost.
At December 31, 2008 and 2007, Inventories consisted of the
following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Finished goods
|
|
$
|
1,710
|
|
|
$
|
1,737
|
|
Work-in-process
and production materials
|
|
|
1,709
|
|
|
|
1,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,419
|
|
|
|
3,207
|
|
Less inventory reserves
|
|
|
(760
|
)
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,659
|
|
|
$
|
2,836
|
|
|
|
The Company balances the need to maintain strategic inventory
levels to ensure competitive delivery performance to its
customers against the risk of inventory obsolescence due to
rapidly changing technology and customer requirements. As
reflected above, the Companys inventory reserves
represented 22% of the gross inventory balance at
December 31, 2008, compared to 12% of the gross inventory
balance at December 31, 2007. The increase in the inventory
reserves was primarily due to the Company recording a charge of
$291 million for excess inventory due to a decision to
consolidate software and silicon platforms in the Mobile Devices
segment in 2008. The Company has inventory reserves for pending
cancellations of product lines due to technology changes,
long-life cycle products, lifetime buys at the end of supplier
production runs, business exits, and a shift of production to
outsourcing.
If actual future demand or market conditions are less favorable
than those projected by management, additional inventory
writedowns may be required.
Income
Taxes
The Companys effective tax rate is based on pre-tax income
and the tax rates applicable to that income in the various
jurisdictions in which the Company operates. An estimated
effective tax rate for a year is applied to the Companys
quarterly operating results. In the event that there is a
significant unusual or discrete item recognized, or expected to
be recognized, in the Companys quarterly operating
results, the tax attributable to that item would be separately
calculated and recorded at the same time as the unusual or
discrete item. The Company considers the resolution of
prior-year tax matters to be such items. Significant judgment is
required in determining the Companys effective tax rate
and in evaluating its tax positions. The Company establishes
reserves when it is more likely than not that the Company will
not realize the full tax benefit of the position. The Company
adjusts these reserves in light of changing facts and
circumstances.
Tax regulations may require items of income and expense to be
included in a tax return in different periods than the items are
reflected in the consolidated financial statements. As a result,
the effective tax rate reflected in the consolidated financial
statements may be different than the tax rate reported in the
income tax return. Some of these differences are permanent, such
as expenses that are not deductible on the tax return, and some
are temporary differences, such as depreciation expense.
Temporary differences create deferred tax assets and
liabilities. Deferred tax assets generally represent items that
can be used as a tax deduction or credit in the tax return in
future years for which the Company has already recorded the tax
benefit in the consolidated financial statements. Deferred tax
liabilities generally represent tax expense recognized in the
consolidated financial
69
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
statements for which payment has been deferred or expense for
which the Company has already taken a deduction on an income tax
return, but has not yet recognized in the consolidated financial
statements.
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standard (SFAS) No. 109,
Accounting for Income Taxes, which requires that
deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of the temporary differences between
the book and tax basis of recorded assets and liabilities. The
Company makes estimates and judgments with regard to the
calculation of certain income tax assets and liabilities.
SFAS No. 109 requires that deferred tax assets be
reduced by valuation allowances if, based on the consideration
of all available evidence, it is more likely than not that some
portion of the deferred tax asset will not be realized.
Significant weight is given to evidence that can be objectively
verified.
The Company evaluates deferred income taxes on a quarterly basis
to determine if valuation allowances are required by considering
available evidence, including historical and projected taxable
income and tax planning strategies that are both prudent and
feasible. As of December 31, 2008, the Companys U.S
operations had generated two consecutive years of pre-tax
losses, which are attributable to the Mobile Devices segment.
During 2007 and 2008, the Home and Networks Mobility and
Enterprise Mobility Solution businesses (collectively referred
to as the Broadband Mobility Solutions business)
were profitable in the U.S. and worldwide. Because of the
2007 and 2008 losses at Mobile Devices and the near-term
forecasts for the Mobile Devices business, the Company believes
that the weight of negative historic evidence precludes it from
considering any forecasted income from the Mobile Devices
business in its analysis of the recoverability of deferred tax
assets. However, based on the sustained profits of the Broadband
Mobility Solutions business, the Company believes that the
weight of positive historic evidence allows it to include
forecasted income from that the Broadband Mobility Solutions
business in its analysis of the recoverability of its deferred
tax assets. The Company also considered in its analysis tax
planning strategies that are prudent and can be reasonably
implemented. Based on all available positive and negative
evidence, we concluded that a partial valuation allowance should
be recorded against the net deferred tax assets of our U.S
operations. During fiscal 2008, we recorded a valuation
allowance of $2.1 billion. The establishment of the
valuation allowance was a non-cash expense.
The Company has a total deferred tax asset valuation allowance
of approximately $2.7 billion against net deferred tax
assets of approximately $6.2 billion as of
December 31, 2008, compared to total deferred tax asset
valuation allowance of $515 million against net deferred
tax assets of $4.8 billion as of December 31, 2007.
Management believes its assumptions about the future performance
of the Broadband Mobility Solutions business and the ability of
the Company to generate sufficient future taxable income to
realize the remaining deferred tax assets are reasonable. If the
Broadband Mobility Solutions business does not meet these future
forecasts or if the Company no longer deems certain tax planning
strategies prudent or feasible due to changes in circumstances
not currently contemplated, additional valuation allowances may
be required in future periods.
Valuation
of Sigma Fund and Investment Portfolios
The Company and its wholly-owned subsidiaries invest a
significant portion of their U.S. dollar-denominated cash
in a fund (the Sigma Fund) that is designed to
provide investment returns similar to a money market fund.
Investments in Sigma Fund are carried at fair value. Investments
not held in Sigma Fund generally consist of equity and debt
securities, which are classified as available-for-sale and are
carried at fair value.
The Company adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standard
(SFAS) No. 157, Fair Value
Measurements (SFAS 157) on
January 1, 2008 for financial assets and liabilities, and
non-financial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a
recurring basis. SFAS 157 defines fair value, establishes a
framework for measuring fair value as required by other
accounting pronouncements and expands fair value measurement
disclosures. The provisions of SFAS 157 are applied
prospectively upon adoption and did not have a material impact
on the Companys consolidated financial statements. Based
on the framework provided by SFAS 157, the evidence to
support the fair value is as follows.
Quoted market prices in active markets are available for
investments in publicly traded common stock and equivalents and,
as such, these investments are classified within Level 1.
The securities classified as Level 2 are primarily those
that are professionally managed within the Sigma Fund. The
valuation models are developed and maintained by third-party
pricing services and use a number of standard inputs to the
valuation model, including benchmark yields, reported trades,
broker/dealer quotes where the party is standing ready and able
to transact, issuer spreads, benchmark securities, bids, offers
and other reference data. The
70
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
valuation model may prioritize these inputs differently at each
balance sheet date for any given security, based on the market
conditions. Not all of the standard inputs listed will be used
each time in the valuation models. For each asset class,
quantifiable inputs related to perceived market movements and
sector news may be considered in addition to the standard inputs.
In determining the fair value of the Companys interest
rate swap derivatives, the Company uses the present value of
expected cash flows based on market observable interest rate
yield curves commensurate with the term of each instrument and
the credit default swap market to reflect the credit risk of
either the Company or the counterparty. For foreign currency
derivatives, the Companys approach is to use forward
contract and option valuation models employing market observable
inputs, such as spot currency rates, time value and option
volatilities. Since the Company primarily uses observable inputs
in its valuation of its derivative assets and liabilities, they
are considered Level 2.
Level 3 fixed income securities are debt securities that do
not have actively traded quotes on the date the Company presents
its consolidated balance sheets and require the use of
unobservable inputs, such as indicative quotes from dealers and
qualitative input from investment advisors, to value these
securities.
The Company cannot predict the occurrence of future events that
might have an impact on the fair values of its investments in
Sigma Fund or other investments carried at fair value.
Restructuring
Activities
The Company maintains a formal Involuntary Severance Plan (the
Severance Plan), which permits the Company to offer
eligible employees severance benefits based on years of service
and employment grade level in the event that employment is
involuntarily terminated as a result of a
reduction-in-force
or restructuring. Each separate
reduction-in-force
has qualified for severance benefits under the Severance Plan.
The Company recognizes termination benefits based on formulas
per the Severance Plan at the point in time that future
settlement is probable and can be reasonably estimated based on
estimates prepared at the time a restructuring plan is approved
by management. Exit costs consist of future minimum lease
payments on vacated facilities and other contractual
terminations. At each reporting date, the Company evaluates its
accruals for exit costs and employee separation costs to ensure
the accruals are still appropriate. In certain circumstances,
accruals are no longer required because of efficiencies in
carrying out the plans or because employees previously
identified for separation resigned from the Company and did not
receive severance or were redeployed due to circumstances not
foreseen when the original plans were initiated. The Company
reverses accruals through the income statement line item where
the original charges were recorded when it is determined they
are no longer required.
Retirement-Related
Benefits
The Companys noncontributory pension plan (the
Regular Pension Plan) covers U.S. employees who
became eligible after one year of service. The benefit formula
is dependent upon employee earnings and years of service.
Effective January 1, 2005, newly-hired employees were not
eligible to participate in the Regular Pension Plan. The Company
also provides defined benefit plans which cover
non-U.S. employees
in certain jurisdictions, principally the United Kingdom,
Germany, Ireland, Japan and Korea (the
Non-U.S. Plans).
Other pension plans are not material to the Company either
individually or in the aggregate.
The Company also has a noncontributory supplemental retirement
benefit plan (the Officers Plan) for its
elected officers. The Officers Plan contains provisions
for vesting and funding the participants expected
retirement benefits when the participants meet the minimum age
and years of service requirements. Elected officers who were not
yet vested in the Officers Plan as of December 31,
1999 had the option to remain in the Officers Plan or
elect to have their benefit bought out in restricted stock
units. Effective December 31, 1999, newly elected officers
are not eligible to participate in the Officers Plan.
Effective June 30, 2005, salaries were frozen for this plan.
The Company has an additional noncontributory supplemental
retirement benefit plan, the Motorola Supplemental Pension Plan
(MSPP), which provides supplemental benefits to
individuals by replacing the Regular Pension Plan benefits that
are lost by such individuals under the retirement formula due to
application of the limitations imposed by the Internal Revenue
Code. However, elected officers who are covered under the
Officers Plan or who participated in the restricted stock
buy-out are not eligible to participate in MSPP. Effective
January 1, 2007, eligible compensation was capped at the
IRS limit plus $175,000 (the Cap) or, for those
already in excess of the Cap as of January 1, 2007, the
eligible compensation used to compute such employees MSPP
benefit for all future years will be the greater of:
(i) such employees eligible compensation as of
January 1,
71
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2007 (frozen at that amount), or (ii) the relevant Cap for
the given year. Additionally, effective January 1, 2009,
the MSPP was frozen as to any new participants after
January 1, 2009 unless such participation was due to a
prior contractual entitlement.
In February 2007, the Company amended the Regular Pension Plan
and the MSPP, modifying the definition of average earnings. For
years ended prior to December 31, 2007, benefits were
calculated using the rolling average of the highest annual
earnings in any five years within the previous ten calendar year
period. Beginning in January 2008, the benefit calculation
was based on the set of the five highest years of earnings
within the ten calendar years prior to December 31, 2007,
averaged with earnings from each year after 2007. Also effective
January 2008, the Company amended the Regular Pension Plan,
modifying the vesting period from five years to three years.
In December 2008, the Company amended the Regular Pension Plan,
the Officers Plan and the MSPP (collectively, the
2008 Amended Pension Plans) such that, effective
March 1, 2009: (i) no participant shall accrue any
benefit or additional benefit on and after March 1, 2009,
and (ii) no compensation increases earned by a participant
on and after March 1, 2009 shall be used to compute any
accrued benefit. In 2008, the Company recognized a
$237 million curtailment gain associated with this plan
amendment.
Certain healthcare benefits are available to eligible domestic
employees meeting certain age and service requirements upon
termination of employment (the Postretirement Health Care
Benefits Plan). For eligible employees hired prior to
January 1, 2002, the Company offsets a portion of the
postretirement medical costs to the retired participant. As of
January 1, 2005, the Postretirement Health Care Benefits
Plan has been closed to new participants.
Accounting methodologies use an attribution approach that
generally spreads individual events over the service lives of
the employees in the plan. Examples of events are
plan amendments and changes in actuarial assumptions such as
discount rate, expected long-term rate of return on plan assets,
and rate of compensation increases. The principle underlying the
required attribution approach is that employees render service
over their service lives on a relatively consistent basis and,
therefore, the income statement effects of pension benefits or
postretirement health care benefits are earned in, and should be
expensed in, the same pattern.
There are various assumptions used in calculating the net
periodic benefit expense and related benefit obligations. One of
these assumptions is the expected long-term rate of return on
plan assets. The required use of expected long-term rate of
return on plan assets may result in recognized pension income
that is greater or less than the actual returns of those plan
assets in any given year. Over time, however, the expected
long-term returns are designed to approximate the actual
long-term returns and therefore result in a pattern of income
and expense recognition that more closely matches the pattern of
the services provided by the employees. Differences between
actual and expected returns are recognized in the net periodic
pension calculation over five years.
The Company uses long-term historical actual return experience
with consideration of the expected investment mix of the
plans assets, as well as future estimates of long-term
investment returns, to develop its expected rate of return
assumption used in calculating the net periodic pension cost and
the net retirement healthcare expense. The Companys
investment return assumption for the Regular Pension Plan and
Postretirement Healthcare was 8.5% for 2008 and 2007. The
investment return assumption for the Officers Plan was 6%
in 2008 and 2007. At December 31, 2008, the Regular Pension
Plan and the Postretirement Health Care Benefits Plan investment
portfolios were predominantly equity investments and the
Officers Plan investment portfolio was predominantly
fixed-income securities.
A second key assumption is the discount rate. The discount rate
assumptions used for pension benefits and postretirement health
care benefits accounting reflects, at December 31 of each year,
the prevailing market rates for high-quality, fixed-income debt
instruments that, if the obligation was settled at the
measurement date, would provide the necessary future cash flows
to pay the benefit obligation when due. The Companys
discount rates for measuring its U.S. pension obligations
were 6.75% at both December 2008 and 2007. The Companys
discount rates for measuring the Postretirement Health Care
Benefits Plan obligation were 6.75% and 6.5% at
December 31, 2008 and 2007, respectively.
A final set of assumptions involves the cost drivers of the
underlying benefits. The rate of compensation increase is a key
assumption used in the actuarial model for pension accounting
and is determined by the Company based upon its long-term plans
for such increases. The Companys 2008 and 2007 rate for
future compensation increase for the Officers Plan was 0%,
as the salaries to be utilized for calculation of benefits under
this plan have been frozen. As a result of the 2008 Amended
Pension Plans, the salaries to be utilized for calculation of
benefits
72
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
have been frozen, and the Companys 2008 rate for future
compensation increase for the Regular Pension Plan was set to
0%. The Companys 2007 rate for future compensation
increase for the Regular Pension Plan was 4%. For Postretirement
Health Care Benefits Plan accounting, the Company reviews
external data and its own historical trends for health care
costs to determine the health care cost trend rates. Based on
this review, the health care cost trend rate used to determine
the December 31, 2008 accumulated postretirement benefit
obligation is 8.5% for 2009, with a declining trend rate of
about 0.7% each year until it reaches 5% by 2014, with a flat 5%
rate for 2014 and beyond.
For the year ended December 31, 2008, the Company
recognized net periodic pension expense of $64 million
related to its U.S. pension plans and a $237 million
curtailment gain related to the plan amendments that are
effective March 1, 2009. For the years ended
December 31, 2007 and 2006, the net periodic pension
expense for its U.S. pension plans were $191 million and
$258 million, respectively. Cash contributions of
$243 million were made to the U.S. pension plans in
2008. The Company expects to make cash contributions of
approximately $180 million to its U.S. pension plans
and approximately $50 million to its
non-U.S. pension
plans during 2009.
The 2008 and 2007 Postretirement Health Care Benefits Plan
actual expenses were $15 million in both periods. Cash
contributions of $16 million were made to this plan in
2008. The Company expects to make no cash contributions to the
Postretirement Health Care Benefits Plan in 2009.
The Company maintains a number of endorsement split-dollar life
insurance policies that were taken out on now-retired officers
under a plan that was frozen prior to December 31, 2004.
The Company had purchased the life insurance policies to insure
the lives of employees and then entered into a separate
agreement with the employees that split the policy benefits
between the Company and the employee. Motorola owns the
policies, controls all rights of ownership, and may terminate
the insurance policies. To effect the split-dollar arrangement,
Motorola endorsed a portion of the death benefits to the
employee and upon the death of the employee, the employees
beneficiary typically receives the designated portion of the
death benefits directly from the insurance company and the
Company receives the remainder of the death benefits.
The Company adopted the provisions of
EITF 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
(EITF 06-4)
as of January 1, 2008.
EITF 06-4
requires that a liability for the benefit obligation be recorded
because the promise of postretirement benefit had not been
settled through the purchase of an endorsement split-dollar life
insurance arrangement. As a result of the adoption of
EITF 06-4,
the Company recorded a liability representing the actuarial
present value of the future death benefits as of the
employees expected retirement date of $45 million
with the offset reflected as a cumulative-effect adjustment to
January 1, 2008 Retained earnings and Non-owner changes to
equity in the amounts of $4 million and $41 million,
respectively, in the Companys consolidated statement of
stockholders equity. It is currently expected that no
further cash payments are required to fund these policies.
The 2008 Split-Dollar Life Insurance policy actual expense was
$6 million. As of December 31, 2008, the Company has
recorded a liability representing the actuarial present value of
the future death benefits as of the employees expected
retirement date of $47 million with the offset reflected in
Retained earnings and Non-owner changes to equity in the amounts
of $4 million and $37 million, respectively, in the
Companys consolidated statement of stockholders
equity as of December 31, 2008.
Recent market conditions have resulted in an unusually high
degree of volatility and increased the risks and illiquidity
associated with certain investments held by the pension plans,
which could impact the value of investments after the date of
this filing. The Companys measurement date of its plan
assets and obligations is December 31.
Valuation
and Recoverability of Goodwill and Long-lived
Assets
Goodwill:
The Company tests the recorded
amount of goodwill for recovery on an annual basis in the fourth
quarter of each fiscal year. Goodwill is tested more frequently
if indicators of impairment exist. The Company continually
assesses whether any indicators of impairment exist, which
requires a significant amount of judgment. Such indicators may
include: a sustained significant decline in our share price and
market capitalization; a decline in our expected future cash
flows; a significant adverse change in legal factors or in the
business climate; unanticipated competition; the testing for
recoverability of a significant asset group within a reporting
unit; or slower growth rates, among others. Any adverse change
in these factors could have a significant impact on the
recoverability of these assets and could have a material impact
on our consolidated financial statements.
The goodwill impairment test is performed at the reporting unit
level. A reporting unit is an operating segment or one level
below an operating segment (referred to as a
component). A component of an operating
73
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
segment is a reporting unit if the component constitutes a
business for which discrete financial information is available
and segment management regularly reviews the operating results
of that component. When two or more components of an operating
segment have similar economic characteristics, the components
shall be aggregated and deemed a single reporting unit. An
operating segment shall be deemed to be a reporting unit if all
of its components are similar, if none of its components is a
reporting unit, or if the segment comprises only a single
component. As such, the Company has determined that the Mobile
Devices segment meets the requirement of a reporting unit. For
the Enterprise Mobility Solutions segment, the Company has
identified two reporting units, the Government and Public Safety
reporting unit and the Enterprise Mobility reporting unit. For
the Home and Networks Mobility segment, the Company has
identified two reporting units, the Home reporting unit and the
Public Networks reporting unit.
The goodwill impairment test is a two step analysis. In Step
One, the fair value of each reporting unit is compared to its
book value. Management must apply judgment in determining the
estimated fair value of these reporting units. Fair value is
determined using a combination of present value techniques and
quoted market prices of comparable businesses. If the fair value
of the reporting unit exceeds its carrying value, goodwill is
not deemed to be impaired for that reporting unit, and no
further testing would be necessary. If the fair value of the
reporting unit is less than the carrying value, the Company
performs Step Two. Step Two uses the calculated fair value of
the reporting unit to perform a hypothetical purchase price
allocation to the fair value of the assets and liabilities of
the reporting unit. The difference between the fair value of the
reporting unit calculated in Step One and the fair value of the
underlying assets and liabilities of the reporting unit is the
implied fair value of the reporting units goodwill. A
charge is recorded in the financial statements if the carrying
value of the reporting units goodwill is greater than its
implied fair value.
The following describes the valuation methodologies used to
derive the fair value of the reporting units.
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Income Approach:
To determine fair value, the
Company discounted the expected cash flows of the reporting
units. The discount rate used represents the estimated weighted
average cost of capital, which reflects the overall level of
inherent risk involved in our operations and the rate of return
a market participant would expect to earn. To estimate cash
flows beyond the final year of our model, the Company used a
terminal value approach. Under this approach, the Company used
estimated operating income before interest, taxes, depreciation
and amortization in the final year of our model, adjusted it to
estimate a normalized cash flow, applied a perpetuity growth
assumption and discounted it by a perpetuity discount factor to
determine the terminal value. The Company incorporated the
present value of the resulting terminal value into our estimate
of fair value.
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Market-Based Approach:
To corroborate the
results of the income approach described above, the Company
estimated the fair value of our reporting units using several
market-based approaches, including the value that we derive
based on our consolidated stock price as described above. The
Company also used the guideline company method, which focuses on
comparing our risk profile and growth prospects to select
reasonably similar/guideline publicly traded companies.
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In the fourth quarter of 2008, we conducted our annual
assessment of goodwill for impairment. The Company performed
extensive valuation analyses, utilizing both income and market
approaches in our goodwill assessment process. During this
quarter, we experienced a sustained, significant decline in our
stock price that reduced the market capitalization below the
book value of the Company. The reduced market capitalization
reflected the macroeconomic declines coupled with the market
view on the performance of the Mobile Devices reporting unit.
The Company has considered this decline in our stock price in
our impairment assessment.
The Company has weighted the valuation of its reporting units at
75% based on the income approach and 25% based on the
market-based approach, consistent with prior periods. The
Company believes that this weighting is appropriate since it is
often difficult to find other appropriate publicly traded
companies that are similar to our reporting units and it is our
view that future discounted cash flows are more reflective of
the value of the reporting units. If a heavier weighting was put
on the market based approach for certain reporting units, a
higher fair value would have been determined.
The determination of fair value of the reporting units and
assets and liabilities within the reporting units requires us to
make significant estimates and assumptions. These estimates and
assumptions primarily include, but are not limited to, the
discount rate, terminal growth rates, earnings before
depreciation and amortization, and capital expenditures
forecasts. Due to the inherent uncertainty involved in making
these estimates, actual results could differ from those
estimates. The Company assigned discount rates ranging from 13
to 14% for the Home, Public Networks, Government and Public
Safety and Enterprise Mobility reporting units. The Company
assigned a
74
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
discount rate of 25% to the Mobile Devices reporting unit
commensurate with development stage enterprises or turnaround
opportunities. The Company believes this rate reflects the
inherent uncertainties of the Mobile Devices reporting
units projected cash flows. The Company evaluated the
merits of each significant assumption, both individually and in
the aggregate, used to determine the fair value of the reporting
units, as well as the fair values of the corresponding assets
and liabilities within the reporting units, and concluded they
are reasonable.
Based on the results of Step One of our annual assessment of the
recoverability goodwill, the fair values of the Home, Public
Networks and Government and Public Safety reporting units
exceeded their carrying values, indicating that there was no
impairment of goodwill at these reporting units. The discount
rate would need to be increased by 5.6% for the Home reporting
unit, 12.1% for the Public Networks reporting unit and 22.0% for
the Government and Public Safety reporting unit before the fair
values of those reporting units would be less than their fair
values. The Company does not believe the resulting discount
rates would be reasonable relative to the risks associated with
the future cash flows of these businesses.
However, the fair values of the Enterprise Mobility and Mobile
Devices reporting units were below their respective book values,
indicating a potential impairment of goodwill and the
requirement to perform Step Two of the analysis for these
reporting units. The Company acquired the main components of the
Enterprise Mobility reporting unit in 2007 at which time the
book value and fair value of the reporting unit was the same.
Because of this fact, the Enterprise Mobility reporting unit was
most likely to experience a decline in its fair value below its
book value as a result of lower values in the overall market and
the deteriorating macroeconomic environment and the
markets view of its near term impact on the reporting
unit. The decline in the fair value of the Mobile Devices
reporting unit below its book value is a result of the
deteriorating macroeconomic environment, lower expected sales
and cash flows as a result of the decision to consolidate
platforms announced in the fourth quarter of 2008, and the
uncertainty around the reporting units future cash flows.
The allocation of the fair value of the reporting units to
individual assets and liabilities within the reporting units
also requires us to make significant estimates and assumptions.
The allocation requires several analyses to determine fair value
of assets and liabilities including, among others, definite
lived intangible assets, pre-paid assets, deferred taxes and
current replacement costs for certain property, plant and
equipment.
Based on the results of the hypothetical purchase price
allocation in Step Two for the Enterprise Mobility and Mobile
Devices reporting units, the implied fair value of goodwill was
$0 for Mobile Devices and $1.0 billion for Enterprise
Mobility. As a result, the Company reduced the recorded value of
goodwill by $55 million at the Mobile Devices reporting
unit (representing all of its goodwill) and $1.6 billion at
the Enterprise Mobility reporting unit during the three-month
period ended December 31, 2008.
A further deterioration in the Enterprise Mobility reporting
units operating results or projected cash flows in the
future could result in additional impairment charges to
goodwill. In addition, changes in certain assumptions in the
current analysis could have a significant impact on the goodwill
impairment charge recorded in the fourth quarter of 2008 for the
Enterprise Mobility reporting unit. For example, a 2% decrease
in the forecasted EBIT would result in an increase to the
goodwill impairment charge of approximately $194 million,
and a 100 basis point increase in the discount rate would
result in an increase to the goodwill impairment charge of
approximately $187 million. The sensitivity amounts above
are calculated based on the impact of the change in the fair
value of the Enterprise Mobility reporting unit, as well as the
impact of changes in the fair values of the assets and
liabilities of the Enterprise Mobility reporting unit.
The accounting principles regarding goodwill acknowledge that
the observed market prices of individual trades of a
companys stock (and thus its computed market
capitalization) may not be representative of the fair value of
the company as a whole. Additional value may arise from the
ability to take advantage of synergies and other benefits that
flow from control over another entity. Consequently, measuring
the fair value of a collection of assets and liabilities that
operate together in a controlled entity is different from
measuring the fair value of that entitys individual common
stock. In most industries, including ours, an acquiring entity
typically is willing to pay more for equity securities that give
it a controlling interest than an investor would pay for a
number of equity securities representing less than a controlling
interest.
For the purpose of determining the implied control premium
calculation in the overall goodwill analysis, the Company
applied assumptions, including for determining the fair value of
corporate assets. Corporate assets primarily consist of cash and
cash equivalents, Sigma Fund balances, short-term investments,
investments, deferred tax assets and corporate facilities.
Judgments about the fair value of corporate assets include,
among others, an assumption that deferred tax assets should be
discounted to reflect their economic lives, that a significant
portion of the corporate assets are required to pay off debt,
fund the Companys retirement obligations, meet the near
term
75
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
cash requirements of the Mobile Devices reporting unit, and
market participants perceptions of the likely
restructuring costs, including severance and exit costs, that
might be incurred if the Companys strategy is not
successful. The results of the Companys impairment
analysis result in an implied control premium commensurate with
historical transactions observed in our industry.
After reflecting the impairment charges, goodwill at the Mobile
Devices and Enterprise Mobility reporting units represented
$1.0 billion of our $27.9 billion of total assets as
of December 31, 2008. The Company has no intangible assets
with indefinite useful lives.
Long-lived Assets:
Long-lived assets include
property, plant and equipment, intangible asset, long-term
prepaid assets and other non-current assets. The Company reviews
long-lived assets held for use for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. Events which may indicate long-lived assets
may not be recoverable include, but are not limited to, a
significant decrease in the market price of long-lived assets, a
significant adverse change in the manner in which the Company
utilizes a long-lived asset, a significant adverse change in the
business climate, a recent history of operating or cash flow
losses, or a current expectation that it is more likely than not
likely that a long-lived asset will be sold or disposed of in
the future. For impairment testing purposes, the Company groups
our long-lived assets at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other
groups of assets and liabilities (the asset group).
If the Company determines that a long-lived asset or asset group
may not be recoverable, it compares the sum of the expected
undiscounted future cash flows that the asset or asset group is
expected to generate to the asset or asset groups carrying
value. If the sum of the undiscounted future cash flows exceed
the carrying amount of the asset or asset group, the asset or
asset group is not considered impaired. However, if the sum of
the undiscounted future cash flows are less than the carrying
amount of the assets or asset group, a loss is recognized for
the difference between the fair value of the asset or asset
group and the carrying value of the asset or asset group. The
fair value of the asset or asset group is generally determined
by discounting the expected future cash flows using a discount
rate that is commensurate with the risk associated with the
amount and timing of the expected future cash flows.
During 2008, the Company tested two asset groups for impairment.
The first asset group was tested for impairment when it was
determined that there was a more likely than not likely
expectation that assets associated with a technology platform of
the Enterprise Mobility segment would be disposed of or sold.
This determination was made because the technology platform was
no longer considered strategic to the Company. The Company
determined that the expected future cash flows, which
incorporated this change in the strategic direction of the
platform, did not support its carrying amount. As a result, the
assets, consisting primarily of intangible assets, were written
down to their fair values. The Company recorded an impairment
charge of $121 million during 2008 to reduce the carrying
amount of the asset group to its fair value.
During the fourth quarter of 2008, due to the continued
operating losses of the Mobile Devices segment, the Company
tested the long-lived assets of the Mobile Devices segment for
impairment. The long-lived assets of the Mobile Devices segment
consisted primarily of property, plant and equipment and
long-term pre-paid licenses. The asset group also included
elements of working capital including inventory and accounts
receivable. The Company considered future cash flows expected to
be generated by the business and weighted them according to
managements view of their probability-weighted outcomes.
The sum of these probability-weighted undiscounted future cash
flows indicated that the asset group was recoverable. As a
result, no impairment of long-lived assets was recorded at the
Mobile Devices segment. A significant assumption in the expected
future cash flow forecast was that it is more likely than not
that management will be successful in its plans to turn around
the Mobile Devices business. The plan to turn around Mobile
Devices includes a successful execution of the segments
software platform strategy and the Companys ability to
execute its cost savings initiatives.
Expectations of future cash flows could change if the Company
determines it will not be successful in executing its plans to
turn around the Mobile Devices business. Impairment charges of
the long-lived assets of Mobile Devices could be required in
future periods if the Companys expectations of future cash
flows changes.
Recent
Accounting Pronouncements
The Company adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standard
(SFAS) No. 157, Fair Value
Measurements (SFAS 157) on
January 1, 2008 for financial assets and liabilities, and
non-financial assets and liabilities that are recognized or
disclosed at fair value in the financial
76
MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
statements on a recurring basis. SFAS 157 defines fair
value, establishes a framework for measuring fair value as
required by other accounting pronouncements and expands fair
value measurement disclosures. The provisions of SFAS 157
are applied prospectively upon adoption and did not have a
material impact on the Companys consolidated financial
statements. The disclosures required by SFAS 157 are
included in Note 6, Fair Value Measurements, to
the Companys consolidated financial statements.
In February 2008, the FASB issued FASB Staff Position
157-2,
which
delays the effective date of SFAS 157 for non-financial
assets and liabilities, which are not measured at fair value on
a recurring basis (at least annually) until fiscal years
beginning after November 15, 2008. The Company is currently
assessing the impact of adopting SFAS 157 for non-financial
assets and liabilities on the Companys consolidated
financial statements.
In October 2008, the FASB issued FASB Staff Position
157-3,
which
provided guidance to clarify the application of FAS 157 in
a market that is not active. The Company adopted this FSP in the
fourth quarter 2008. The net impact of this FSP was
immaterial.
The Company adopted SFAS No. 159, The Fair Value
Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement
No. 115 (SFAS 159) as of
January 1, 2008. SFAS 159 permits entities to elect to
measure many financial instruments and certain other items at
fair value. The Company did not elect the fair value option for
any assets or liabilities that were not previously carried at
fair value. Accordingly, the adoption of SFAS 159 had no
impact on the Companys consolidated financial statements.
The Company adopted
EITF 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
(EITF 06-4)
as of January 1, 2008.
EITF 06-4
requires that endorsement split-dollar life insurance
arrangements, which provide a benefit to an employee beyond the
postretirement period be recorded in accordance with
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions or APB Opinion
No. 12, Omnibus Opinion1967 (the
Statements) based on the substance of the agreement with
the employee. Upon adoption of
EITF 06-4,
the Company recognized an increase in Other liabilities of
$45 million with the offset reflected as a
cumulative-effect adjustment to January 1, 2008 Retained
earnings and Non-owner changes to equity in the amounts of
$4 million and $41 million, respectively, in the
Companys consolidated statement of stockholders
equity.
In December 2007, the FASB issued SFAS No. 141
(revised 2007) (SFAS 141R), a revision of
SFAS 141, Business Combinations. SFAS 141R
establishes requirements for the recognition and measurement of
acquired assets, liabilities, goodwill and non-controlling
interests. SFAS 141R also provides disclosure requirements
related to business combinations. SFAS 141R is effective
for fiscal years beginning after December 15, 2008.
SFAS 141R will be applied prospectively to business
combinations with an acquisition date on or after the effective
date.
In December 2007, the FASB issued SFAS No. 160,
Non-Controlling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes new
standards for the accounting for and reporting of
non-controlling interests (formerly minority interests) and for
the loss of control of partially owned and consolidated
subsidiaries. SFAS 160 does not change the criteria for
consolidating a partially owned entity. SFAS 160 is
effective for fiscal years beginning after December 15,
2008. The provisions of SFAS 160 will be applied
prospectively upon adoption except for the presentation and
disclosure requirements, which will be applied retrospectively.
The Company does not expect the adoption of SFAS 160 to
have a material impact on the Companys consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133
(SFAS 161). SFAS 161 requires enhanced
disclosures about an entitys derivative and hedging
activities and is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently
evaluating the additional disclosures required by SFAS 161.
Forward-Looking
Statements
Except for historical matters, the matters discussed in this
Form 10-K
are forward-looking statements that involve risks and
uncertainties. Forward-looking statements include, but are not
limited to, statements under the following headings:
(1) Mobile Device Segment, about industry
decline and growth, including as related to smartphones and
data-centric devices, customer inventory management and timing,
the impact of the segments strategy, opportunities for
growth, the impact from the loss of key customers, the impact
from the allocation and regulation of frequencies, the impact of
regulatory matters, the availability of materials and
components, energy supplies and labor, the seasonality of the
business, the firmness of the segments backlog, the
competitiveness of the
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MANAGEMENTS DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
patent portfolio and the manufacturing locations;
(2) Home and Networks Mobility Segment, about
the potential of the portfolio, including WiMAX and LTE, the
impact of the separation of set-top security functionality, 3G
and 4G licenses and market development, the Companys
involvement in market development, including China, sales and
utilization, industry decline and growth, industry capital
expenditures, the impact of the segments strategy, the
impact of acquisitions, the impact from the loss of key
customers, competition from new and existing competitors,
consolidation among providers, iDEN trends, the impact of
regulatory matters, the impact from the allocation and
regulation of frequencies, the availability of materials and
components, energy supplies and labor, the seasonality of the
business, the firmness of the segments backlog, the
competitiveness of the patent portfolio and the impact of
license agreement royalties; (3) Enterprise Mobility
Solutions segment, about industry and demand decline and
growth, industry spending, the impact of the segments
strategy, the impact from the loss of key customers and reduced
spending, the competitive position, competition from system
integrators, the impact of regulatory matters, the impact from
the allocation and regulation of frequencies, the availability
of materials and components, energy supplies and labor, the
seasonality of the business, the firmness of the segments
backlog and the competitiveness of the patent portfolio;
(4) Other Information, about the impact from
the loss of key customers, the firmness of the aggregate backlog
position, the competitiveness through research and development
and utilization of technology; (5) Properties,
about the consequences of a disruption in manufacturing;
(6) Legal Proceedings, about the ultimate
disposition of pending legal matters and timing;
(7) Managements Discussion and Analysis,
about: (a) the impact of acquisitions, (b) the success
of our business strategy and portfolio, (c) future
payments, charges, use of accruals and expected cost-saving
benefits associated with our reorganization of business programs
and employee separation costs, (d) the Companys
ability and cost to repatriate funds, (e) the impact of the
timing and level of sales and the geographic location of such
sales, (f) future cash contributions to pension plans or
retiree health benefit plans, (g) the Companys
ability to collect on its Sigma Fund and other investments,
(h) outstanding commercial paper balances and purchase
obligation payments, (i) the Companys ability and
cost to access the capital markets, (j) the Companys
ability to borrow under its credit facilities, (k) the
Companys ability to retire outstanding debt, (l) the
Companys ability and cost to obtain performance related
bonds, (m) adequacy of resources to fund expected working
capital and capital expenditure measurements, (n) expected
payments pursuant to commitments under long-term agreements,
(o) the outcome of ongoing and future legal proceedings,
(p) the success and impact of the Company turning around
the Mobile Devices business, (q) the impact of recent
accounting pronouncements on the Company, (r) the impact of
the loss of key customers, and (s) the expected effective
tax rate and deductibility of certain items; and
(8) Quantitative and Qualitative Disclosures about
Market Risk, about: (a) the impact of foreign
currency exchange risks, (b) future hedging activity and
expectations of the Company, and (c) the ability of
counterparties to financial instruments to perform their
obligations.
Some of the risk factors that affect the Companys
business and financial results are discussed in
Item 1A: Risk Factors. We wish to caution the
reader that the risk factors discussed in Item 1A:
Risk Factors, and those described elsewhere in this report
or our other Securities and Exchange Commission filings, could
cause our actual results to differ materially from those stated
in the forward-looking statements.
78
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
Foreign
Currency Risk
The Company uses financial instruments to reduce its overall
exposure to the effects of currency fluctuations on cash flows.
The Companys policy prohibits speculation in financial
instruments for profit on the exchange rate price fluctuation,
trading in currencies for which there are no underlying
exposures, or entering into transactions for any currency to
intentionally increase the underlying exposure. Instruments that
are designated as part of a hedging relationship must be
effective at reducing the risk associated with the exposure
being hedged and are designated as part of a hedging
relationship at the inception of the contract. Accordingly,
changes in market values of hedge instruments must be highly
correlated with changes in market values of underlying hedged
items both at the inception of the hedge and over the life of
the hedge contract.
The Companys strategy related to foreign exchange exposure
management is to offset the gains or losses on the financial
instruments against losses or gains on the underlying
operational cash flows or investments based on the operating
business units assessment of risk. The Company enters into
derivative contracts for some of the Companys
non-functional currency receivables and payables, which are
primarily denominated in major currencies that can be traded on
open markets. The Company uses forward contracts and options to
hedge these currency exposures. In addition, the Company enters
into derivative contracts for some firm commitments and some
forecasted transactions, which are designated as part of a
hedging relationship if it is determined that the transaction
qualifies for hedge accounting under the provisions of
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. A portion of the
Companys exposure is from currencies that are not traded
in liquid markets and these are addressed, to the extent
reasonably possible, by managing net asset positions, product
pricing and component sourcing.
At December 31, 2008 and 2007, the Company had net
outstanding foreign exchange contracts totaling
$2.6 billion and $3.0 billion, respectively.
Management believes that these financial instruments should not
subject the Company to undue risk due to foreign exchange
movements because gains and losses on these contracts should
generally offset losses and gains on the underlying assets,
liabilities and transactions, except for the ineffective portion
of the instruments, which are charged to Other within Other
income (expense) in the Companys consolidated statements
of operations.
The following table shows the five largest net notional amounts
of the positions to buy or sell foreign currency as of
December 31, 2008 and the corresponding positions as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Net Buy (Sell) by
Currency
|
|
2008
|
|
|
2007
|
|
|
|
|
Chinese Renminbi
|
|
$
|
(481
|
)
|
|
$
|
(1,292
|
)
|
Euro
|
|
|
(445
|
)
|
|
|
(33
|
)
|
Brazilian Real
|
|
|
(356
|
)
|
|
|
(377
|
)
|
Taiwan Dollar
|
|
|
124
|
|
|
|
112
|
|
Japanese Yen
|
|
|
542
|
|
|
|
384
|
|
|
|
The Company is exposed to credit-related losses if
counterparties to financial instruments fail to perform their
obligations. However, the Company does not expect any
counterparties, all of whom presently have investment grade
credit ratings, to fail to meet their obligations.
Foreign exchange financial instruments that are subject to the
effects of currency fluctuations, which may affect reported
earnings, include derivative financial instruments and other
financial instruments which are not denominated in the
functional currency of the legal entity holding the instrument.
Derivative financial instruments consist primarily of forward
contracts and currency options. Other financial instruments,
which are not denominated in the functional currency of the
legal entity holding the instrument, consist primarily of cash,
cash equivalents, Sigma Fund investments and short-term
investments, as well as accounts payable and receivable.
Accounts payable and receivable are reflected at fair value in
the financial statements. The fair value of the foreign exchange
financial instruments would hypothetically decrease by
$234 million as of December 31, 2008 if the foreign
currency rates were to change unfavorably by 10% from current
levels. This hypothetical amount is suggestive of the effect on
future cash flows under the following conditions: (i) all
current payables and receivables that are hedged were not
realized, (ii) all hedged commitments and anticipated
transactions were not realized or canceled, and
(iii) hedges of these amounts were not canceled or offset.
The Company does not expect that any of
79
these conditions will occur. The Company expects that gains and
losses on the derivative financial instruments should offset
gains and losses on the assets, liabilities and future
transactions being hedged. If the hedged transactions were
included in the sensitivity analysis, the hypothetical change in
fair value would be immaterial. The foreign exchange financial
instruments are held for purposes other than trading.
The ineffective portion of changes in the fair value of foreign
currency fair value hedge positions for the periods presented
were de minimis. These amounts are included in Other within
Other income (expense) in the Companys consolidated
statements of operations. The above amounts include the change
in the fair value of derivative contracts related to the changes
in the difference between the spot price and the forward price.
These amounts are excluded from the measure of effectiveness.
Expense (income) related to fair value hedges that were
discontinued for the years ended December 31, 2008, 2007
and 2006 are included in the amounts noted above.
The Company recorded income (expense) of $(2) million,
$1 million and $13 million for the years ended
December 31, 2008, 2007 and 2006, respectively,
representing the ineffective portions of changes in the fair
value of cash flow hedge positions. These amounts are included
in Other within Other income (expense) in the Companys
consolidated statements of operations. The above amounts include
the change in the fair value of derivative contracts related to
the changes in the difference between the spot price and the
forward price. These amounts are excluded from the measure of
effectiveness. Expense (income) related to cash flow hedges that
were discontinued for the years ended December 31, 2008,
2007 and 2006 are included in the amounts noted above.
During the years ended December 31, 2008, 2007 and 2006, on
a pre-tax basis, income (expense) of $3 million,
$(16) million and $(98) million, respectively, was
reclassified from equity to earnings in the Companys
consolidated statements of operations.
At December 31, 2008, the maximum term of derivative
instruments that hedge forecasted transactions was one year. The
weighted average duration of the Companys derivative
instruments that hedge forecasted transactions was seven months.
Interest
Rate Risk
At December 31, 2008, the Companys short-term debt
consisted primarily of $89 million of short-term variable
rate foreign debt. The Company has $4.1 billion of
long-term debt, including the current portion of long-term debt,
which is primarily priced at long-term, fixed interest rates.
As part of its liability management program, the Company
historically entered into interest rate swaps (Hedging
Agreements) to synthetically modify the characteristics of
interest rate payments for certain of its outstanding long-term
debt from fixed-rate payments to short-term variable rate
payments. During the fourth quarter of 2008, the Company
terminated all of its Hedging Agreements. The termination of the
Hedging Agreements resulted in cash proceeds of approximately
$158 million and a gain of approximately $173 million,
which has been deferred and will be recognized as a reduction of
interest expense over the remaining term of the associated debt.
Prior to the termination of the Hedging Agreements in the fourth
quarter of 2008, the Hedging Agreements were designated as part
of fair value hedging relationships of the Companys
long-term debt. As such, the changes in fair value of the
Hedging Agreements and corresponding adjustments to the carrying
amount of the debt were recognized in earnings. Interest expense
on the debt was adjusted to include payments made or received
under such Hedging Agreements. During 2008 (prior to the Hedging
Agreements being terminated) and 2007, the Company recognized
expense of $1 million and $2 million, respectively,
representing the ineffective portion of changes in the fair
value of the Hedging Agreements. These amounts are included in
Other within Other income (expense) in the Companys
consolidated statement of operations.
Certain of the terminated Hedging Agreements were originally
entered into during the fourth quarter of 2007. The Company
entered into the Hedging Agreements concurrently with issuance
of long-term debt to convert the fixed rate interest cost on the
newly issued debt to a floating rate. The Hedging Agreements
were originally designated as fair value hedges of the
underlying debt, including the Companys credit spread.
During the first quarter of 2008, the swaps were no longer
considered effective hedges because of the volatility in the
price of the Companys fixed-rate domestic term debt and
the swaps were dedesignated. In the same period, the Company was
able to redesignate the same Hedging Agreements as fair value
hedges of the underlying debt, exclusive of the Companys
credit spread. For the period of time that the Hedging
Agreements were deemed ineffective hedges, the Company
recognized a gain of $24 million in the Companys
consolidated statements of operations, representing the increase
in the fair value of the Hedging Agreements.
80
Additionally, one of the Companys European subsidiaries
has outstanding interest rate agreements (Interest
Agreements) relating to a Euro-denominated loan. The
interest on the Euro-denominated loan is variable. The Interest
Agreements change the characteristics of interest rate payments
from variable to maximum fixed-rate payments. The Interest
Agreements are not accounted for as a part of a hedging
relationship and, accordingly, the changes in the fair value of
the Interest Agreements are included in Other income (expense)
in the Companys consolidated statements of operations. The
weighted average fixed rate payments on these Interest
Agreements was 5.07%. The fair value of the Interest Agreements
at December 31, 2008 and 2007 were $(2) million and
$3 million, respectively. The fair value of the Interest
Agreements would hypothetically decrease by $1 million
(i.e., would decrease from $(2) million to
$(3) million) if EURIBOR rates were to change unfavorably
by 10% from current levels.
The Company is exposed to credit loss in the event of
nonperformance by the counterparties to its swap contracts. The
Company minimizes its credit risk concentration on these
transactions by distributing these contracts among several
leading financial institutions, all of whom presently have
investment grade credit ratings, and having collateral
agreements in place. The Company does not anticipate
nonperformance.
Net
Investment in Foreign Operations Hedge
At December 31, 2008 and 2007, the Company did not have any
hedges of foreign currency exposure of net investments in
foreign operations.
Investments
Hedge
During the first quarter of 2006, the Company entered into a
zero-cost collar derivative (the Sprint Nextel
Derivative) to protect itself economically against price
fluctuations in its 37.6 million shares of Sprint Nextel
Corporation (Sprint Nextel) non-voting common stock.
During the second quarter of 2006, as a result of Sprint
Nextels spin-off of Embarq Corporation through a dividend
to Sprint Nextel shareholders, the Company received
approximately 1.9 million shares of Embarq Corporation. The
floor and ceiling prices of the Sprint Nextel Derivative were
adjusted accordingly. The Sprint Nextel Derivative was not
designated as a hedge under the provisions of
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Accordingly, to
reflect the change in fair value of the Sprint Nextel
Derivative, the Company recorded a net gain of $99 million
for the year ended December 31, 2006, included in Other
income (expense) in the Companys consolidated statements
of operations. In December 2006, the Sprint Nextel Derivative
was terminated and settled in cash and the 37.6 million
shares of Sprint Nextel were converted to common shares and
sold. The Company received aggregate cash proceeds of
approximately $820 million from the settlement of the
Sprint Nextel Derivative and the subsequent sale of the
37.6 million Sprint Nextel shares. The Company recognized a
loss of $126 million in connection with the sale of the
remaining shares of Sprint Nextel common stock. As described
above, the Company recorded a net gain of $99 million in
connection with the Sprint Nextel Derivative.
Fair
Value of Financial Instruments
The Companys financial instruments include cash
equivalents, Sigma Fund investments, short-term investments,
accounts receivable, long-term receivables, accounts payable,
accrued liabilities, derivatives and other financing
commitments. The Companys Sigma Fund, available-for-sale
investment portfolios and derivatives are recorded in the
Companys consolidated balance sheets at fair value. All
other financial instruments, with the exception of long-term
debt, are carried at cost, which is not materially different
than the instruments fair values.
Using quoted market prices and market interest rates, the
Company determined that the fair value of long-term debt at
December 31, 2008 was $2.8 billion, compared to a
carrying value of $4.1 billion. Since considerable judgment
is required in interpreting market information, the fair value
of the long-term debt is not necessarily indicative of the
amount which could be realized in a current market exchange.
81
Equity
Price Market Risk
At December 31, 2008, the Companys available-for-sale
equity securities portfolio had an approximate fair market value
of $128 million, which represented a cost basis of
$125 million and a net unrealized gains of $3 million.
The value of the available-for-sale equity securities would
change by $13 million as of year-end 2008 if the price of
the stock in each of the publicly-traded companies were to
change by 10%. These equity securities are held for purposes
other than trading.
®
Reg. U.S. Patent & Trademark Office.
MOTOROLA and Stylized M Logo are
registered trademarks of Motorola, Inc. throughout the world.
These marks are valuable corporate assets. Certain other
trademarks and service marks of Motorola are registered in
relevant markets. Motorolas increasing focus on marketing
products directly to consumers is reflected in an increasing
emphasis on brand equity creation and protection. All other
products or service names are the property of their respective
owners.
82
|
|
Item 8:
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Motorola, Inc.:
We have audited the accompanying consolidated balance sheets of
Motorola, Inc. and Subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2008. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Motorola, Inc. and Subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Notes 1 and 9 to the consolidated financial
statements, effective January 1, 2008, the Company adopted
the provisions of Statement of Financial Accounting Standards
No. 157,
Fair Value Measurements
. Also, as discussed
in Notes 1 and 7 to the consolidated financial statements,
effective January 1, 2008, the Company adopted the
provisions of Emerging Issues Task Force Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
. Also, as discussed in Notes 1 and 6 to
the consolidated financial statements, effective January 1,
2007, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes
. Also, effective
December 31, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Motorola, Inc.s internal control over financial reporting
as of December 31, 2008, based on criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 26, 2009
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Chicago, Illinois
February 26, 2009
83
Motorola,
Inc. and Subsidiaries
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
(In millions, except per share
amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Net sales
|
|
$
|
30,146
|
|
|
$
|
36,622
|
|
|
$
|
42,847
|
|
Costs of sales
|
|
|
21,751
|
|
|
|
26,670
|
|
|
|
30,120
|
|
|
|
Gross margin
|
|
|
8,395
|
|
|
|
9,952
|
|
|
|
12,727
|
|
|
|
Selling, general and administrative expenses
|
|
|
4,330
|
|
|
|
5,092
|
|
|
|
4,504
|
|
Research and development expenditures
|
|
|
4,109
|
|
|
|
4,429
|
|
|
|
4,106
|
|
Other charges
|
|
|
2,347
|
|
|
|
984
|
|
|
|
25
|
|
|
|
Operating earnings (loss)
|
|
|
(2,391
|
)
|
|
|
(553
|
)
|
|
|
4,092
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
48
|
|
|
|
91
|
|
|
|
326
|
|
Gains on sales of investments and businesses, net
|
|
|
82
|
|
|
|
50
|
|
|
|
41
|
|
Other
|
|
|
(376
|
)
|
|
|
22
|
|
|
|
151
|
|
|
|
Total other income (expense)
|
|
|
(246
|
)
|
|
|
163
|
|
|
|
518
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
|
(2,637
|
)
|
|
|
(390
|
)
|
|
|
4,610
|
|
Income tax expense (benefit)
|
|
|
1,607
|
|
|
|
(285
|
)
|
|
|
1,349
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(4,244
|
)
|
|
|
(105
|
)
|
|
|
3,261
|
|
Earnings from discontinued operations, net of tax
|
|
|
|
|
|
|
56
|
|
|
|
400
|
|
|
|
Net earnings (loss)
|
|
$
|
(4,244
|
)
|
|
$
|
(49
|
)
|
|
$
|
3,661
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.87
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
1.33
|
|
Discontinued operations
|
|
|
|
|
|
|
0.03
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.87
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.87
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
1.30
|
|
Discontinued operations
|
|
|
|
|
|
|
0.03
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.87
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,446.3
|
|
Diluted
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,504.2
|
|
Dividends paid per share
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.18
|
|
|
|
See accompanying notes to consolidated financial statements.
84
Motorola,
Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
(In millions, except per share
amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
3,064
|
|
|
$
|
2,752
|
|
Sigma Fund
|
|
|
3,690
|
|
|
|
5,242
|
|
Short-term investments
|
|
|
225
|
|
|
|
612
|
|
Accounts receivable, net
|
|
|
3,493
|
|
|
|
5,324
|
|
Inventories, net
|
|
|
2,659
|
|
|
|
2,836
|
|
Deferred income taxes
|
|
|
1,092
|
|
|
|
1,891
|
|
Other current assets
|
|
|
3,140
|
|
|
|
3,565
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,363
|
|
|
|
22,222
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
2,442
|
|
|
|
2,480
|
|
Sigma Fund
|
|
|
466
|
|
|
|
|
|
Investments
|
|
|
517
|
|
|
|
837
|
|
Deferred income taxes
|
|
|
2,428
|
|
|
|
2,454
|
|
Goodwill
|
|
|
2,837
|
|
|
|
4,499
|
|
Other assets
|
|
|
1,816
|
|
|
|
2,320
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
27,869
|
|
|
$
|
34,812
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Notes payable and current portion of long-term debt
|
|
$
|
92
|
|
|
$
|
332
|
|
Accounts payable
|
|
|
3,188
|
|
|
|
4,167
|
|
Accrued liabilities
|
|
|
7,340
|
|
|
|
8,001
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,620
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
4,092
|
|
|
|
3,991
|
|
Other liabilities
|
|
|
3,650
|
|
|
|
2,874
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, $100 par value
|
|
|
|
|
|
|
|
|
Common stock, $3 par value
|
|
|
6,831
|
|
|
|
6,792
|
|
Issued shares: 2008 2,276.9 and 2007
2,264.0 and
|
|
|
|
|
|
|
|
|
Outstanding shares: 2008 2,276.5 and
2007 2,263.1
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,003
|
|
|
|
782
|
|
Retained earnings
|
|
|
3,878
|
|
|
|
8,579
|
|
Non-owner changes to equity
|
|
|
(2,205
|
)
|
|
|
(706
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
9,507
|
|
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
27,869
|
|
|
$
|
34,812
|
|
|
|
See accompanying notes to consolidated financial statements.
85
Motorola,
Inc. and Subsidiaries
Consolidated
Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Owner Changes To Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Adjustment
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and
|
|
|
To Available
|
|
|
Currency
|
|
|
Retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
For Sale
|
|
|
Translation
|
|
|
Benefits
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Securities,
|
|
|
Adjustments,
|
|
|
Adjustments,
|
|
|
Items,
|
|
|
Retained
|
|
|
Comprehensive
|
|
(In millions, except per share amounts)
|
|
Shares
|
|
|
Capital
|
|
|
Net of Tax
|
|
|
Net of Tax
|
|
|
Net of Tax
|
|
|
Net of Tax
|
|
|
Earnings
|
|
|
Earnings (Loss)
|
|
|
|
|
Balances at January 1, 2006
|
|
|
2,502.7
|
|
|
|
12,199
|
|
|
|
97
|
|
|
|
(253
|
)
|
|
|
(1,269
|
)
|
|
|
2
|
|
|
|
5,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,661
|
|
|
$
|
3,661
|
|
Net unrealized losses on securities (net of tax of $37)
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
Foreign currency translation adjustments (net of tax of $1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Year-end and other retirement adjustments (net of tax of $150)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
206
|
|
Issuance of common stock and stock options exercised
|
|
|
68.1
|
|
|
|
916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
(171.7
|
)
|
|
|
(3,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and employee stock purchase plan expense
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on derivative instruments (net of tax of $6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Dividends declared ($0.19 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(472
|
)
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
2,399.1
|
|
|
|
9,706
|
|
|
|
37
|
|
|
|
(126
|
)
|
|
|
(1,577
|
)
|
|
|
16
|
|
|
|
9,086
|
|
|
$
|
3,948
|
|
|
|
Cumulative effect FIN 48
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
Effect of
Non-U.S.
pension plan measurement date change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2007
|
|
|
2,399.1
|
|
|
|
9,799
|
|
|
|
37
|
|
|
|
(126
|
)
|
|
|
(1,577
|
)
|
|
|
16
|
|
|
|
9,096
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49
|
)
|
|
$
|
(49
|
)
|
Net unrealized losses on securities (net of tax of $58)
|
|
|
|
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96
|
)
|
Foreign currency translation adjustments (net of tax of $3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
Amortization of retirement benefits adjustments (net of tax of
$39)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
Year-end and other retirement adjustments (net of tax of $328)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852
|
|
|
|
|
|
|
|
|
|
|
|
852
|
|
Issuance of common stock and stock options exercised
|
|
|
36.1
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
(171.2
|
)
|
|
|
(3,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from share-based compensation
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and employee stock purchase plan expense
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on derivative instruments (net of tax of $6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Dividends declared ($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
2,264.0
|
|
|
$
|
7,574
|
|
|
$
|
(59
|
)
|
|
$
|
16
|
|
|
$
|
(663
|
)
|
|
$
|
|
|
|
$
|
8,579
|
|
|
$
|
895
|
|
|
|
Cumulative effect Postretirement Insurance Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2008
|
|
|
2,264.0
|
|
|
|
7,574
|
|
|
|
(59
|
)
|
|
|
16
|
|
|
|
(704
|
)
|
|
|
|
|
|
|
8,575
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,244
|
)
|
|
$
|
(4,244
|
)
|
Net unrealized gains on securities (net of tax of $36)
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
Foreign currency translation adjustments (net of tax of $39)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
Amortization of retirement benefit adjustments (net of tax of
$10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Effect of U.S. pension plan freeze curtailment (net of tax of
$25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
Year-end and other retirement adjustments (net of tax of $793)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,340
|
)
|
Issuance of common stock and stock options exercised
|
|
|
21.9
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share repurchase program
|
|
|
(9.0
|
)
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax shortfalls from share-based compensation
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and employee stock purchase plan expense
|
|
|
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on derivative instruments (net of tax of $5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Dividends declared ($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(453
|
)
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
2,276.9
|
|
|
$
|
7,834
|
|
|
$
|
2
|
|
|
$
|
(133
|
)
|
|
$
|
(2,067
|
)
|
|
$
|
(7
|
)
|
|
$
|
3,878
|
|
|
$
|
(5,702
|
)
|
|
|
See accompanying notes to consolidated financial statements.
86
Motorola,
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(4,244
|
)
|
|
$
|
(49
|
)
|
|
$
|
3,661
|
|
Less: Earnings from discontinued operations
|
|
|
|
|
|
|
56
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(4,244
|
)
|
|
|
(105
|
)
|
|
|
3,261
|
|
Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
831
|
|
|
|
903
|
|
|
|
558
|
|
Non-cash other charges
|
|
|
2,516
|
|
|
|
213
|
|
|
|
49
|
|
Share-based compensation expense
|
|
|
280
|
|
|
|
315
|
|
|
|
276
|
|
Gains on sales of investments and businesses, net
|
|
|
(82
|
)
|
|
|
(50
|
)
|
|
|
(41
|
)
|
Deferred income taxes, including change in valuation allowance
|
|
|
1,698
|
|
|
|
(747
|
)
|
|
|
838
|
|
Change in assets and liabilities, net of effects of acquisitions
and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,891
|
|
|
|
2,538
|
|
|
|
(1,775
|
)
|
Inventories
|
|
|
(54
|
)
|
|
|
556
|
|
|
|
(718
|
)
|
Other current assets
|
|
|
466
|
|
|
|
(705
|
)
|
|
|
(388
|
)
|
Accounts payable and accrued liabilities
|
|
|
(1,631
|
)
|
|
|
(2,303
|
)
|
|
|
1,654
|
|
Other assets and liabilities
|
|
|
(1,429
|
)
|
|
|
170
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing
operations
|
|
|
242
|
|
|
|
785
|
|
|
|
3,499
|
|
|
|
Investing
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and investments, net
|
|
|
(282
|
)
|
|
|
(4,568
|
)
|
|
|
(1,068
|
)
|
Proceeds from sale of investments and businesses
|
|
|
93
|
|
|
|
411
|
|
|
|
2,001
|
|
Distributions from investments
|
|
|
113
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(504
|
)
|
|
|
(527
|
)
|
|
|
(649
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
133
|
|
|
|
166
|
|
|
|
85
|
|
Proceeds from sales (purchases) of Sigma Fund investments, net
|
|
|
853
|
|
|
|
6,889
|
|
|
|
(1,337
|
)
|
Proceeds from sales (purchases) of short-term investments, net
|
|
|
388
|
|
|
|
8
|
|
|
|
(476
|
)
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities from
continuing operations
|
|
|
794
|
|
|
|
2,379
|
|
|
|
(1,444
|
)
|
|
|
Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from (repayment of) commercial paper and short-term
borrowings, net
|
|
|
(50
|
)
|
|
|
(242
|
)
|
|
|
66
|
|
Repayment of debt
|
|
|
(225
|
)
|
|
|
(1,386
|
)
|
|
|
(18
|
)
|
Proceeds from issuance of debt, net
|
|
|
7
|
|
|
|
1,415
|
|
|
|
|
|
Issuance of common stock
|
|
|
145
|
|
|
|
440
|
|
|
|
918
|
|
Purchase of common stock
|
|
|
(138
|
)
|
|
|
(3,035
|
)
|
|
|
(3,826
|
)
|
Proceeds from settlement of financial instruments
|
|
|
158
|
|
|
|
|
|
|
|
|
|
Payment of dividends
|
|
|
(453
|
)
|
|
|
(468
|
)
|
|
|
(443
|
)
|
Distribution to discontinued operations
|
|
|
(90
|
)
|
|
|
(75
|
)
|
|
|
(23
|
)
|
Other, net
|
|
|
1
|
|
|
|
50
|
|
|
|
165
|
|
|
|
|
|
|
|
Net cash used for financing activities from continuing operations
|
|
|
(645
|
)
|
|
|
(3,301
|
)
|
|
|
(3,161
|
)
|
|
|
Effect of exchange rate changes on cash and cash equivalents
from continuing operations
|
|
|
(79
|
)
|
|
|
73
|
|
|
|
148
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
312
|
|
|
|
(64
|
)
|
|
|
(958
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,752
|
|
|
|
2,816
|
|
|
|
3,774
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,064
|
|
|
$
|
2,752
|
|
|
$
|
2,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
252
|
|
|
$
|
312
|
|
|
$
|
322
|
|
Income taxes, net of refunds
|
|
|
407
|
|
|
|
440
|
|
|
|
463
|
|
|
|
See accompanying notes to consolidated financial statements.
87
Motorola,
Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Dollars in millions, except as noted)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Principles of Consolidation:
The consolidated
financial statements include the accounts of the Company and all
controlled subsidiaries. All intercompany transactions and
balances have been eliminated.
Revenue Recognition:
The Companys
material revenue streams are the result of a wide range of
activities, from the delivery of stand-alone equipment to custom
design and installation over a period of time to bundled sales
of equipment, software and services. The Company recognizes
revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable,
and collectibility of the sales price is reasonably assured. In
addition to these general revenue recognition criteria, the
following specific revenue recognition policies are followed:
Products and Equipment
For product and equipment
sales, revenue recognition generally occurs when products or
equipment have been shipped, risk of loss has transferred to the
customer, objective evidence exists that customer acceptance
provisions have been met, no significant obligations remain and
allowances for discounts, price protection, returns and customer
incentives can be reliably estimated. Recorded revenues are
reduced by these allowances. The Company bases its estimates on
historical experience taking into consideration the type of
products sold, the type of customer, and the type of transaction
specific in each arrangement. Where customer incentives cannot
be reliably estimated, the Company recognizes revenue at the
time the product sells through the distribution channel to the
end customer.
Long-Term Contracts
For long-term contracts that
involve customization of the Companys equipment or
software, the Company generally recognizes revenue using the
percentage of completion method based on the percentage of costs
incurred to date compared to the total estimated costs to
complete the contract. In certain instances, when revenues or
costs associated with long-term contracts cannot be reliably
estimated or the contract involves unproven technologies or
other inherent hazards, revenues and costs are deferred until
the project is complete and customer acceptance is obtained.
When current estimates of total contract revenue and contract
costs indicate a contract loss, the loss is recognized in the
period it becomes evident.
Services
Revenue for services is generally
recognized ratably over the contract term as services are
performed.
Software and Licenses
Revenue from pre-paid
perpetual licenses is recognized at the inception of the
arrangement, presuming all other relevant revenue recognition
criteria are met. Revenue from non-perpetual licenses or term
licenses is recognized ratably over the period that the licensee
uses the license. Revenue from software maintenance, technical
support and unspecified upgrades is generally recognized over
the period that these services are delivered.
Multiple Element Arrangements
Arrangements with
customers may include multiple deliverables, including any
combination of products, equipment, services and software. For
multiple element arrangements which include software or
software-related elements, the Company applies the provisions of
AICPA Statement of Position
No. 97-2,
Software Revenue Recognition, to determine separate
units of accounting and the amount of the arrangement fee to be
allocated to those separate units of accounting. Multiple
element arrangements that include software are separated into
more than one unit of accounting when the following criteria are
met: (i) the functionality of the delivered element(s) is
not dependent on the undelivered element(s), (ii) there is
vendor-specific objective evidence of the fair value of the
undelivered element(s), and (iii) general revenue
recognition criteria related to the delivered element(s) have
been met. If any of these criteria are not met, revenue is
deferred until the criteria are met or the last element has been
delivered.
For all other multiple element arrangements, deliverables are
separated into more than one unit of accounting when the
following criteria are met: (i) the delivered element(s)
have value to the customer on a stand-alone basis,
(ii) objective and reliable evidence of fair value exists
for the undelivered element(s), and (iii) delivery of the
undelivered element(s) is probable and substantially in the
control of the Company. Revenue is allocated to each unit of
accounting based on the relative fair value of each accounting
unit or using the residual method if objective evidence of fair
value does not exist for the delivered element(s). If any of
these criteria are not met, revenue is deferred until the
criteria are met or the last element has been delivered.
88
When elements of an arrangement are separated into more than one
unit of accounting, revenue is recognized for each separate unit
of accounting based on the nature of the revenue as described
above.
Sales and Use Taxes
The Company records taxes
imposed on revenue-producing transactions, including sales, use,
value added and excise taxes, on a net basis with such taxes
excluded from revenue.
Cash Equivalents:
The Company considers all
highly-liquid investments purchased with an original maturity of
three months or less to be cash equivalents. At
December 31, 2008, and 2007, restricted cash was
$343 million and $158 million, respectively.
Sigma Fund:
The Company and its wholly-owned
subsidiaries invest most of their U.S. dollar-denominated
cash in a fund (the Sigma Fund) that is designed to
provide investment returns similar to a money market fund. The
Sigma Fund portfolio is managed by four premier independent
investment management firms. The investment guidelines of the
Sigma Fund require that purchased investments must be
high-quality, investment grade (rated at least
A/A-1
by
Standard & Poors or
A2/P-1
by
Moodys Investor Services) U.S. dollar-denominated
debt obligations, including certificates of deposit, commercial
paper, government bonds, corporate bonds and asset-backed and
mortgaged-backed securities. Except for debt obligations of the
U.S. treasury and U.S. agencies, no more than 5% of
the Sigma Fund portfolio is to consist of debt obligations of a
single issuer. The Sigma Fund investment policies further
require that floating rate investments must have a maturity at
purchase date that is not in excess of 36 months with an
interest rate that is reset at least annually. The average
interest rate that is reset of investments held in the Sigma
Fund must be 120 days or less.
Investments in Sigma Fund are carried at fair value. The Company
primarily relies on valuation pricing models and broker quotes
to determine the fair value of investments in the Sigma Fund.
The valuation models are developed and maintained by third-party
pricing services, and use a number of standard inputs, including
benchmark yields, reported trades, broker/dealer quotes where
the counterparty is standing ready and able to transact, issuer
spreads, benchmark securities, bids, offers and reference data.
For each asset class, quantifiable inputs related to perceived
market movements and sector news may also be considered in
addition to the standard inputs.
The Company considers a decline in the fair value of a security
in Sigma Fund to be temporary if it believes that it will
collect all amounts it is owed on the security according to its
contractual terms, which may be at maturity. If it becomes
probable that the Company will not collect all amounts that it
is owed according to a securitys contractual terms, it
considers the security to be impaired and adjusts its cost basis
of the security by the related impairment loss. Beginning in the
fourth quarter of 2008, all changes in the fair value of Sigma
Fund investments, including temporary unrealized gains (losses)
and impairment charges, are recorded in Other within Other
income (expense) in the Companys consolidated statements
of operations.
Investments:
Investments in equity and debt
securities classified as available-for-sale are carried at fair
value. Debt securities classified as held-to-maturity are
carried at amortized cost. Equity securities that are restricted
for more than one year or that are not publicly traded are
carried at cost. Certain investments are accounted for using the
equity method if the company has significant influence over the
issuing entity.
The Company assesses declines in the fair value of investments
to determine whether such declines are other-than-temporary.
This assessment is made considering all available evidence,
including changes in general market conditions, specific
industry and individual company data, the length of time and the
extent to which the fair value has been less than cost, the
financial condition and the near-term prospects of the entity
issuing the security, and the Companys ability and intent
to hold investment until recovery. Other-than-temporary
impairments of investments are recorded to Other within Other
income (expense) in the Companys consolidated statements
of operations in the period in which they become impaired.
Inventories:
Inventories are valued at the
lower of average cost (which approximates computation on a
first-in,
first-out basis) or market (net realizable value or replacement
cost).
Property, Plant and Equipment:
Property, plant
and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded using straight-line and
declining-balance methods, based on the estimated useful lives
of the assets (buildings and building equipment,
5-40 years; machinery and equipment, 2-10 years) and
commences once the assets are ready for their intended use.
Goodwill and Intangible Assets:
Goodwill is
not amortized, but instead is tested for impairment at least
annually. The goodwill impairment test is performed at the
reporting unit level and is a two-step analysis. First, the fair
value (FV) of each reporting unit is compared to its
book value. If the FV of the reporting unit is less than
89
its book value, the Company performs a hypothetical purchase
price allocation based on the reporting units FV to
determine the FV of the reporting units goodwill. FV is
determined using a combination of present value techniques and
market prices of comparable businesses.
Intangible assets are generally amortized on a straight line
basis over their respective estimated useful lives ranging from
one to 14 years. The Company has no intangible assets with
indefinite useful lives.
Impairment of Long-Lived Assets:
Long-lived
assets, which include intangible assets, held and used by the
Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of assets may
not be recoverable. The Company evaluates recoverability of
assets to be held and used by comparing the carrying amount of
an asset (group) to future net undiscounted cash flows to be
generated by the asset (group). If an asset is considered to be
impaired, the impairment to be recognized is equal to the amount
by which the carrying amount of the asset exceeds the
assets fair value calculated using a discounted future
cash flows analysis or market comparables. Assets held for sale,
if any, are reported at the lower of the carrying amount or fair
value less cost to sell.
Income Taxes:
Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities from a change in tax rates is recognized in the
period that includes the enactment date.
Deferred tax assets are reduced by valuation allowances if,
based on the consideration of all available evidence, it is more
likely than not that some portion of the deferred tax asset will
not be realized. Significant weight is given to evidence that
can be objectively verified. The Company evaluates deferred
income taxes on a quarterly basis to determine if valuation
allowances are required by considering available evidence.
Deferred tax assets are realized by having sufficient future
taxable income to allow the related tax benefits to reduce taxes
otherwise payable. The sources of taxable income that may be
available to realize the benefit of deferred tax assets are
future reversals of existing taxable temporary differences,
future taxable income exclusive of reversing temporary
differences and carry-forwards, taxable income in carry-back
years and tax planning strategies that are both prudent and
feasible.
On January 1, 2007, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48). Beginning January 1, 2007, the
Company recognizes the effect of income tax positions only if
sustaining those positions is more likely than not in accordance
with the provisions of FIN 48. Changes in recognition or
measurement are reflected in the period in which a change in
judgment occurs. Prior to January 1, 2007, the Company
recognized the effect of income tax positions only if such
positions were probable of being sustained. The Company records
interest related to unrecognized tax benefits in Interest
expense and penalties in Selling, general and administrative
expenses in the Companys consolidated statements of
operations.
Long-term Receivables:
Long-term receivables
include trade receivables where contractual terms of the note
agreement are greater than one year. Long-term receivables are
considered impaired when management determines collection of all
amounts due according to the contractual terms of the note
agreement, including principal and interest, is no longer
probable. Impaired long-term receivables are valued based on the
present value of expected future cash flows, discounted at the
receivables effective rate of interest, or the fair value
of the collateral if the receivable is collateral dependent.
Interest income and late fees on impaired long-term receivables
are recognized only when payments are received. Previously
impaired long-term receivables are no longer considered impaired
and are reclassified to performing when they have performed
under a workout or restructuring for four consecutive quarters.
Foreign Currency:
Certain of the
Companys
non-U.S. operations
use their respective local currency as their functional
currency. Those operations that do not have the U.S. dollar
as their functional currency translate assets and liabilities at
current rates of exchange in effect at the balance sheet date
and revenues and expenses using rates that approximate those in
effect during the period. The resulting translation adjustments
are included as a component of Non-owner changes to equity in
the Companys consolidated balance sheets. For those
operations that have the U.S. dollar as their functional
currency, transactions denominated in the local currency are
measured in U.S. dollars using the current rates of
exchange for monetary assets and liabilities and historical
rates of exchange for nonmonetary assets. Gains and losses from
remeasurement of monetary assets and liabilities are included in
Other within Other income (expense) within the Companys
consolidated statements of operations.
90
Derivative Instruments:
Gains and losses on
hedges of existing assets or liabilities are marked-to-market
and the result is included in Other within Other income
(expense) within the Companys consolidated statements of
operations. Gains and losses on financial instruments that
qualify for hedge accounting and are used to hedge firm future
commitments or forecasted transactions are deferred until such
time as the underlying transactions are recognized or recorded
immediately when the transaction is no longer expected to occur.
Gains or losses on financial instruments that do not qualify as
hedges under Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS 133) are recognized immediately as income
or expense.
Earnings (Loss) Per Share:
The Company
calculates its basic earnings (loss) per share based on the
weighted-average effect of all common shares issued and
outstanding. Net earnings (loss) is divided by the weighted
average common shares outstanding during the period to arrive at
the basic earnings (loss) per share. Diluted earnings (loss) per
share is calculated by dividing net earnings (loss) by the sum
of the weighted average number of common shares used in the
basic earnings (loss) per share calculation and the weighted
average number of common shares that would be issued assuming
exercise or conversion of all potentially dilutive securities,
excluding those securities that would be anti-dilutive to the
earnings (loss) per share calculation. Both basic and diluted
earnings (loss) per share amounts are calculated for earnings
(loss) from continuing operations and net earnings (loss) for
all periods presented.
Share-Based Compensation Costs:
The Company
has incentive plans that reward employees with stock options,
stock appreciation rights, restricted stock and restricted stock
units, as well as an employee stock purchase plan. Prior to
January 1, 2006, the Company applied the intrinsic value
method of accounting for share-based compensation. On
January 1, 2006, the Company adopted
SFAS No. 123R, Share-Based Payment
(SFAS 123R) using the modified prospective
transition method. The Company had previously disclosed the fair
value of its stock options in its footnotes. The amount of
compensation cost for share-based awards is measured based on
the fair value of the awards, as of the date that the
share-based awards are issued and adjusted to the estimated
number of awards that are expected to vest. The fair value of
stock options and stock appreciation rights is generally
determined using a Black-Scholes option pricing model which
incorporates assumptions about expected volatility, risk free
rate, dividend yield, and expected life. Compensation cost for
share-based awards is recognized on a straight-line basis over
the vesting period.
Retirement Benefits:
The Company records
annual expenses relating to its pension benefit and
postretirement plans based on calculations which include various
actuarial assumptions, including discount rates, assumed asset
rates of return, compensation increases, turnover rates and
health care cost trend rates. The Company reviews its actuarial
assumptions on an annual basis and makes modifications to the
assumptions based on current rates and trends. The effects of
the gains, losses, and prior service costs and credits are
amortized over future service periods. The funding status, or
projected benefit obligation less plan assets, for each plan, is
reflected in the Companys consolidated balance sheets
using a December 31 measurement date.
Advertising Expense:
Advertising expenses,
which are the external costs of marketing the Companys
products, are expensed as incurred. Advertising expenses were
$790 million, $1.1 billion and $1.2 billion for
the years ended December 31, 2008, 2007, and 2006,
respectively.
Use of Estimates:
The preparation of the
accompanying consolidated financial statements in conformity
with accounting principles generally accepted in the U.S.
requires management to make estimates and assumptions about
future events. These estimates and the underlying assumptions
affect the amounts of assets and liabilities reported,
disclosures about contingent assets and liabilities, and
reported amounts of revenues and expenses. Such estimates
include the valuation of accounts receivable and long-term
receivables, inventories, Sigma Fund, investments, goodwill,
intangible and other long-lived assets, legal contingencies,
guarantee obligations, indemnifications, and assumptions used in
the calculation of income taxes, retirement and other
post-employment benefits and allowances for discounts, price
protection, product returns, and customer incentives, among
others. These estimates and assumptions are based on
managements best estimates and judgment. Management
evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the
current economic environment, which management believes to be
reasonable under the circumstances. We adjust such estimates and
assumptions when facts and circumstances dictate. Illiquid
credit markets, volatile equity, foreign currency, energy
markets and declines in consumer spending have combined to
increase the uncertainty inherent in such estimates and
assumptions. As future events and their effects cannot be
determined with precision, actual results could differ
significantly from these estimates. Changes in those estimates
resulting for continuing changes in the economic environment
will be reflected in the financial statements in future periods.
91
Reclassifications:
Certain amounts in prior
years financial statements and related notes have been
reclassified to conform to the 2008 presentation.
Recent Accounting Pronouncements:
The Company
adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard (SFAS)
No. 157, Fair Value Measurements
(SFAS 157) on January 1, 2008 for
financial assets and liabilities, and non-financial assets and
liabilities that are recognized or disclosed at fair value in
the financial statements on a recurring basis. SFAS 157
defines fair value, establishes a framework for measuring fair
value as required by other accounting pronouncements and expands
fair value measurement disclosures. The provisions of
SFAS 157 were applied prospectively upon adoption and did
not have a material impact on the Companys consolidated
financial statements. The disclosures required by SFAS 157
are included in Note 9, Fair Value
Measurements, to the Companys consolidated financial
statements.
In February 2008, the FASB issued FASB Staff Position
157-2,
which
delays the effective date of SFAS 157 for non-financial
assets and liabilities, which are not measured at fair value on
a recurring basis (at least annually) until fiscal years
beginning after November 15, 2008. The Company is currently
assessing the impact of adopting SFAS 157 for non-financial
assets and liabilities on the Companys consolidated
financial statements.
In October 2008, the FASB issued FASB Staff Position
(FSP) 157-3,
which provided guidance to clarify the application of
FAS 157 in a market that is not active. The Company adopted
this FSP in the fourth quarter of 2008. The net impact of
this FSP was immaterial.
The Company adopted SFAS No. 159, The Fair Value
Option for Financial Assets and Financial
LiabilitiesIncluding an Amendment of FASB Statement
No. 115 (SFAS 159) as of
January 1, 2008. SFAS 159 permits entities to elect to
measure many financial instruments and certain other items at
fair value. The Company did not elect the fair value option for
any assets or liabilities, which were not previously carried at
fair value. Accordingly, the adoption of SFAS 159 had no
impact on the Companys consolidated financial statements.
The Company adopted
EITF 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
(EITF 06-4)
as of January 1, 2008.
EITF 06-4
requires that endorsement split-dollar life insurance
arrangements, which provide a benefit to an employee beyond the
postretirement period be recorded in accordance with
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions or APB Opinion
No. 12, Omnibus Opinion1967 (the
Statements) based on the substance of the agreement with
the employee. Upon adoption of
EITF 06-4,
the Company recognized an increase in Other liabilities of
$45 million with the offset reflected as a
cumulative-effect adjustment to January 1, 2008 Retained
earnings and Non-owner changes to equity in the amounts of
$4 million and $41 million, respectively, in the
Companys consolidated statement of stockholders
equity.
In December 2007, the FASB issued SFAS No. 141
(revised 2007) (SFAS 141R), a revision of
SFAS 141, Business Combinations. SFAS 141R
establishes requirements for the recognition and measurement of
acquired assets, liabilities, goodwill and non-controlling
interests. SFAS 141R also provides disclosure requirements
related to business combinations. SFAS 141R is effective
for fiscal years beginning after December 15, 2008.
SFAS 141R will be applied prospectively to business
combinations with an acquisition date on or after the effective
date.
In December 2007, the FASB issued SFAS No. 160,
Non-Controlling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes new
standards for the accounting for and reporting of
non-controlling interests (formerly minority interests) and for
the loss of control of partially owned and consolidated
subsidiaries. SFAS 160 does not change the criteria for
consolidating a partially owned entity. SFAS 160 is
effective for fiscal years beginning after December 15,
2008. The provisions of SFAS 160 will be applied
prospectively upon adoption except for the presentation and
disclosure requirements, which will be applied retrospectively.
The Company does not expect the adoption of SFAS 160 to
have a material impact on the Companys consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133
(SFAS 161). SFAS 161 requires enhanced
disclosures about an entitys derivative and hedging
activities and is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company is currently
evaluating the additional disclosures required by SFAS 161.
92
2. Discontinued
Operations
During the year ended December 31, 2006, the Company
completed the sale of its automotive electronics business to
Continental AG for $856 million in net cash received. The
Company recorded a gain on sale of business of $399 million
before income taxes, which is included in Earnings (loss) from
discontinued operations, net of tax, in the Companys
consolidated statements of operations.
On December 2, 2004, the Company completed the separation
and spin-off of Freescale Semiconductor, Inc. (Freescale
Semiconductor). Under the terms of the Master Separation
and Distribution Agreement entered into between Motorola and
Freescale Semiconductor, Freescale Semiconductor has agreed to
indemnify Motorola for substantially all past, present and
future liabilities associated with the semiconductor business.
The spin-off was effected by way of a pro rata non-cash dividend
to Motorola stockholders, which reduced retained earnings by
$2.5 billion. The equity distribution was structured to be
tax-free to Motorola stockholders for U.S. tax purposes
(other than with respect to any cash received in lieu of
fractional shares).
The financial results of the automotive electronics business and
Freescale Semiconductor were reflected as discontinued
operations in the consolidated financial statements and related
notes thereto. During the year ended December 31, 2008, the
discontinued operations activity primarily relates to the
resolution and payment of certain indemnifications relating to a
divestiture. During the year ended December 31, 2007, the
discontinued operations activity primarily relates to
resolutions of certain matters with the tax authorities and
payments of post-retiree medical claims to former employees.
The following table displays summarized activity in the
Companys consolidated statements of operations for
discontinued operations during the years ended December 31,
2007 and 2006. The Company had no such activity during the year
end December 31, 2008.
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2007
|
|
|
2006
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
860
|
|
Operating earnings
|
|
|
10
|
|
|
|
87
|
|
Gains on sales of investments and businesses, net
|
|
|
|
|
|
|
399
|
|
Earnings before income taxes
|
|
|
10
|
|
|
|
482
|
|
Income tax expense (benefit)
|
|
|
(46
|
)
|
|
|
82
|
|
Earnings from discontinued operations, net of tax
|
|
|
56
|
|
|
|
400
|
|
|
|
3. Other
Financial Data
Statement
of Operations Information
Other
Charges
Other charges included in Operating earnings (loss) consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Other charges (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
$
|
1,619
|
|
|
$
|
|
|
|
$
|
|
|
Intangibles amortization
|
|
|
318
|
|
|
|
369
|
|
|
|
100
|
|
Reorganization of businesses
|
|
|
248
|
|
|
|
290
|
|
|
|
172
|
|
Asset impairments
|
|
|
136
|
|
|
|
89
|
|
|
|
|
|
Separation-related transaction costs
|
|
|
59
|
|
|
|
|
|
|
|
|
|
Legal settlements and related insurance matters, net
|
|
|
14
|
|
|
|
140
|
|
|
|
50
|
|
In-process research and development charges
|
|
|
1
|
|
|
|
96
|
|
|
|
33
|
|
Gain on sale of property, plant and equipment
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
Charitable contribution to Motorola Foundation
|
|
|
|
|
|
|
|
|
|
|
88
|
|
Settlements and collections related to Telsim
|
|
|
|
|
|
|
|
|
|
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,347
|
|
|
$
|
984
|
|
|
$
|
25
|
|
|
|
93
Other
Income (Expense)
Interest income, net, and Other both included in Other income
(expense) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Interest income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
272
|
|
|
$
|
456
|
|
|
$
|
661
|
|
Interest expense
|
|
|
(224
|
)
|
|
|
(365
|
)
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48
|
|
|
$
|
91
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment impairments
|
|
$
|
(365
|
)
|
|
$
|
(44
|
)
|
|
$
|
(27
|
)
|
Impairment charges on Sigma Fund investments
|
|
|
(186
|
)
|
|
|
(18
|
)
|
|
|
|
|
Temporary unrealized losses of the Sigma Fund investments
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss)
|
|
|
(84
|
)
|
|
|
97
|
|
|
|
60
|
|
U.S. pension plan freeze curtailment gain
|
|
|
237
|
|
|
|
|
|
|
|
|
|
Liability extinguishment gain
|
|
|
56
|
|
|
|
|
|
|
|
|
|
Gain on interest rate swaps
|
|
|
24
|
|
|
|
|
|
|
|
|
|
Gain on Sprint Nextel derivatives
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Other
|
|
|
43
|
|
|
|
(13
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(376
|
)
|
|
$
|
22
|
|
|
$
|
151
|
|
|
|
Earnings
(Loss) Per Common Share
Basic and diluted earnings (loss) per common share from both
continuing operations and net earnings (loss), including
discontinued operations, is computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
Net Earnings (Loss)
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss)
|
|
$
|
(4,244
|
)
|
|
$
|
(105
|
)
|
|
$
|
3,261
|
|
|
$
|
(4,244
|
)
|
|
$
|
(49
|
)
|
|
$
|
3,661
|
|
Weighted average common shares outstanding
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,446.3
|
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,446.3
|
|
Per share amount
|
|
$
|
(1.87
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
1.33
|
|
|
$
|
(1.87
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss)
|
|
$
|
(4,244
|
)
|
|
$
|
(105
|
)
|
|
$
|
3,261
|
|
|
$
|
(4,244
|
)
|
|
$
|
(49
|
)
|
|
$
|
3,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,446.3
|
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,446.3
|
|
Add effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee share-based awards
|
|
|
|
|
|
|
|
|
|
|
57.9
|
|
|
|
|
|
|
|
|
|
|
|
57.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,504.2
|
|
|
|
2,265.4
|
|
|
|
2,312.7
|
|
|
|
2,504.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amount
|
|
$
|
(1.87
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
1.30
|
|
|
$
|
(1.87
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.46
|
|
|
|
For the years ended December 31, 2008 and 2007, the Company
was in a loss position and accordingly, the basic and diluted
weighted average shares outstanding are equal because any
increase to the basic shares would be antidilutive. Once the
Company returns to profitability, the diluted impact of stock
options, stock appreciation rights, and restricted stock units
will be evaluated for their impact on the weighted average
shares outstanding for purposes of computing diluted earnings
(loss) per common share.
For the year ended December 31, 2006 in the computation of
diluted earnings (loss) per common share from both continuing
operations and on a net earnings (loss) basis, 76.6 million
stock options were excluded because their inclusion would have
been antidilutive.
94
Balance
Sheet Information
Sigma
Fund
Sigma Fund consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
Recorded Value
|
|
|
Unrealized
|
|
|
Unrealized
|
|
December 31,
2008
|
|
Current
|
|
|
Non-current
|
|
|
Gains
|
|
|
Losses
|
|
|
|
|
Cash
|
|
$
|
1,108
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Certificates of deposit
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
1,616
|
|
|
|
366
|
|
|
|
25
|
|
|
|
(88
|
)
|
Asset-backed securities
|
|
|
113
|
|
|
|
59
|
|
|
|
|
|
|
|
(24
|
)
|
Mortgage-backed securities
|
|
|
81
|
|
|
|
41
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,690
|
|
|
$
|
466
|
|
|
$
|
25
|
|
|
$
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
December 31, 2007
|
|
Recorded Value
|
|
|
Gains
|
|
|
Losses
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
3,125
|
|
|
|
1
|
|
|
|
(48
|
)
|
|
|
|
|
Asset-backed securities
|
|
|
420
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
Mortgage-backed securities
|
|
|
209
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
Other
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,242
|
|
|
$
|
1
|
|
|
$
|
(58
|
)
|
|
|
|
|
|
|
The fair market value of investments in the Sigma Fund was
$4.2 billion and $5.2 billion at December 31,
2008 and 2007, respectively.
The Company considers unrealized losses in the Sigma Fund to be
temporary, as these losses have resulted primarily from the
ongoing disruptions in the capital markets. On the securities
for which the unrealized losses are considered temporary
(excluding impaired securities), the Company believes it is
probable that it will be able to collect all amounts it is owed
according to their contractual terms, which may be at maturity.
Temporary unrealized losses in the Sigma Fund were
$101 million and $57 million at December 31, 2008
and 2007, respectively.
If it becomes probable the Company will not collect amounts it
is owed on securities according to their contractual terms, the
Company considers the security to be impaired and adjusts the
cost basis of the security accordingly. For the years ended
December 31, 2008 and 2007, impairment charges in the Sigma
Fund were $186 million and $18 million, respectively.
The impairment charges were primarily related to investments in
Lehman Brothers Holdings, Inc., Washington Mutual, Inc., and
Sigma Finance Corporation, an unrelated special investment
vehicle managed by United Kingdom-based Gordian Knot, Limited.
Securities with a significant temporary unrealized loss and a
maturity greater than 12 months and impaired securities
have been classified as non-current in the Companys
consolidated balance sheets. At December 31, 2008,
$466 million of the Sigma Fund investments were classified
as non-current, and the weighted average maturity of the Sigma
Fund investments classified as non-current (excluding impaired
securities) was 16 months. At December 31, 2007, none
of the Sigma Fund investments were classified as non-current.
Prior to the three months ended December 31, 2008, the
Company recognized impairment charges from Sigma Fund
investments in its consolidated statements of operations and
temporary unrealized losses in Sigma Fund investments as a
component of
Non-owner
changes to equity in the consolidated statements of
stockholders equity. During the three months ended
December 31, 2008, the Company determined that temporary
unrealized losses in Sigma Fund investments should also be
recognized in the Companys consolidated statements of
95
operations, even though the related securities were not
considered impaired. Because the Sigma Fund uses
investment-company accounting in its
stand-alone
financial statements, it marks the investments in the fund to
market and records all unrealized gains or losses in earnings,
whether or not the related securities are considered impaired.
The Company has determined that the stand-alone accounting
policies of the Sigma Fund should be retained in its
consolidated financial statements. Accordingly, the Company
recorded $101 million of accumulated temporary unrealized
losses in Sigma Fund investments in its consolidated statements
of operations during the three months ended December 31,
2008, which represents all of the temporary unrealized gains and
losses that have accumulated in Sigma Fund investments as of
December 31, 2008. Portions of the temporary unrealized
losses recognized in the three months ended December 31,
2008 arose in periods prior to the three months ended
December 31, 2008 and should have been reflected in the
Companys consolidated statements of operations in the
periods in which they arose. The Company has determined that the
impact of the amounts that arose in prior periods is not
material to the consolidated results of operations of those
prior periods.
During the year ended December 31, 2008, the Company
recorded total charges related to Sigma Fund investments,
including temporary unrealized losses and impairment charges, of
$287 million in its consolidated statement of operations.
During the year ended December 31, 2007, the Company
recorded total charges of $18 million, all of which were
impairment charges, in its consolidated statements of
operations. There were no temporary unrealized losses or
impairment charges in the Sigma Fund investment portfolio during
the year ended December 31, 2006.
Investments
Investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
|
Less
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Cost
|
|
December 31,
2008
|
|
Investments
|
|
|
Investments
|
|
|
Gains
|
|
|
Losses
|
|
|
Basis
|
|
|
|
|
Certificates of deposit
|
|
$
|
225
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
225
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
|
|
|
|
25
|
|
|
|
1
|
|
|
|
|
|
|
|
24
|
|
Corporate bonds
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Asset-backed securities
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Common stock and equivalents
|
|
|
|
|
|
|
128
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
161
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
382
|
|
Other securities, at cost
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
Equity method investments
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
225
|
|
|
$
|
517
|
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Value
|
|
|
Less
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Cost
|
|
December 31, 2007
|
|
Investments
|
|
|
Investments
|
|
|
Gains
|
|
|
Losses
|
|
|
Basis
|
|
|
|
|
Certificates of deposit
|
|
$
|
509
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
509
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Corporate bonds
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Common stock and equivalents
|
|
|
|
|
|
|
333
|
|
|
|
40
|
|
|
|
(79
|
)
|
|
|
372
|
|
Other
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612
|
|
|
|
333
|
|
|
|
40
|
|
|
|
(79
|
)
|
|
|
984
|
|
Other securities, at cost
|
|
|
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
414
|
|
Equity method investments
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
612
|
|
|
$
|
837
|
|
|
$
|
40
|
|
|
$
|
(79
|
)
|
|
$
|
1,488
|
|
|
|
At December 31, 2008, the Company had $225 million in
short-term investments (which are highly-liquid fixed-income
investments with an original maturity greater than three months
but less than one year), compared to $612 million of
short-term investments at December 31, 2007.
96
At December 31, 2008, the Companys available-for-sale
equity securities portfolio had an approximate fair market value
of $128 million, which represented a cost basis of
$125 million and a net unrealized gain of $3 million.
At December 31, 2007, the Companys available-for-sale
securities portfolio had an approximate fair market value of
$333 million, which represented a cost basis of
$372 million and a net unrealized loss of $39 million.
During the years ended December 31, 2008, 2007 and 2006,
the Company recorded investment impairment charges of
$365 million, $44 million and $27 million,
respectively, representing other-than-temporary declines in the
value of the Companys available-for-sale investment
portfolio. Investment impairment charges are included in Other
within Other income (expense) in the Companys consolidated
statements of operations.
Gains on sales of investments and businesses, consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Gains on sales of investments, net
|
|
$
|
82
|
|
|
$
|
17
|
|
|
$
|
41
|
|
Gains on sales of businesses, net
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82
|
|
|
$
|
50
|
|
|
$
|
41
|
|
|
|
During the year ended December 31, 2008, the
$82 million of net gains primarily relates to sales of a
number of the Companys equity investments, of which
$29 million of gain was attributed to a single investment.
During the year ended December 31, 2007, the
$50 million of net gains was primarily related to a
$34 million gain on the sale of the Companys embedded
communication computing business. During the year ended
December 31, 2006, the $41 million of net gains was
primarily related to a $141 million gain on the sale of the
Companys remaining shares in Telus Corporation, partially
offset by a $126 million loss on the sale of the
Companys remaining shares in Sprint Nextel Corporation
(Sprint Nextel).
Accounts
Receivable
Accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Accounts receivable
|
|
$
|
3,675
|
|
|
$
|
5,508
|
|
Less allowance for doubtful accounts
|
|
|
(182
|
)
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,493
|
|
|
$
|
5,324
|
|
|
|
Inventories
Inventories, net, consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Finished goods
|
|
$
|
1,710
|
|
|
$
|
1,737
|
|
Work-in-process
and production materials
|
|
|
1,709
|
|
|
|
1,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,419
|
|
|
|
3,207
|
|
Less inventory reserves
|
|
|
(760
|
)
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,659
|
|
|
$
|
2,836
|
|
|
|
During the year ended December 31, 2008, the Company
recorded a charge of $291 million for excess inventory due
to a decision to consolidate software and silicon platforms in
the Mobile Devices segment.
97
Other
Current Assets
Other current assets consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Costs and earnings in excess of billings
|
|
$
|
1,094
|
|
|
$
|
995
|
|
Contract related deferred costs
|
|
|
861
|
|
|
|
763
|
|
Contractor receivables
|
|
|
378
|
|
|
|
960
|
|
Value-added tax refunds receivable
|
|
|
278
|
|
|
|
321
|
|
Other
|
|
|
529
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,140
|
|
|
$
|
3,565
|
|
|
|
Property,
plant, and equipment
Property, plant and equipment, net, consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Land
|
|
$
|
148
|
|
|
$
|
134
|
|
Building
|
|
|
1,905
|
|
|
|
1,934
|
|
Machinery and equipment
|
|
|
5,687
|
|
|
|
5,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,740
|
|
|
|
7,813
|
|
Less accumulated depreciation
|
|
|
(5,298
|
)
|
|
|
(5,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,442
|
|
|
$
|
2,480
|
|
|
|
Depreciation expense for the years ended December 31, 2008,
2007 and 2006 was $511 million, $537 million and
$463 million, respectively.
Other
Assets
Other assets consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Intangible assets, net of accumulated amortization of $1,106 and
$819
|
|
$
|
869
|
|
|
$
|
1,260
|
|
Royalty license arrangements
|
|
|
289
|
|
|
|
364
|
|
Contract related deferred costs
|
|
|
136
|
|
|
|
180
|
|
Value-added tax refunds receivable
|
|
|
117
|
|
|
|
|
|
Long-term receivables, net of allowances of $7 and $5
|
|
|
52
|
|
|
|
68
|
|
Other
|
|
|
353
|
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,816
|
|
|
$
|
2,320
|
|
|
|
Accrued
Liabilities
Accrued liabilities consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Deferred revenue
|
|
$
|
1,533
|
|
|
$
|
1,235
|
|
Compensation
|
|
|
703
|
|
|
|
772
|
|
Customer reserves
|
|
|
599
|
|
|
|
972
|
|
Tax liabilities
|
|
|
545
|
|
|
|
234
|
|
Customer downpayments
|
|
|
496
|
|
|
|
509
|
|
Contractor payables
|
|
|
318
|
|
|
|
875
|
|
Warranty reserves
|
|
|
285
|
|
|
|
416
|
|
Other
|
|
|
2,861
|
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,340
|
|
|
$
|
8,001
|
|
|
|
98
Other
Liabilities
Other liabilities consists of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Defined benefit plans, including split dollar life insurance
policies
|
|
$
|
2,202
|
|
|
$
|
562
|
|
Deferred revenue
|
|
|
316
|
|
|
|
393
|
|
Unrecognized tax benefits
|
|
|
312
|
|
|
|
933
|
|
Postretirement health care benefit plan
|
|
|
261
|
|
|
|
144
|
|
Royalty license arrangement
|
|
|
|
|
|
|
282
|
|
Other
|
|
|
559
|
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,650
|
|
|
$
|
2,874
|
|
|
|
Stockholders
Equity Information
Share
Repurchase Program
Share Repurchase Program:
During the year
ended December 31, 2008, the Company repurchased
9.0 million of its common shares at an aggregate cost of
$138 million, or an average cost of $15.32 per share, all
of which were repurchased during the three months ended
March 29, 2008. During the year ended December 31,
2007, the Company repurchased 171.2 million of its common
shares at an aggregate cost of $3.0 billion, or an average
cost of $17.74 per share. During the year ended
December 31, 2006, the Company repurchased a total of
171.7 million of its common shares at an aggregate cost of
$3.8 billion, or an average cost of $22.29 per share.
Since the inception of its share repurchase program in May 2005,
the Company has repurchased a total of 394 million common
shares for an aggregate cost of $7.9 billion. All
repurchased shares have been retired. As of December 31,
2008, the Company remained authorized to purchase an aggregate
amount of up to $3.6 billion of additional shares under the
current stock repurchase program. The timing and amount of
future purchases will be based on market and other conditions.
Payment of Dividends:
The Company paid
$453 million in cash dividends to holders of its common
stock in 2008. In January 2009, the Company paid
$114 million in cash dividends that were declared in
November 2008. In February 2009, the Company announced that its
Board of Directors voted to suspend the declaration of quarterly
dividends on the Companys common stock.
4. Debt
and Credit Facilities
Long-Term
Debt
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
6.5% notes due 2008
|
|
$
|
|
|
|
$
|
114
|
|
5.8% notes due 2008
|
|
|
|
|
|
|
84
|
|
7.625% notes due 2010
|
|
|
527
|
|
|
|
527
|
|
8.0% notes due 2011
|
|
|
599
|
|
|
|
599
|
|
5.375% senior notes due 2012
|
|
|
400
|
|
|
|
400
|
|
6.0% senior notes due 2017
|
|
|
399
|
|
|
|
399
|
|
6.5% debentures due 2025
|
|
|
397
|
|
|
|
397
|
|
7.5% debentures due 2025
|
|
|
356
|
|
|
|
398
|
|
6.5% debentures due 2028
|
|
|
297
|
|
|
|
297
|
|
6.625% senior notes due 2037
|
|
|
596
|
|
|
|
596
|
|
5.22% debentures due 2097
|
|
|
195
|
|
|
|
195
|
|
Other long-term debt
|
|
|
178
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,944
|
|
|
|
4,151
|
|
Adjustment for interest rate
swaps
(1)
|
|
|
151
|
|
|
|
38
|
|
Less: current portion
|
|
|
(3
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
4,092
|
|
|
$
|
3,991
|
|
|
|
99
|
|
|
(1)
|
|
At December 31, 2008, the balance primarily represents the
unamortized gain associated with the termination of all interest
rate swaps designated as fair value hedges. For detailed
discussion please see Note 5, Risk Management.
At December 31, 2007, the balance represents the fair value
of the interest rate swaps.
|
Other
Short-Term Debt
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Notes to banks
|
|
$
|
89
|
|
|
$
|
134
|
|
Add: current portion of long-term debt
|
|
|
3
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
Notes payable and current portion of long-term debt
|
|
$
|
92
|
|
|
$
|
332
|
|
|
|
Weighted average interest rates on short-term borrowings
throughout the year
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper
(1)
|
|
|
|
|
|
|
5.3
|
%
|
Other short-term debt
|
|
|
4.2
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
(1)
|
|
At December 31, 2008, the Company did not have any
commercial paper outstanding.
|
In December 2008, the Company completed the open market purchase
of $42 million of the $400 million aggregate principal
amount outstanding of its 7.50% Debentures due 2025 (the
2025 Debentures). The $42 million principal
amount of 2025 Debentures was purchased for an aggregate
purchase price of approximately $28 million, including
accrued interest as of the redemption date. During the year
ended December 31, 2008, the Company recognized a gain of
approximately $14 million related to this open market
purchase in Other within Other income (expense) in the
consolidated statements of operations.
In October 2008, the Company repaid, at maturity, the entire
$84 million aggregate principal amount outstanding of its
5.80% Notes due October 15, 2008. In March 2008, the
Company repaid at maturity, the entire $114 million
aggregate principal amount outstanding of its 6.50% Notes
due March 1, 2008.
In November 2007, the Company repaid, at maturity, the entire
$1.2 billion aggregate principal amount outstanding of its
4.608% Notes due November 16, 2007. In November 2007,
the Company issued an aggregate face principal amount of:
(i) $400 million of 5.375% Senior Notes due
November 15, 2012, (ii) $400 million of
6.00% Senior Notes due November 15, 2017, and
(iii) $600 million of 6.625% Senior Notes due
November 15, 2037. In January 2007, the Company repaid, at
maturity, the entire $118 million aggregate principal
amount outstanding of its 7.6% Notes due January 1,
2007.
Aggregate requirements for long-term debt maturities during the
next five years are as follows: 2009$3 million;
2010$536 million; 2011$609 million;
2012$410 million; and 2013$11 million.
In December 2006, the Company entered into a five-year domestic
syndicated revolving credit facility
(5-Year
Credit Facility) for $2.0 billion. At
December 31, 2008 and 2007, the Company had no outstanding
borrowings under the 5-Year Credit Facility. At
December 31, 2008, the commitment fee assessed against the
daily average amounts unused was 10.0 basis points.
Important terms of the
5-Year
Credit Facility include a covenant relating to the ratio of
total debt to adjusted EBITDA. The Company was in compliance
with the terms of the
5-Year
Credit Facility at December 31, 2008.
Events over the past several months, including recent failures
and near failures of a number of large financial service
companies, have made the capital markets increasingly volatile.
The Company also has access to uncommitted
non-U.S. credit
facilities (uncommitted facilities), but in light of
the state of the financial services industry and the
Companys current financial condition, the Company does not
believe it is prudent to assume the same level of funding will
be available under those facilities going forward as has been
available historically.
The Companys current corporate credit ratings are
BBB− with a negative outlook by Fitch Ratings
(Fitch), Baa3 with a negative outlook by
Moodys Investors Service (Moodys), and
BB+ with a stable outlook by Standard &
Poors (S&P).
100
5. Risk
Management
Derivative
Financial Instruments
Foreign
Currency Risk
The Company uses financial instruments to reduce its overall
exposure to the effects of currency fluctuations on cash flows.
The Companys policy prohibits speculation in financial
instruments for profit on the exchange rate price fluctuation,
trading in currencies for which there are no underlying
exposures, or entering into transactions for any currency to
intentionally increase the underlying exposure. Instruments that
are designated as part of a hedging relationship must be
effective at reducing the risk associated with the exposure
being hedged and are designated as part of a hedging
relationship at the inception of the contract. Accordingly,
changes in market values of hedge instruments must be highly
correlated with changes in market values of underlying hedged
items both at the inception of the hedge and over the life of
the hedge contract.
The Companys strategy related to foreign exchange exposure
management is to offset the gains or losses on the financial
instruments against losses or gains on the underlying
operational cash flows or investments based on the operating
business units assessment of risk. The Company enters into
derivative contracts for some of the Companys
non-functional currency receivables and payables, which are
primarily denominated in major currencies that can be traded on
open markets. The Company uses forward contracts and options to
hedge these currency exposures. In addition, the Company enters
into derivative contracts for some firm commitments and some
forecasted transactions, which are designated as part of a
hedging relationship if it is determined that the transaction
qualifies for hedge accounting under the provisions of
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. A portion of the
Companys exposure is from currencies that are not traded
in liquid markets and these are addressed, to the extent
reasonably possible, by managing net asset positions, product
pricing and component sourcing.
At December 31, 2008 and 2007, the Company had net
outstanding foreign exchange contracts totaling
$2.6 billion and $3.0 billion, respectively.
Management believes that these financial instruments should not
subject the Company to undue risk due to foreign exchange
movements because gains and losses on these contracts should
generally offset losses and gains on the underlying assets,
liabilities and transactions, except for the ineffective portion
of the instruments, which are charged to Other within Other
income (expense) in the Companys consolidated statements
of operations.
The following table shows the five largest net notional amounts
of the positions to buy or sell foreign currency as of
December 31, 2008 and the corresponding positions as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Net Buy (Sell) by
Currency
|
|
2008
|
|
|
2007
|
|
|
|
|
Chinese Renminbi
|
|
$
|
(481
|
)
|
|
$
|
(1,292
|
)
|
Euro
|
|
|
(445
|
)
|
|
|
(33
|
)
|
Brazilian Real
|
|
|
(356
|
)
|
|
|
(377
|
)
|
Taiwan Dollar
|
|
|
124
|
|
|
|
112
|
|
Japanese Yen
|
|
|
542
|
|
|
|
384
|
|
|
|
The Company is exposed to credit-related losses if
counterparties to financial instruments fail to perform their
obligations. However, the Company does not expect any
counterparties, all of whom presently have investment grade
credit ratings, to fail to meet their obligations.
The ineffective portion of changes in the fair value of foreign
currency fair value hedge positions for the periods presented
were de minimis. These amounts are included in Other within
Other income (expense) in the Companys consolidated
statements of operations. The above amounts include the change
in the fair value of derivative contracts related to the changes
in the difference between the spot price and the forward price.
These amounts are excluded from the measure of effectiveness.
Expense (income) related to fair value hedges that were
discontinued for the years ended December 31, 2008, 2007
and 2006 are included in the amounts noted above.
The Company recorded income (expense) of $(2) million,
$1 million and $13 million for the years ended
December 31, 2008, 2007 and 2006, respectively,
representing the ineffective portions of changes in the fair
value of cash flow hedge positions. These amounts are included
in Other within Other income (expense) in the Companys
consolidated statements of operations. The above amounts include
the change in the fair value of
101
derivative contracts related to the changes in the difference
between the spot price and the forward price. These amounts are
excluded from the measure of effectiveness. Expense (income)
related to cash flow hedges that were discontinued for the years
ended December 31, 2008, 2007 and 2006 are included in the
amounts noted above.
During the years ended December 31, 2008, 2007 and 2006, on
a pre-tax basis, income (expense) of $3 million,
$(16) million and $(98) million, respectively, was
reclassified from equity to earnings in the Companys
consolidated statements of operations.
At December 31, 2008, the maximum term of derivative
instruments that hedge forecasted transactions was one year. The
weighted average duration of the Companys derivative
instruments that hedge forecasted transactions was seven months.
Interest
Rate Risk
At December 31, 2008, the Companys short-term debt
consisted primarily of $89 million of short-term variable
rate foreign debt. The Company has $4.1 billion of
long-term debt, including the current portion of long-term debt,
which is primarily priced at long-term, fixed interest rates.
As part of its liability management program, the Company
historically entered into interest rate swaps (Hedging
Agreements) to synthetically modify the characteristics of
interest rate payments for certain of its outstanding long-term
debt from fixed-rate payments to short-term variable rate
payments. During the fourth quarter of 2008, the Company
terminated all of its Hedging Agreements. The termination of the
Hedging Agreements resulted in cash proceeds of approximately
$158 million and a gain of approximately $173 million,
which has been deferred and will be recognized as a reduction of
interest expense over the remaining term of the associated debt.
Prior to the termination of the Hedging Agreements in the fourth
quarter of 2008, the Hedging Agreements were designated as part
of fair value hedging relationships of the Companys
long-term debt. As such, the changes in fair value of the
Hedging Agreements and corresponding adjustments to the carrying
amount of the debt were recognized in earnings. Interest expense
on the debt was adjusted to include payments made or received
under such Hedge Agreements. During 2008 (prior to the Hedging
Agreements being terminated) and 2007, the Company recognized
expense of $1 million and $2 million, respectively,
representing the ineffective portion of changes in the fair
value of the Hedging Agreements. These amounts are included in
Other within Other income (expense) in the Companys
consolidated statement of operations.
Certain of the terminated Hedging Agreements were originally
entered into during the fourth quarter of 2007. The Company
entered into the Hedging Agreements concurrently with issuance
of long-term debt to convert the fixed rate interest cost on the
newly issued debt to a floating rate. The Hedging Agreements
were originally designated as fair value hedges of the
underlying debt, including the Companys credit spread.
During the first quarter of 2008, the swaps were no longer
considered effective hedges because of the volatility in the
price of the Companys fixed-rate domestic term debt and
the swaps were dedesignated. In the same period, the Company was
able to redesignate the same Hedging Agreements as fair value
hedges of the underlying debt, exclusive of the Companys
credit spread. For the period of time that the Hedging
Agreements were deemed ineffective hedges, the Company
recognized a gain of $24 million in the Companys
consolidated statements of operations, representing the increase
in the fair value of the Hedging Agreements.
Additionally, one of the Companys European subsidiaries
has outstanding interest rate agreements (Interest
Agreements) relating to a Euro-denominated loan. The
interest on the Euro-denominated loan is variable. The Interest
Agreements change the characteristics of interest rate payments
from variable to maximum fixed-rate payments. The Interest
Agreements are not accounted for as a part of a hedging
relationship and, accordingly, the changes in the fair value of
the Interest Agreements are included in Other income (expense)
in the Companys consolidated statements of operations. The
weighted average fixed rate payments on these Interest
Agreements was 5.07%. The fair value of the Interest Agreements
at December 31, 2008 and 2007 were $(2) million and
$3 million, respectively.
The Company is exposed to credit loss in the event of
nonperformance by the counterparties to its swap contracts. The
Company minimizes its credit risk concentration on these
transactions by distributing these contracts among several
leading financial institutions, all of whom presently have
investment grade credit ratings, and having collateral
agreements in place. The Company does not anticipate
nonperformance.
102
Stockholders
Equity
Derivative instruments activity, net of tax, included in
Non-owner changes to equity within the consolidated statements
of stockholders equity for the years ended
December 31, 2008, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Balance at January 1
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
2
|
|
Increase (decrease) in fair value
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
75
|
|
Reclassifications to earnings
|
|
|
2
|
|
|
|
(10
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
16
|
|
|
|
Net
Investment in Foreign Operations Hedge
At December 31, 2008 and 2007, the Company did not have any
hedges of foreign currency exposure of net investments in
foreign operations.
Investments
Hedge
During the first quarter of 2006, the Company entered into a
zero-cost collar derivative (the Sprint Nextel
Derivative) to protect itself economically against price
fluctuations in its 37.6 million shares of Sprint Nextel
Corporation (Sprint Nextel) non-voting common stock.
During the second quarter of 2006, as a result of Sprint
Nextels spin-off of Embarq Corporation through a dividend
to Sprint Nextel shareholders, the Company received
approximately 1.9 million shares of Embarq Corporation. The
floor and ceiling prices of the Sprint Nextel Derivative were
adjusted accordingly. The Sprint Nextel Derivative was not
designated as a hedge under the provisions of
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Accordingly, to
reflect the change in fair value of the Sprint Nextel
Derivative, the Company recorded a net gain of $99 million
for the year ended December 31, 2006, included in Other
income (expense) in the Companys consolidated statements
of operations. In December 2006, the Sprint Nextel Derivative
was terminated and settled in cash and the 37.6 million
shares of Sprint Nextel were converted to common shares and
sold. The Company received aggregate cash proceeds of
approximately $820 million from the settlement of the
Sprint Nextel Derivative and the subsequent sale of the
37.6 million Sprint Nextel shares. The Company recognized a
loss of $126 million in connection with the sale of the
remaining shares of Sprint Nextel common stock. As described
above, the Company recorded a net gain of $99 million in
connection with the Sprint Nextel Derivative.
Fair
Value of Financial Instruments
The Companys financial instruments include cash
equivalents, Sigma Fund investments, short-term investments,
accounts receivable, long-term receivables, accounts payable,
accrued liabilities, derivatives and other financing
commitments. The Companys Sigma Fund, available-for-sale
investment portfolios and derivatives are recorded in the
Companys consolidated balance sheets at fair value. All
other financial instruments, with the exception of long-term
debt, are carried at cost, which is not materially different
than the instruments fair values.
Using quoted market prices and market interest rates, the
Company determined that the fair value of long-term debt at
December 31, 2008 was $2.8 billion, compared to a
carrying value of $4.1 billion. Since considerable judgment
is required in interpreting market information, the fair value
of the long-term debt is not necessarily indicative of the
amount which could be realized in a current market exchange.
Equity
Price Market Risk
At December 31, 2008, the Companys available-for-sale
equity securities portfolio had an approximate fair market value
of $128 million, which represented a cost basis of
$125 million and a net unrealized loss of $3 million.
These equity securities are held for purposes other than trading.
103
Components of earnings (loss) from continuing operations before
income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
United States
|
|
$
|
(3,880
|
)
|
|
$
|
(2,540
|
)
|
|
$
|
1,034
|
|
Other nations
|
|
|
1,243
|
|
|
|
2,150
|
|
|
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,637
|
)
|
|
$
|
(390
|
)
|
|
$
|
4,610
|
|
|
|
Components of income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
United States
|
|
$
|
(618
|
)
|
|
$
|
40
|
|
|
$
|
10
|
|
Other nations
|
|
|
532
|
|
|
|
402
|
|
|
|
488
|
|
States (U.S.)
|
|
|
(5
|
)
|
|
|
20
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(91
|
)
|
|
|
462
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,702
|
|
|
|
(633
|
)
|
|
|
892
|
|
Other nations
|
|
|
49
|
|
|
|
(50
|
)
|
|
|
(147
|
)
|
States (U.S.)
|
|
|
(53
|
)
|
|
|
(64
|
)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
1,698
|
|
|
|
(747
|
)
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
1,607
|
|
|
$
|
(285
|
)
|
|
$
|
1,349
|
|
|
|
Deferred tax charges (benefits) that were recorded within
Non-owner changes to equity in the Companys consolidated
balance sheets resulted from retirement benefit adjustments,
currency translation adjustments, net gains (losses) on
derivative instruments and fair value adjustments to
available-for-sale securities. The adjustments were
($738) million, $306 million and $(182) million
for the years ended December 31, 2008, 2007 and 2006,
respectively. Except for certain earnings that the Company
intends to reinvest indefinitely, provisions have been made for
the estimated U.S. federal income taxes applicable to
undistributed earnings of
non-U.S. subsidiaries.
Undistributed earnings that the Company intends to reinvest
indefinitely, and for which no U.S. federal income taxes
have been provided, aggregate to $2.9 billion,
$4.1 billion and $4.0 billion at December 31,
2008, 2007 and 2006, respectively. The portion of earnings not
reinvested indefinitely may be distributed without an additional
U.S. federal income tax charge given the U.S. federal
tax accrued on undistributed earnings and the utilization of
available foreign tax credits.
Differences between income tax expense (benefit) computed at the
U.S. federal statutory tax rate of 35% and income tax
expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Income tax expense (benefit) at statutory rate
|
|
$
|
(923
|
)
|
|
$
|
(137
|
)
|
|
$
|
1,613
|
|
Taxes on
non-U.S.
earnings
|
|
|
125
|
|
|
|
(206
|
)
|
|
|
(449
|
)
|
State income taxes
|
|
|
(38
|
)
|
|
|
(28
|
)
|
|
|
77
|
|
Valuation allowances
|
|
|
2,321
|
|
|
|
(97
|
)
|
|
|
(187
|
)
|
Goodwill impairment
|
|
|
555
|
|
|
|
|
|
|
|
|
|
Tax on undistributed
non-U.S.
earnings
|
|
|
119
|
|
|
|
72
|
|
|
|
194
|
|
Other provisions
|
|
|
(541
|
)
|
|
|
119
|
|
|
|
247
|
|
Research credits
|
|
|
(13
|
)
|
|
|
(46
|
)
|
|
|
(34
|
)
|
Non-deductible acquisition charges
|
|
|
|
|
|
|
34
|
|
|
|
4
|
|
Taxes on sale of businesses
|
|
|
|
|
|
|
15
|
|
|
|
|
|
Tax benefit on qualifying repatriations
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
Charitable contributions
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
Foreign export sales and section 199 deduction
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Other
|
|
|
2
|
|
|
|
(11
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,607
|
|
|
$
|
(285
|
)
|
|
$
|
1,349
|
|
|
|
Gross deferred tax assets were $9.8 billion and
$8.9 billion at December 31, 2008 and 2007,
respectively. Deferred tax assets, net of valuation allowances,
were $7.2 billion and $8.4 billion at
December 31, 2008 and
104
2007, respectively. Gross deferred tax liabilities were
$3.7 billion and $4.1 billion at December 31,
2008 and 2007, respectively.
Significant components of deferred tax assets (liabilities) are
as follows:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Inventory
|
|
$
|
308
|
|
|
$
|
162
|
|
Accrued liabilities and allowances
|
|
|
483
|
|
|
|
551
|
|
Employee benefits
|
|
|
1,053
|
|
|
|
408
|
|
Capitalized items
|
|
|
650
|
|
|
|
621
|
|
Tax basis differences on investments
|
|
|
171
|
|
|
|
105
|
|
Depreciation tax basis differences on fixed assets
|
|
|
37
|
|
|
|
33
|
|
Undistributed
non-U.S.
earnings
|
|
|
(278
|
)
|
|
|
(397
|
)
|
Tax carryforwards
|
|
|
3,001
|
|
|
|
2,553
|
|
Available-for-sale securities
|
|
|
(1
|
)
|
|
|
35
|
|
Business reorganization
|
|
|
70
|
|
|
|
78
|
|
Warranty and customer reserves
|
|
|
215
|
|
|
|
334
|
|
Deferred revenue and costs
|
|
|
184
|
|
|
|
205
|
|
Valuation allowances
|
|
|
(2,692
|
)
|
|
|
(515
|
)
|
Deferred charges
|
|
|
45
|
|
|
|
44
|
|
Other
|
|
|
225
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,471
|
|
|
$
|
4,312
|
|
|
|
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, which requires that
deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of the temporary differences between
the book and tax basis of recorded assets and liabilities. The
Company makes estimates and judgments with regard to the
calculation of certain income tax assets and liabilities.
SFAS No. 109 requires that deferred tax assets be
reduced by valuation allowances if, based on the consideration
of all available evidence, it is more likely than not that some
portion of the deferred tax asset will not be realized.
Significant weight is given to evidence that can be objectively
verified.
The Company evaluates deferred income taxes on a quarterly basis
to determine if valuation allowances are required by considering
available evidence, including historical and projected taxable
income and tax planning strategies that are both prudent and
feasible. As of December 31, 2008, the Companys U.S
operations had generated two consecutive years of pre-tax
losses, which are attributable to the Mobile Devices segment.
During 2007 and 2008, the Home and Networks Mobility and
Enterprise Mobility Solution businesses (collectively referred
to as the Broadband Mobility Solutions business)
were profitable in the U.S. and worldwide. Because of the
2007 and 2008 losses at Mobile Devices and the near-term
forecasts for the Mobile Devices business, the Company believes
that the weight of negative historic evidence precludes it from
considering any forecasted income from the Mobile Devices
business in its analysis of the recoverability of deferred tax
assets. However, based on the sustained profits of the Broadband
Mobility Solutions business, the Company believes that the
weight of positive historic evidence allows it to include
forecasted income from the Broadband Mobility business in its
analysis of the recoverability of its deferred tax assets. The
Company also considered in its analysis tax planning strategies
that are prudent and can be reasonably implemented. Based on all
available positive and negative evidence, we concluded that a
partial valuation allowance should be recorded against the net
deferred tax assets of our U.S operations. During fiscal 2008,
we recorded a valuation allowance of $2.1 billion for
foreign tax credits, general business credits, capital losses
and state tax carry forwards that are more likely than not to
expire. The Company also recorded valuation allowances of
$126 million relating to tax carryforwards and deferred tax
assets of
non-U.S. subsidiaries,
including Brazil, China and Spain, that the Company believes are
more likely than not to expire or go unused.
At December 31, 2008 and 2007, the Company had valuation
allowances of $2.7 billion and $515 million,
respectively, against its deferred tax assets, including
$297 million and $310 million, respectively, relating
to deferred tax assets for
non-U.S. subsidiaries.
The Companys valuation allowances for its
non-U.S. subsidiaries
had a net decrease of $13 million during 2008, which is
comprised of $139 million decrease primarily related to the
utilization of United Kingdom tax carry forwards and changes in
the valuation allowance balance due to exchange rate variances,
partially offset by a $126 million increase for new
valuation allowances. The U.S. valuation allowance relates
primarily to tax carryforwards, including foreign tax credits,
general business credits, tax carryforwards of acquired
businesses which have limitations upon their use, state tax
carryforwards and future
105
capital losses related to certain investments. The Company
believes that the remaining deferred tax assets are more likely
than not to be realizable based on estimates of future taxable
income and the implementation of tax planning strategies.
Tax carryforwards at December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Tax
|
|
|
Expiration
|
|
|
Tax Loss
|
|
|
Effected
|
|
|
Period
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
U.S. tax losses
|
|
$
|
2,354
|
|
|
$
|
824
|
|
|
2017-2028
|
Foreign tax credits
|
|
|
n/a
|
|
|
|
1,111
|
|
|
2012-2018
|
General business credits
|
|
|
n/a
|
|
|
|
453
|
|
|
2018-2028
|
Minimum tax credits
|
|
|
n/a
|
|
|
|
102
|
|
|
Unlimited
|
State tax losses
|
|
|
3,616
|
|
|
|
112
|
|
|
2009-2028
|
State tax credits
|
|
|
n/a
|
|
|
|
56
|
|
|
2009-2024
|
Non-U.S.
Subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
China tax losses
|
|
|
143
|
|
|
|
30
|
|
|
2012-2013
|
United Kingdom tax losses
|
|
|
223
|
|
|
|
63
|
|
|
Unlimited
|
Germany tax losses
|
|
|
316
|
|
|
|
91
|
|
|
Unlimited
|
Other subsidiaries tax losses
|
|
|
244
|
|
|
|
64
|
|
|
Various
|
Spain tax credits
|
|
|
n/a
|
|
|
|
32
|
|
|
2014-2022
|
Other subsidiaries tax credits
|
|
|
n/a
|
|
|
|
63
|
|
|
Unlimited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,001
|
|
|
|
|
|
The Company adopted FIN 48 on January 1, 2007. The
adoption resulted in a $120 million reduction of the
Companys unrecognized tax benefits and related interest
accrual and has been reflected as an increase in the opening
balance of Retained earnings of $27 million and Additional
paid-in capital of $93 million as of January 1, 2007.
Upon the adoption of FIN 48, the Company also reclassified
unrecognized tax benefits of $877 million from Deferred
income tax to Other liabilities in the Companys
consolidated balance sheets.
A reconciliation of unrecognized tax benefits, including those
attributable to discontinued operations, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance at January 1
|
|
$
|
1,400
|
|
|
$
|
1,274
|
|
Additions based on tax positions related to current year
|
|
|
46
|
|
|
|
46
|
|
Additions for tax positions of prior years
|
|
|
141
|
|
|
|
197
|
|
Reductions for tax positions of prior years
|
|
|
(642
|
)
|
|
|
(114
|
)
|
Settlements
|
|
|
(31
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
914
|
|
|
$
|
1,400
|
|
|
|
Included in the balance of total unrecognized tax benefits at
December 31, 2008 and 2007, are potential benefits of
approximately $790 million and $590 million,
respectively, net of federal tax benefits that if recognized
would affect the effective tax rate.
During the fourth quarter of 2008, the Company entered into
closing agreements with the appellate level of the Internal
Revenue Service (IRS) on transfer pricing
adjustments for tax years 1996 through 2003 and the IRS
completed its review of the research credit, thereby resolving
all significant IRS audit issues for years
1996-2003.
The IRS also completed its field examination of the
Companys 2004 and 2005 tax returns in July 2008, and there
are no significant unagreed issues. As a result of the foregoing
and resolution of
Non-U.S.
audits, the Company reduced its unrecognized income tax
benefits. The Company expects to receive a net tax refund of
$126 million, primarily relating to refund claims that were
held pending the resolution of the
1996-2003
tax years.
106
During the fourth quarter of 2008, the IRS started the field
examination of the Companys 2006 and 2007 tax years. The
Company also has several state and
Non-U.S.
audits pending. A summary of open tax years by major
jurisdiction is presented below:
|
|
|
|
|
|
|
Jurisdiction:
|
|
|
|
|
United
States
(1)
|
|
|
19962008
|
|
Brazil
|
|
|
20032008
|
|
China
|
|
|
19992008
|
|
France
|
|
|
20042008
|
|
Germany
(1)
|
|
|
20042008
|
|
India
|
|
|
19962008
|
|
Israel
|
|
|
20042008
|
|
Japan
|
|
|
20022008
|
|
Malaysia
|
|
|
19982008
|
|
Singapore
|
|
|
19992008
|
|
United Kingdom
|
|
|
20062008
|
|
|
|
|
|
|
(1)
|
|
Includes federal as well as state, provincial or similar local
jurisdictions, as applicable.
|
Although the final resolution of the Companys global tax
disputes is uncertain, based on current information, in the
opinion of the Companys management, the ultimate
disposition of these matters will not have a material adverse
effect on the Companys consolidated financial position,
liquidity or results of operations. However, an unfavorable
resolution of the Companys global tax disputes could have
a material adverse effect on the Companys consolidated
financial position, liquidity or results of operations in the
periods in which the matters are ultimately resolved.
Based on the potential outcome of the Companys global tax
examinations, the expiration of the statute of limitations for
specific jurisdictions, or the continued ability to satisfy tax
incentive obligations, it is reasonably possible that the
unrecognized tax benefits will decrease within the next
12 months. The associated net tax benefits, which would
favorably impact the effective tax rate, are estimated to be in
the range of $0 to $150 million, with cash payments not
expected to exceed $50 million.
At December 31, 2008, the Company had $47 million and
$11 million accrued for interest and penalties,
respectively, on unrecognized tax benefits. At December 31,
2007, the Company had $86 million and $10 million
accrued for interest and penalties, respectively, on
unrecognized tax benefits.
Pension
Benefit Plans
The Companys noncontributory pension plan (the
Regular Pension Plan) covers U.S. employees who
became eligible after one year of service. The benefit formula
is dependent upon employee earnings and years of service.
Effective January 1, 2005, newly-hired employees were not
eligible to participate in the Regular Pension Plan. The Company
also provides defined benefit plans which cover
non-U.S. employees
in certain jurisdictions principally the United Kingdom,
Germany, Ireland, Japan and Korea (the
Non-U.S. Plans).
Other pension plans are not material to the Company either
individually or in the aggregate.
The Company has a noncontributory supplemental retirement
benefit plan (the Officers Plan) for its
officers elected prior to December 31, 1999. The
Officers Plan contains provisions for vesting and funding
the participants expected retirement benefits when the
participants meet the minimum age and years of service
requirements. Elected officers who were not yet vested in the
Officers Plan as of December 31, 1999 had the option
to remain in the Officers Plan or elect to have their
benefit bought out in restricted stock units. Effective
December 31, 1999, newly elected officers are not eligible
to participate in the Officers Plan. Effective
June 30, 2005, salaries were frozen for this plan.
The Company has an additional noncontributory supplemental
retirement benefit plan, the Motorola Supplemental Pension Plan
(MSPP), which provides supplemental benefits to
individuals by replacing the Regular Pension Plan benefits that
are lost by such individuals under the retirement formula due to
application of the limitations imposed by the Internal Revenue
Code. However, elected officers who are covered under the
Officers Plan or who participated in the restricted stock
buy-out are not eligible to participate in MSPP. Effective
107
January 1, 2007, eligible compensation was capped at the
IRS limit plus $175,000 or, for those already in excess of the
Cap as of January 1, 2007, the eligible compensation used
to compute such employees MSPP benefit for all future
years will be the greater of: (i) such employees
eligible compensation as of January 1, 2007 (frozen at that
amount), or (ii) the relevant Cap for the given year.
Additionally, effective January 1, 2009, the MSPP was
frozen as to any new participants after January 1, 2009
unless such participation was due to a prior contractual
entitlement.
In February 2007, the Company amended the Regular Pension Plan
and the MSPP, modifying the definition of average earnings. For
the years ended prior to December 31, 2007, benefits were
calculated using the rolling average of the highest annual
earnings in any five years within the previous ten calendar year
period. Beginning in January 2008, the benefit calculation was
based on the set of the five highest years of earnings within
the ten calendar years prior to December 31, 2007, averaged
with earnings from each year after 2007. Also, effective January
2008, the Company amended the Regular Pension Plan, modifying
the vesting period from five years to three years.
In December 2008, the Company amended the Regular Pension Plan,
the Officers Plan and the MSPP. Effective March 1,
2009, (i) no participant shall accrue any benefit or
additional benefit on and after March 1, 2009, and
(ii) no compensation increases earned by a participant on
and after March 1, 2009 shall be used to compute any
accrued benefit. Additionally, no service performed on and after
March 1, 2009, shall be considered service for any purpose
under the MSPP. The Company recognized a $237 million
curtailment gain associated with this plan amendment.
The net periodic pension cost (benefit) for the Regular Pension
Plan, Officers Plan and MSPP and
Non-U.S. plans
was as follows:
Regular
Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost
|
|
$
|
98
|
|
|
$
|
133
|
|
|
$
|
150
|
|
Interest cost
|
|
|
323
|
|
|
|
311
|
|
|
|
309
|
|
Expected return on plan assets
|
|
|
(391
|
)
|
|
|
(350
|
)
|
|
|
(329
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
52
|
|
|
|
107
|
|
|
|
115
|
|
Unrecognized prior service cost
|
|
|
(31
|
)
|
|
|
(27
|
)
|
|
|
(5
|
)
|
Curtailment gain
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost (benefit)
|
|
$
|
(181
|
)
|
|
$
|
174
|
|
|
$
|
240
|
|
|
|
Officers
Plan and MSPP
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
5
|
|
Interest cost
|
|
|
7
|
|
|
|
7
|
|
|
|
8
|
|
Expected return on plan assets
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
1
|
|
|
|
4
|
|
|
|
5
|
|
Unrecognized prior service cost
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Curtailment gain
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Settlement loss
|
|
|
5
|
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
8
|
|
|
$
|
17
|
|
|
$
|
18
|
|
|
|
108
Non-U.S.
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost
|
|
$
|
34
|
|
|
$
|
45
|
|
|
$
|
40
|
|
Interest cost
|
|
|
87
|
|
|
|
90
|
|
|
|
67
|
|
Expected return on plan assets
|
|
|
(84
|
)
|
|
|
(76
|
)
|
|
|
(54
|
)
|
Amortization of unrecognized net loss
|
|
|
2
|
|
|
|
14
|
|
|
|
17
|
|
Settlement gain
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
32
|
|
|
$
|
73
|
|
|
$
|
70
|
|
|
|
The status of the Companys plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Officers
|
|
|
|
|
|
|
|
|
Officers
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Non
|
|
|
|
|
|
and
|
|
|
Non
|
|
|
|
Regular
|
|
|
MSPP
|
|
|
U.S.
|
|
|
Regular
|
|
|
MSPP
|
|
|
U.S.
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
4,879
|
|
|
$
|
118
|
|
|
$
|
1,689
|
|
|
$
|
5,481
|
|
|
$
|
137
|
|
|
$
|
1,798
|
|
Service cost
|
|
|
98
|
|
|
|
3
|
|
|
|
34
|
|
|
|
133
|
|
|
|
4
|
|
|
|
45
|
|
Interest cost
|
|
|
323
|
|
|
|
7
|
|
|
|
87
|
|
|
|
311
|
|
|
|
7
|
|
|
|
90
|
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
(268
|
)
|
|
|
(3
|
)
|
|
|
1
|
|
Settlement/curtailment
|
|
|
(168
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Actuarial (gain) loss
|
|
|
207
|
|
|
|
7
|
|
|
|
(149
|
)
|
|
|
(561
|
)
|
|
|
(7
|
)
|
|
|
(287
|
)
|
Foreign exchange valuation adjustment
|
|
|
|
|
|
|
|
|
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Employee contributions
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Tax payments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Benefit payments
|
|
|
(229
|
)
|
|
|
(16
|
)
|
|
|
(94
|
)
|
|
|
(217
|
)
|
|
|
(19
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31
|
|
|
5,110
|
|
|
|
116
|
|
|
|
1,221
|
|
|
|
4,879
|
|
|
|
118
|
|
|
|
1,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at January 1
|
|
|
4,674
|
|
|
|
66
|
|
|
|
1,403
|
|
|
|
4,285
|
|
|
|
78
|
|
|
|
1,178
|
|
Return on plan assets
|
|
|
(1,390
|
)
|
|
|
4
|
|
|
|
(107
|
)
|
|
|
336
|
|
|
|
4
|
|
|
|
98
|
|
Company contributions
|
|
|
240
|
|
|
|
3
|
|
|
|
54
|
|
|
|
270
|
|
|
|
4
|
|
|
|
135
|
|
Employee contributions
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Foreign exchange valuation adjustment
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Tax payments from plan assets
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Benefit payments from plan assets
|
|
|
(229
|
)
|
|
|
(16
|
)
|
|
|
(94
|
)
|
|
|
(217
|
)
|
|
|
(19
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at December 31
|
|
|
3,295
|
|
|
|
56
|
|
|
|
957
|
|
|
|
4,674
|
|
|
|
66
|
|
|
|
1,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan
|
|
|
(1,815
|
)
|
|
|
(60
|
)
|
|
|
(264
|
)
|
|
|
(205
|
)
|
|
|
(52
|
)
|
|
|
(286
|
)
|
Unrecognized net loss
|
|
|
2,722
|
|
|
|
48
|
|
|
|
180
|
|
|
|
954
|
|
|
|
43
|
|
|
|
168
|
|
Unrecognized prior service cost
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
(263
|
)
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) pension cost
|
|
$
|
907
|
|
|
$
|
(12
|
)
|
|
$
|
(80
|
)
|
|
$
|
486
|
|
|
$
|
(14
|
)
|
|
$
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of prepaid (accrued) pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19
|
|
Non-current benefit liability
|
|
|
(1,815
|
)
|
|
|
(60
|
)
|
|
|
(264
|
)
|
|
|
(205
|
)
|
|
|
(52
|
)
|
|
|
(305
|
)
|
Deferred income taxes
|
|
|
1,008
|
|
|
|
19
|
|
|
|
14
|
|
|
|
255
|
|
|
|
14
|
|
|
|
4
|
|
Non-owner changes to equity
|
|
|
1,714
|
|
|
|
29
|
|
|
|
170
|
|
|
|
436
|
|
|
|
24
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) pension cost
|
|
$
|
907
|
|
|
$
|
(12
|
)
|
|
$
|
(80
|
)
|
|
$
|
486
|
|
|
$
|
(14
|
)
|
|
$
|
(114
|
)
|
|
|
It is estimated that the net periodic cost for 2009 will include
amortization of the unrecognized net loss and prior service
costs for the Regular Plan, Officers and MSPP Plans, and
Non-U.S. Plans,
currently included in Non-owner changes to equity, of
$83 million, $3 million, and $7 million,
respectively.
The Company uses a five-year, market-related asset value method
of amortizing asset-related gains and losses. Prior service
costs are being amortized over periods ranging from 11 to
12 years. Benefits under all pension plans are valued based
upon the projected unit credit cost method.
109
Certain actuarial assumptions such as the discount rate and the
long-term rate of return on plan assets have a significant
effect on the amounts reported for net periodic cost and benefit
obligation. The assumed discount rates reflect the prevailing
market rates of a universe of high-quality, non-callable,
corporate bonds currently available that, if the obligation were
settled at the measurement date, would provide the necessary
future cash flows to pay the benefit obligation when due. The
long-term rates of return on plan assets represents an estimate
of long-term returns on an investment portfolio consisting of a
mixture of equities, fixed income, cash and other investments
similar to the actual investment mix. In determining the
long-term return on plan assets, the Company considers long-term
rates of return on the asset classes (both historical and
forecasted) in which the Company expects the plan funds to be
invested.
Weighted average actuarial assumptions used to determine costs
for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
December 31
|
|
U.S.
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
Non U.S.
|
|
|
|
|
Discount rate
|
|
|
6.75
|
%
|
|
|
5.73
|
%
|
|
|
6.00
|
%
|
|
|
4.81
|
%
|
Investment return assumption (Regular Plan)
|
|
|
8.50
|
%
|
|
|
6.55
|
%
|
|
|
8.50
|
%
|
|
|
6.74
|
%
|
Investment return assumption (Officers Plan)
|
|
|
6.00
|
%
|
|
|
N/A
|
|
|
|
6.00
|
%
|
|
|
N/A
|
|
|
|
Weighted average actuarial assumptions used to determine benefit
obligations for the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
December 31
|
|
U.S.
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
Non U.S.
|
|
|
|
|
Discount rate
|
|
|
6.75
|
%
|
|
|
6.16
|
%
|
|
|
6.75
|
%
|
|
|
5.68
|
%
|
Future compensation increase rate (Regular Plan)
|
|
|
0.00
|
%
|
|
|
4.24
|
%
|
|
|
4.00
|
%
|
|
|
4.34
|
%
|
Future compensation increase rate (Officers Plan)
|
|
|
0.00
|
%
|
|
|
N/A
|
|
|
|
0.00
|
%
|
|
|
N/A
|
|
|
|
The accumulated benefit obligations for the plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Officers
|
|
|
|
|
|
|
|
|
Officers
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Non
|
|
|
|
|
|
and
|
|
|
Non
|
|
December 31
|
|
Regular
|
|
|
MSPP
|
|
|
U.S.
|
|
|
Regular
|
|
|
MSPP
|
|
|
U.S.
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
5,110
|
|
|
$
|
116
|
|
|
$
|
1,163
|
|
|
$
|
4,694
|
|
|
$
|
118
|
|
|
$
|
1,608
|
|
|
|
The Company has adopted a pension investment policy designed to
meet or exceed the expected rate of return on plan assets
assumption. To achieve this, the pension plans retain
professional investment managers that invest plan assets in
equity and fixed income securities and cash. In addition, some
plans invest in insurance contracts. The Companys
measurement date of its plan assets and obligations is
December 31. The Company has the following target mixes for
these asset classes, which are readjusted at least quarterly,
when an asset class weighting deviates from the target mix, with
the goal of achieving the required return at a reasonable risk
level as follows:
|
|
|
|
|
|
|
|
|
|
|
Target Mix
|
|
Asset Category
|
|
2008
|
|
|
2007
|
|
|
|
|
Equity securities
|
|
|
71
|
%
|
|
|
71
|
%
|
Fixed income securities
|
|
|
27
|
%
|
|
|
27
|
%
|
Cash and other investments
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
The weighted-average pension plan asset allocation at
December 31, 2008 and 2007 by asset categories was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Actual Mix
|
|
Asset Category
|
|
2008
|
|
|
2007
|
|
|
|
|
Equity securities
|
|
|
63
|
%
|
|
|
70
|
%
|
Fixed income securities
|
|
|
34
|
%
|
|
|
27
|
%
|
Cash and other investments
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
110
Within the equity securities asset class, the investment policy
provides for investments in a broad range of publicly-traded
securities including both domestic and international stocks.
Within the fixed income securities asset class, the investment
policy provides for investments in a broad range of
publicly-traded debt securities ranging from U.S. Treasury
issues, corporate debt securities, mortgage and asset-backed
securities, as well as international debt securities. In the
cash and other investments asset class, investments may be in
cash, cash equivalents or insurance contracts.
The Company expects to make cash contributions of approximately
$180 million to its U.S. pension plans and
approximately $50 million to its
non-U.S. pension
plans in 2009.
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Non
|
|
Year
|
|
Regular
|
|
|
MSPP
|
|
|
U.S.
|
|
|
|
|
2009
|
|
$
|
225
|
|
|
$
|
17
|
|
|
$
|
32
|
|
2010
|
|
|
232
|
|
|
|
14
|
|
|
|
34
|
|
2011
|
|
|
241
|
|
|
|
21
|
|
|
|
35
|
|
2012
|
|
|
252
|
|
|
|
22
|
|
|
|
37
|
|
2013
|
|
|
265
|
|
|
|
5
|
|
|
|
38
|
|
2014-2018
|
|
|
1,552
|
|
|
|
28
|
|
|
|
218
|
|
|
|
Postretirement
Health Care and Other Benefit Plans
Certain health care benefits are available to eligible domestic
employees meeting certain age and service requirements upon
termination of employment (the Postretirement Health Care
Benefits Plan). For eligible employees hired prior to
January 1, 2002, the Company offsets a portion of the
postretirement medical costs to the retired participant. As of
January 1, 2005, the Postretirement Health Care Benefit
Plan has been closed to new participants. The benefit obligation
and plan assets for the Postretirement Health Care Benefit Plan
have been measured as of December 31, 2008.
The assumptions used were as follows:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Discount rate for obligations
|
|
|
6.75
|
%
|
|
|
6.50
|
%
|
Investment return assumptions
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
Net Postretirement Health Care Benefit Plan expenses were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
8
|
|
Interest cost
|
|
|
26
|
|
|
|
23
|
|
|
|
25
|
|
Expected return on plan assets
|
|
|
(20
|
)
|
|
|
(19
|
)
|
|
|
(18
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
5
|
|
|
|
6
|
|
|
|
9
|
|
Unrecognized prior service cost
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net postretirement health care expense
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
22
|
|
|
|
111
The funded status of the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
395
|
|
|
$
|
460
|
|
Service cost
|
|
|
6
|
|
|
|
7
|
|
Interest cost
|
|
|
26
|
|
|
|
23
|
|
Actuarial (gain) loss
|
|
|
35
|
|
|
|
(62
|
)
|
Benefit payments
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31
|
|
|
429
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value at January 1
|
|
|
251
|
|
|
|
243
|
|
Return on plan assets
|
|
|
(73
|
)
|
|
|
20
|
|
Company contributions
|
|
|
16
|
|
|
|
15
|
|
Benefit payments made with plan assets
|
|
|
(26
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
Fair value at December 31
|
|
|
168
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan
|
|
|
(261
|
)
|
|
|
(144
|
)
|
Unrecognized net loss
|
|
|
223
|
|
|
|
98
|
|
Unrecognized prior service cost
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Accrued postretirement health care cost
|
|
$
|
(43
|
)
|
|
$
|
(54
|
)
|
|
|
Components of accrued postretirement health care cost:
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
|
|
Non-current liability
|
|
$
|
(261
|
)
|
|
$
|
(144
|
)
|
Deferred income taxes
|
|
|
101
|
|
|
|
55
|
|
Non-owner changes to equity
|
|
|
117
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Accrued postretirement health care cost
|
|
$
|
(43
|
)
|
|
$
|
(54
|
)
|
|
|
It is estimated that the net periodic cost for the
Postretirement Health Care Benefit Plan in 2009 will include
amortization of the unrecognized net loss and prior service
costs, currently included in Non-owner changes in equity, of
$5 million.
The Company has adopted an investment policy for plan assets
designed to meet or exceed the expected rate of return on plan
assets assumption. To achieve this, the plan retains
professional investment managers that invest plan assets in
equity and fixed income securities and cash. The Company uses
long-term historical actual return experience with consideration
of the expected investment mix of the plans assets, as
well as future estimates of long-term investment returns, to
develop its expected rate of return assumption used in
calculating the net periodic pension cost and the net retirement
healthcare expense. The Company has the following target mixes
for these asset classes, which are readjusted at least
quarterly, when an asset class weighting deviates from the
target mix, with the goal of achieving the required return at a
reasonable risk level as follows:
|
|
|
|
|
|
|
|
|
|
|
Target Mix
|
|
Asset Category
|
|
2008
|
|
|
2007
|
|
|
|
|
Equity securities
|
|
|
75
|
%
|
|
|
75
|
%
|
Fixed income securities
|
|
|
24
|
%
|
|
|
24
|
%
|
Cash and other investments
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
The weighted-average asset allocation for plan assets at
December 31, 2008 and 2007 by asset categories were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Actual Mix
|
|
Asset Category
|
|
2008
|
|
|
2007
|
|
|
|
|
Equity securities
|
|
|
64
|
%
|
|
|
74
|
%
|
Fixed income securities
|
|
|
32
|
%
|
|
|
25
|
%
|
Cash and other investments
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
112
Within the equity securities asset class, the investment policy
provides for investments in a broad range of publicly-traded
securities including both domestic and international stocks.
Within the fixed income securities asset class, the investment
policy provides for investments in a broad range of
publicly-traded debt securities ranging from U.S. Treasury
issues, corporate debt securities, mortgages and asset-backed
issues, as well as international debt securities. In the cash
asset class, investments may be in cash and cash equivalents.
The Company expects to make no cash contributions to the retiree
health care plan in 2009. The following benefit payments, which
reflect expected future service, as appropriate, are expected to
be paid:
|
|
|
|
|
Year
|
|
|
|
|
|
|
2009
|
|
$
|
42
|
|
2010
|
|
|
40
|
|
2011
|
|
|
39
|
|
2012
|
|
|
36
|
|
2013
|
|
|
34
|
|
2014-2018
|
|
|
161
|
|
|
|
The health care trend rate used to determine the
December 31, 2008 accumulated postretirement benefit
obligation is 8.5% for 2009. Beyond 2009, the rate is assumed to
decrease by about 0.7% per year until it reaches 5% by 2014 and
then remains flat. The health care trend rate used to determine
the December 31, 2007 accumulated postretirement benefit
obligation was 9%.
Changing the health care trend rate by one percentage point
would change the accumulated postretirement benefit obligation
and the net retiree health care expense as follows:
|
|
|
|
|
|
|
|
|
|
|
1% Point
|
|
|
1% Point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
|
Effect on:
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation
|
|
$
|
15
|
|
|
$
|
(13
|
)
|
Net retiree health care expense
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
The Company maintains a lifetime cap on postretirement health
care costs, which reduces the liability duration of the plan. A
result of this lower duration is a decreased sensitivity to a
change in the discount rate trend assumption with respect to the
liability and related expense.
The Company has no significant postretirement health care
benefit plans outside the United States.
The Company maintains a number of endorsement split-dollar life
insurance policies that were taken out on now-retired officers
under a plan that was frozen prior to December 31, 2004.
The Company had purchased the life insurance policies to insure
the lives of employees and then entered into a separate
agreement with the employees that split the policy benefits
between the Company and the employee. Motorola owns the
policies, controls all rights of ownership, and may terminate
the insurance policies. To effect the split-dollar arrangement,
Motorola endorsed a portion of the death benefits to the
employee and upon the death of the employee, the employees
beneficiary typically receives the designated portion of the
death benefits directly from the insurance company and the
Company receives the remainder of the death benefits.
The Company adopted the provisions of
EITF 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements
(EITF 06-4)
as of January 1, 2008.
EITF 06-4
requires that a liability for the benefit obligation be recorded
because the promise of postretirement benefit had not been
settled through the purchase of an endorsement split-dollar life
insurance arrangement. As a result of the adoption of
EITF 06-4,
the Company recorded a liability representing the actuarial
present value of the future death benefits as of the
employees expected retirement date of $45 million
with the offset reflected as a cumulative-effect adjustment to
January 1, 2008 Retained earnings and Non-owner changes to
equity in the amounts of $4 million and $41 million,
respectively, in the Companys consolidated statement of
stockholders equity. It is currently expected that no
further cash payments are required to fund these policies.
The 2008 Split-Dollar Life Insurance policy actual expense was
$6 million. As of December 31, 2008, the Company has
recorded a liability representing the actuarial present value of
the future death benefits as of the employees expected
retirement date of $47 million with the offset reflected in
Retained earnings and Non-owner
113
changes to equity in the amounts of $4 million and
$37 million, respectively, in the Companys
consolidated statement of stockholders equity as of
December 31, 2008.
Defined
Contribution Plan
The Company and certain subsidiaries have various defined
contribution plans, in which all eligible employees participate.
In the U.S., the 401(k) plan is a contributory plan. Matching
contributions are based upon the amount of the employees
contributions. Effective January 1, 2005, newly hired
employees have a higher maximum matching contribution at 4% on
the first 5% of employee contributions, compared to 3% on the
first 6% of employee contributions for employees hired prior to
January 2005. Effective January 1, 2009, the Company
temporarily suspended all matching contributions to the Motorola
401(k) plan. The Companys expenses, primarily relating to
the employer match, for all defined contribution plans, for the
years ended December 31, 2008, 2007 and 2006 were
$95 million, $116 million and $105 million,
respectively.
|
|
8.
|
Share-Based
Compensation Plans and Other Incentive Plans
|
Stock
Options, Stock Appreciation Rights and Employee Stock Purchase
Plan
The Company grants options to acquire shares of common stock to
certain employees, and existing option holders in connection
with the merging of option plans following an acquisition. Each
option granted has an exercise price of no less than 100% of the
fair market value of the common stock on the date of the grant.
Option awards have a contractual life of five to ten years and
vest over two to four years. For stock options and stock
appreciation rights issued under plans prior to the 2006 Omnibus
Plan, upon the occurrence of a change in control, each stock
option and stock appreciation right outstanding on the date on
which the change in control occurs will immediately become
exercisable in full. Under the 2006 Omnibus Plan, the stock
option or stock appreciation right only becomes exercisable if
the holder is also involuntarily terminated within
24 months of the change in control.
The Company grants stock appreciation rights to acquire shares
of common stock to certain employees. Each stock appreciation
right granted has an exercise price of 100% of the fair market
value of the common stock on the date of the grant. Upon the
occurrence of a change in control, each stock appreciation right
outstanding on the date on which the change in control occurs
will immediately become exercisable in full.
The employee stock purchase plan allows eligible participants to
purchase shares of the Companys common stock through
payroll deductions of up to 10% of eligible compensation on an
after-tax basis. Plan participants cannot purchase more than
$25,000 of stock in any calendar year. The price an employee
pays per share is 85% of the lower of the fair market value of
the Companys stock on the close of the first trading day
or last trading day of the purchase period. The plan has two
purchase periods, the first one from October 1 through March 31
and the second one from April 1 through September 30. For
the years ended December 31, 2008, 2007 and 2006, employees
purchased 18.9 million, 10.2 million and
8.3 million shares, respectively, at purchase prices of
$7.91 and $6.07, $14.93 and $15.02, and $19.07 and $19.82,
respectively.
The Company calculates the value of each employee stock option,
estimated on the date of grant, using the Black-Scholes option
pricing model. The weighted-average estimated fair value of
employee stock options granted during 2008, 2007 and 2006 was
$3.47, $5.95 and $9.23, respectively, using the following
weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Expected volatility
|
|
|
56.4
|
%
|
|
|
28.3
|
%
|
|
|
36.2
|
%
|
Risk-free interest rate
|
|
|
2
.4
|
%
|
|
|
4.5
|
%
|
|
|
5.0
|
%
|
Dividend yield
|
|
|
2.7
|
%
|
|
|
1.1
|
%
|
|
|
0.8
|
%
|
Expected life (years)
|
|
|
5
.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
In 2006, the Company began using the implied volatility for
traded options on the Companys stock as the expected
volatility assumption required in the Black-Scholes model. The
selection of the implied volatility approach was based upon the
availability of actively traded options on the Companys
stock and the Companys assessment that implied volatility
is more representative of future stock price trends than
historical volatility.
The risk-free interest rate assumption is based upon the average
daily closing rates during the year for U.S. treasury notes
that have a life which approximates the expected life of the
option. The dividend yield
114
assumption is based on the Companys historical expectation
of dividend payouts. The expected life of employee stock options
represents the weighted-average period the stock options are
expected to remain outstanding based on the simplified method
permitted under Staff Accounting Bulletin No. 110,
Shared-Based Payment.
The Company has applied a forfeiture rate, estimated based on
historical data, of 25%-35% to the option fair value calculated
by the Black-Scholes option pricing model. This estimated
forfeiture rate may be revised in subsequent periods if actual
forfeitures differ from this estimate.
Stock option activity was as follows (in thousands, except
exercise price and employee data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Shares
|
|
|
Wtd. Avg.
|
|
|
Shares
|
|
|
Wtd. Avg.
|
|
|
Shares
|
|
|
Wtd. Avg.
|
|
|
|
Subject to
|
|
|
Exercise
|
|
|
Subject to
|
|
|
Exercise
|
|
|
Subject to
|
|
|
Exercise
|
|
Years Ended December
31
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
|
|
Options outstanding at January 1
|
|
|
224,255
|
|
|
$
|
19
|
|
|
|
233,445
|
|
|
$
|
18
|
|
|
|
267,755
|
|
|
$
|
17
|
|
Options granted
|
|
|
39,764
|
|
|
|
8
|
|
|
|
40,257
|
|
|
|
18
|
|
|
|
37,202
|
|
|
|
21
|
|
Options exercised
|
|
|
(1,920
|
)
|
|
|
7
|
|
|
|
(26,211
|
)
|
|
|
11
|
|
|
|
(59,878
|
)
|
|
|
13
|
|
Options terminated, canceled or expired
|
|
|
(
33,954
|
)
|
|
|
18
|
|
|
|
(23,236
|
)
|
|
|
19
|
|
|
|
(11,634
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31
|
|
|
228,145
|
|
|
|
17
|
|
|
|
224,255
|
|
|
|
19
|
|
|
|
233,445
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31
|
|
|
148,072
|
|
|
|
19
|
|
|
|
138,741
|
|
|
|
19
|
|
|
|
135,052
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approx. number of employees granted options
|
|
|
3,300
|
|
|
|
|
|
|
|
32,000
|
|
|
|
|
|
|
|
28,900
|
|
|
|
|
|
|
|
At December 31, 2008, the Company had $283 million of
total unrecognized compensation expense, net of estimated
forfeitures, related to stock option plans and the employee
stock purchase plan that will be recognized over the weighted
average period of approximately two years. Cash received from
stock option exercises and the employee stock purchase plan was
$145 million, $440 million and $918 million for
the years ended December 31, 2008, 2007 and 2006,
respectively. The total intrinsic value of options exercised
during the years ended December 31, 2008, 2007 and 2006 was
$2 million, $177 million and $568 million,
respectively. The aggregate intrinsic value for options
outstanding and exercisable as of December 31, 2008 was
$1 million and $1 million, respectively, based on a
December 31, 2008 stock price of $4.43 per share.
The significant decrease in the number of employees that were
granted options in 2008 is due to the broad based equity grant
being issued in restricted stock units.
At December 31, 2008 and 2007, 72.2 million shares and
88.0 million shares, respectively, were available for
future share-based award grants under the 2006 Motorola Omnibus
Plan, covering all equity awards to employees and non-employee
directors.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2008 (in
thousands, except exercise price and years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Wtd. avg.
|
|
|
Wtd. avg.
|
|
|
|
|
|
Wtd. avg.
|
|
|
|
No. of
|
|
|
Exercise
|
|
|
contractual
|
|
|
No. of
|
|
|
Exercise
|
|
Exercise price range
|
|
options
|
|
|
Price
|
|
|
life (in yrs.)
|
|
|
options
|
|
|
Price
|
|
|
|
|
Under $7
|
|
|
12,602
|
|
|
$
|
4
|
|
|
|
5
|
|
|
|
538
|
|
|
$
|
4
|
|
$7-$13
|
|
|
73,630
|
|
|
|
10
|
|
|
|
6
|
|
|
|
46,474
|
|
|
|
10
|
|
$14-$20
|
|
|
88,155
|
|
|
|
17
|
|
|
|
7
|
|
|
|
59,463
|
|
|
|
16
|
|
$21-$27
|
|
|
26,066
|
|
|
|
22
|
|
|
|
7
|
|
|
|
13,905
|
|
|
|
22
|
|
$28-$34
|
|
|
1,659
|
|
|
|
32
|
|
|
|
1
|
|
|
|
1,659
|
|
|
|
32
|
|
$35-$41
|
|
|
25,696
|
|
|
|
39
|
|
|
|
6
|
|
|
|
25,696
|
|
|
|
39
|
|
$42-$48
|
|
|
301
|
|
|
|
44
|
|
|
|
2
|
|
|
|
301
|
|
|
|
44
|
|
$49-$55
|
|
|
36
|
|
|
|
51
|
|
|
|
1
|
|
|
|
36
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,145
|
|
|
|
|
|
|
|
|
|
|
|
148,072
|
|
|
|
|
|
|
|
115
The weighted average contractual life for options outstanding
and exercisable as of December 31, 2008 was six and five
years, respectively.
Restricted
Stock and Restricted Stock Units
Restricted stock (RS) and restricted stock unit
(RSU) grants consist of shares or the rights to
shares of the Companys common stock which are awarded to
employees and non-employee directors. The grants are restricted
such that they are subject to substantial risk of forfeiture and
to restrictions on their sale or other transfer by the employee.
For shares of RS and RSUs issued under plans prior to the 2006
Omnibus Plan, upon the occurrence of a change in control, the
restrictions on all shares of RS and RSUs outstanding on the
date on which the change in control occurs will lapse. Under the
2006 Omnibus Plan, the shares of RS or RSUs only become
exercisable if the holder is also involuntarily terminated
within 24 months of the change in control.
Restricted stock and restricted stock unit activity was as
follows (in thousands, except fair value and employee data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
Wtd Avg.
|
|
|
|
|
|
Wtd Avg.
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
Years Ended December
31
|
|
RS and RSU
|
|
|
Fair Value
|
|
|
RS and RSU
|
|
|
Fair Value
|
|
|
RS and RSU
|
|
|
Fair Value
|
|
|
|
|
RS and RSU outstanding at January 1
|
|
|
10,755
|
|
|
$
|
17
|
|
|
|
6,016
|
|
|
$
|
19
|
|
|
|
4,383
|
|
|
$
|
16
|
|
Granted
|
|
|
27,102
|
|
|
|
9
|
|
|
|
7,766
|
|
|
|
18
|
|
|
|
2,761
|
|
|
|
22
|
|
Vested
|
|
|
(
2,308
|
)
|
|
|
17
|
|
|
|
(1,068
|
)
|
|
|
19
|
|
|
|
(938
|
)
|
|
|
15
|
|
Terminated, canceled or expired
|
|
|
(3,319
|
)
|
|
|
13
|
|
|
|
(1,959
|
)
|
|
|
19
|
|
|
|
(190
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSU outstanding at December 31
|
|
|
32,230
|
|
|
|
11
|
|
|
|
10,755
|
|
|
|
17
|
|
|
|
6,016
|
|
|
|
19
|
|
Approx. number of employees granted RSUs
|
|
|
28,981
|
|
|
|
|
|
|
|
1,801
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
At December 31, 2008, the Company had unrecognized
compensation expense related to restricted stock units of
$213 million, net of estimated forfeitures, expected to be
recognized over the weighted average period of approximately
three years. An aggregate of approximately 27.1 million,
7.8 million and 2.8 million shares of restricted stock
units were granted in 2008, 2007 and 2006, respectively. The
total fair value of restricted stock and restricted stock unit
shares vested during the years ended December 31, 2008,
2007 and 2006 was $19 million, $13 million and
$22 million, respectively. The aggregate intrinsic value of
outstanding restricted stock units as of December 31, 2008
was $143 million. The significant increase in the number of
employees that were granted RSUs in 2008 is due to the broad
based equity grant being issued in RSUs in lieu of stock options.
Total
Share-Based Compensation Expense
Compensation expense for the Companys employee stock
options, stock appreciation rights, employee stock purchase
plans, restricted stock and restricted stock units was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Share-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of sales
|
|
$
|
32
|
|
|
$
|
33
|
|
|
$
|
30
|
|
Selling, general and administrative expenses
|
|
|
155
|
|
|
|
188
|
|
|
|
162
|
|
Research and development expenditures
|
|
|
93
|
|
|
|
94
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense included in Operating earnings
(loss)
|
|
|
280
|
|
|
|
315
|
|
|
|
276
|
|
Tax benefit
|
|
|
86
|
|
|
|
99
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense, net of tax
|
|
$
|
194
|
|
|
$
|
216
|
|
|
$
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in Basic earnings per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
Decrease in Diluted earnings per share
|
|
$
|
(0.09
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.08
|
)
|
|
|
116
Motorola
Incentive Plan
The Motorola Incentive Plan provides eligible employees with an
annual payment, calculated as a percentage of an employees
eligible earnings, in the year after the close of the current
calendar year if specified business goals and individual
performance targets are met. The provisions for awards under
these incentive plans for the years ended December 31,
2008, 2007 and 2006 were $172 million, $190 million
and $268 million, respectively.
Long-Range
Incentive Plan
The Long-Range Incentive Plan (LRIP) rewards
participating elected officers for the Companys
achievement of specified business goals during the period, based
on two performance objectives measured over three-year cycles.
The provision for LRIP (net of the reversals of previously
recognized reserves) for the years ended December 31, 2008,
2007 and 2006 was $(13) million, $(8) million and
$16 million, respectively. On April 21, 2008, the
Compensation and Leadership Committee of the Board of Directors
of Motorola, Inc. approved the cancellation of the
2006-2008
performance cycle and the
2007-2009
performance cycle under the Companys Long Range Incentive
Plan of 2006 without the payment of awards for such performance
cycles, as reported on
Form 8-K,
filed April 25, 2008.
|
|
9.
|
Fair
Value Measurements
|
The Company adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value
Measurements (SFAS 157) on
January 1, 2008 for all financial assets and liabilities
and non-financial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a
recurring basis. SFAS 157 defines fair value, establishes a
consistent framework for measuring fair value and expands
disclosure requirements about fair value measurements.
SFAS 157 does not change the accounting for those
instruments that were, under previous GAAP, accounted for at
cost or contract value. In February 2008, the FASB issued staff
position
No. 157-2
(FSP 157-2),
which delays the effective date of SFAS 157 one year for
all non-financial assets and non-financial liabilities, except
those recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company has no
non-financial assets and liabilities that are required to be
measured at fair value on a recurring basis as of
December 31, 2008. Under
FSP 157-2,
the Company will apply the measurement criteria of SFAS 157
to the remaining assets and liabilities no later than the first
quarter of 2009.
The Company holds certain fixed income securities, equity
securities and derivatives, which must be measured using the
SFAS 157 prescribed fair value hierarchy and related
valuation methodologies. SFAS 157 specifies a hierarchy of
valuation techniques based on whether the inputs to each
measurement are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while
unobservable inputs reflect the Companys assumptions about
current market conditions. The prescribed fair value hierarchy
and related valuation methodologies are as follows:
Level 1
Quoted prices for identical instruments
in active markets.
Level 2
Quoted prices for similar instruments
in active markets, quoted prices for identical or similar
instruments in markets that are not active and model-derived
valuations, in which all significant inputs are observable in
active markets.
Level 3
Valuations derived from valuation
techniques, in which one or more significant inputs are
unobservable.
117
The levels of the Companys financial assets and
liabilities that are carried at fair value were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2008
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sigma Fund securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
|
|
|
$
|
752
|
|
|
$
|
|
|
|
$
|
752
|
|
Corporate bonds
|
|
|
|
|
|
|
1,880
|
|
|
|
102
|
|
|
|
1,982
|
|
Asset-backed securities
|
|
|
|
|
|
|
170
|
|
|
|
2
|
|
|
|
172
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
92
|
|
|
|
30
|
|
|
|
122
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Corporate bonds
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Asset-backed securities
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Common stock and equivalents
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Derivative assets
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
|
|
The following table summarizes the changes in fair value of our
Level 3 assets:
|
|
|
|
|
|
|
2008
|
|
|
|
|
Balance at January 1
|
|
$
|
35
|
|
Transfers to Level 3
|
|
|
138
|
|
Temporary unrealized losses in Sigma Fund investments included
in Other income (expense)
|
|
|
(16
|
)
|
Purchases, issuances, settlements and payments received
|
|
|
(11
|
)
|
Impairment losses recognized on Sigma Fund investments included
Other income (expense)
|
|
|
(12
|
)
|
|
|
|
|
|
Balance at December 31
|
|
$
|
134
|
|
|
|
Valuation
Methodologies
Quoted market prices in active markets are available for
investments in common stock and equivalents and, as such, these
investments are classified within Level 1.
The securities classified above as Level 2 are primarily
those that are professionally managed within the Sigma Fund. The
Company primarily relies on valuation pricing models and broker
quotes to determine the fair value of investments in the Sigma
Fund. The valuation models are developed and maintained by third
party pricing services and use a number of standard inputs to
the valuation model including benchmark yields, reported trades,
broker/dealer quotes where the party is standing ready and able
to transact, issuer spreads, benchmark securities, bids, offers
and other reference data. The valuation model may prioritize
these inputs differently at each balance sheet date for any
given security, based on the market conditions. Not all of the
standard inputs listed will be used each time in the valuation
models. For each asset class, quantifiable inputs related to
perceived market movements and sector news may be considered in
addition to the standard inputs.
In determining the fair value of the Companys interest
rate swap derivatives, the Company uses the present value of
expected cash flows based on market observable interest rate
yield curves commensurate with the term of each instrument and
the credit default swap market to reflect the credit risk of
either the Company or the counterparty. For foreign currency
derivatives, the Companys approach is to use forward
contract and option valuation models employing market observable
inputs, such as spot currency rates, time value and option
volatilities. Since the Company primarily uses observable inputs
in its valuation of its derivative assets and liabilities, they
are considered Level 2.
Level 3 fixed income securities are debt securities that do
not have actively traded quotes on the date the Company presents
its consolidated balance sheets and require the use of
unobservable inputs, such as indicative quotes from dealers and
qualitative input from investment advisors, to value these
securities.
At December 31, 2008, the Company has $499 million of
investments in money market mutual funds classified as Cash and
cash equivalents in its consolidated balance sheets. The money
market funds have quoted market prices that are generally
equivalent to par.
118
|
|
10.
|
Long-term
Customer Financing and Sales of Receivables
|
Long-term
Customer Financing
Long-term receivables consist of trade receivables with payment
terms greater than twelve months, long-term loans and lease
receivables under sales-type leases. Long-term receivables
consist of the following:
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
|
|
Long-term receivables
|
|
$
|
169
|
|
|
$
|
123
|
|
Less allowance for losses
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
118
|
|
Less current portion
|
|
|
(110
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Non-current long-term receivables, net
|
|
$
|
52
|
|
|
$
|
68
|
|
|
|
The current portion of long-term receivables is included in
Accounts receivable and the non-current portion of long-term
receivables is included in Other assets in the Companys
consolidated balance sheets. Interest income recognized on
long-term receivables for the years ended December 31,
2008, 2007 and 2006 was $3 million, $7 million and
$9 million, respectively.
Certain purchasers of the Companys infrastructure
equipment continue to request that suppliers provide long-term
financing, defined as financing with terms greater than one
year, in connection with equipment purchases. These requests may
include all or a portion of the purchase price of the equipment.
However, the Companys obligation to provide long-term
financing is often conditioned on the issuance of a letter of
credit in favor of the Company by a reputable bank to support
the purchasers credit or a pre-existing commitment from a
reputable bank to purchase the long-term receivables from the
Company. The Company had outstanding commitments to provide
long-term financing to third parties totaling $370 million
and $610 million at December 31, 2008 and 2007,
respectively. Of these amounts, $266 million and
$454 million were supported by letters of credit or by bank
commitments to purchase long-term receivables at
December 31, 2008 and 2007, respectively. In response to
the recent tightening in the credit markets, certain customers
of the Company have requested financing in connection with
equipment purchases, and these types of requests have increased
in volume and scope.
In addition to providing direct financing to certain equipment
customers, the Company also assists customers in obtaining
financing directly from banks and other sources to fund
equipment purchases. The Company had committed to provide
financial guarantees relating to customer financing totaling
$43 million and $42 million at December 31, 2008
and 2007, respectively (including $23 million at both
December 31, 2008 and 2007 relating to the sale of
short-term receivables). Customer financing guarantees
outstanding were $6 million and $3 million at
December 31, 2008 and 2007, respectively (including
$4 million and $0 million at December 31, 2008
and 2007, respectively, relating to the sale of short-term
receivables).
Sales
of Receivables
The Company sells accounts receivables and long-term receivables
to third parties in transactions that qualify as
true-sales. Certain of these accounts receivables
and long-term receivables are sold to third parties on a
one-time, non-recourse basis, while others are sold to third
parties under committed facilities that involve contractual
commitments from these parties to purchase qualifying
receivables up to an outstanding monetary limit. Committed
facilities may be revolving in nature and, typically, must be
renewed on an annual basis. The Company may or may not retain
the obligation to service the sold accounts receivable and
long-term receivables.
In the aggregate, at December 31, 2008, these committed
facilities provided for up to $967 million to be
outstanding with the third parties at any time, as compared to
up to $1.4 billion and $1.3 billion provided at
December 31, 2007 and 2006, respectively. As of
December 31, 2008, $759 million of the Companys
committed facilities were utilized, compared to
$497 million and $817 million utilized at
December 31, 2007 and 2006, respectively. Of the
$967 million of committed facilities at December 31, 2008,
$532 million were primarily revolving facilities associated with
the sale of accounts receivables (of which $497 million was
utilized at December 31, 2008) and $435 million were primarily
committed facilities associated with the sale of specific
long-term financing transactions to a single customer (of which
$262 million was utilized at December 31, 2008). In addition,
before receivables can be sold under certain of the revolving
committed facilities, they may need to meet contractual
requirements, such as credit quality or insurability.
119
For many years the Company has utilized a number of receivables
programs to sell a broadly-diversified group of accounts
receivables to third parties. Certain of the accounts
receivables are sold to a multi-seller commercial paper conduit.
This program provided for up to $400 million of accounts
receivables to be outstanding with the conduit at any time.
Subsequent to December 31, 2008, this $400 million
committed facility expired and the Company is negotiating a
replacement facility under different terms. The Company is also
negotiating an additional committed revolving receivable sales
facility for European receivables, with the intent that the
combined capacity of the two new facilities will be greater than
the facility that expired. However, it is not certain when or if
the Company will be successful in securing such facilities.
For the year ended December 31, 2008, 2007 and 2006, total
accounts receivables and long-term receivables sold by the
Company were $3.7 billion, $4.9 billion and
$6.4 billion, respectively (including $3.4 billion,
$4.7 billion and $6.2 billion, respectively, of
accounts receivables). As of December 31, 2008 and 2007,
there were $1.0 billion and $978 million,
respectively, of receivables outstanding under these programs
for which the Company retained servicing obligations (including
$621 million and $587 million, respectively, of
accounts receivable).
Under certain receivables programs, the value of the receivables
sold is covered by credit insurance obtained from independent
insurance companies, less deductibles or self-insurance
requirements under the policies (with the Company retaining
credit exposure for the remaining portion). The Companys
total credit exposure to outstanding short-term receivables that
have been sold was $23 million at both December 31,
2008 and 2007. Reserves of $4 million and $1 million
were recorded for potential losses at December 31, 2008 and
2007, respectively.
|
|
11.
|
Commitments
and Contingencies
|
Legal
Iridium Program:
The Company was named as one
of several defendants in putative class action securities
lawsuits arising out of alleged misrepresentations or omissions
regarding the Iridium satellite communications business which,
on March 15, 2001, were consolidated in the federal
district court in the District of Columbia under
Freeland v. Iridium World Communications, Inc., et al.,
originally filed on April 22, 1999. In April 2008, the
parties reached an agreement in principle, subject to court
approval, to settle all claims against Motorola in exchange for
Motorolas payment of $20 million. During the three
months ended March 29, 2008, the Company recorded a charge
associated with this settlement. On October 23, 2008, the
court granted final approval of the settlement and dismissed the
claims with prejudice.
The Company was sued by the Official Committee of the Unsecured
Creditors of Iridium (the Committee) in the United
States Bankruptcy Court for the Southern District of New York
(the Iridium Bankruptcy Court) on July 19,
2001.
In re Iridium Operating LLC, et al. v. Motorola
asserted claims for breach of contract, warranty and
fiduciary duty and fraudulent transfer and preferences, and
sought in excess of $4 billion in damages. On May 20,
2008, the Bankruptcy Court approved a settlement in which
Motorola is not required to pay anything, but released its
administrative, priority and unsecured claims against the
Iridium estate and withdrew its objection to the 2001 settlement
between the unsecured creditors of the Iridium Debtors and the
Iridium Debtors pre-petition secured lenders. This
settlement, and its approval by the Bankruptcy Court,
extinguished Motorolas financial exposure and concluded
Motorolas involvement in the Iridium bankruptcy
proceedings.
Telsim Class Action Securities:
In April
2007, the Company entered into a settlement agreement in regards
to
In re Motorola Securities Litigation
, a class action
lawsuit relating to the Companys disclosure of its
relationship with Telsim Mobil Telekomunikasyon Hizmetleri A.S.
Pursuant to the settlement, Motorola paid $190 million to
the class and all claims against Motorola by the class have been
dismissed and released.
During the three months ended March 31, 2007, the Company
recorded a charge of $190 million for the legal settlement,
partially offset by $75 million of estimated insurance
recoveries, of which $50 million had been tendered by
certain insurance carriers. During the three months ended
June 30, 2007, the Company commenced actions against the
non-tendering insurance carriers. In response to these actions,
each insurance carrier who has responded denied coverage citing
various policy provisions. As a result of this denial of
coverage and related actions, the Company recorded a reserve of
$25 million in the three months ended June 30, 2007
against the receivable from insurance carriers. During the three
months ended September 27, 2008, the Company received the
$50 million tendered by the insurance carriers. During the
three months ended December 31, 2008, the Company received
a net $43 million tendered by other insurance carriers.
120
Other:
The Company is a defendant in various
other suits, claims and investigations that arise in the normal
course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse
effect on the Companys consolidated financial position,
liquidity or results of operations.
Other
Leases:
The Company owns most of its major
facilities and leases certain office, factory and warehouse
space, land, and information technology and other equipment
under principally non-cancelable operating leases. Rental
expense, net of sublease income, for the years ended
December 31, 2008, 2007 and 2006 was $181 million,
$231 million and $241 million, respectively. At
December 31, 2008, future minimum lease obligations, net of
minimum sublease rentals, for the next five years and beyond are
as follows: 2009$234 million;
2010$175 million; 2011$129 million;
2012$78 million; 2013$48 million;
beyond$106 million.
Indemnifications:
The Company is also a party
to a variety of agreements pursuant to which it is obligated to
indemnify the other party with respect to certain matters. Some
of these obligations arise as a result of divestitures of the
Companys assets or businesses and require the Company to
hold the other party harmless against losses arising from the
settlement of these pending obligations. The total amount of
indemnification under these types of provisions is
$64 million, of which the Company accrued $47 million
as of December 31, 2008 for potential claims under these
provisions.
In addition, the Company may provide indemnifications for losses
that result from the breach of general warranties contained in
certain commercial and intellectual property. Historically, the
Company has not made significant payments under these
agreements. However, there is an increasing risk in relation to
patent indemnities given the current legal climate.
In indemnification cases, payment by the Company is conditioned
on the other party making a claim pursuant to the procedures
specified in the particular contract, which procedures typically
allow the Company to challenge the other partys claims.
Further, the Companys obligations under these agreements
for indemnification based on breach of representations and
warranties are generally limited in terms of duration, and for
amounts not in excess of the contract value, and, in some
instances, the Company may have recourse against third parties
for certain payments made by the Company.
Other:
During the three months ended
September 27, 2008, the Company recorded a
$150 million charge related to the settlement of a purchase
commitment. During the three months ended December 31,
2007, the Company recorded a $277 million charge for a
legal settlement.
|
|
12.
|
Information
by Segment and Geographic Region
|
The Company reports financial results for the following business
segments:
|
|
|
|
|
The Mobile Devices segment designs, manufactures, sells and
services wireless handsets with integrated software and
accessory products, and licenses intellectual property.
|
|
|
|
The Home and Networks Mobility segment designs, manufactures,
sells, installs and services: (i) digital video, Internet
Protocol (IP) video and broadcast network
interactive set-tops (digital entertainment
devices), end-to-end video delivery systems, broadband
access infrastructure platforms, and associated data and voice
customer premise equipment (broadband gateways) to
cable television and telecom service providers (collectively,
referred to as the home business), and
(ii) wireless access systems (wireless
networks), including cellular infrastructure systems and
wireless broadband systems, to wireless service providers
(collectively, referred to as the networks business).
|
|
|
|
The Enterprise Mobility Solutions segment designs, manufactures,
sells, installs and services analog and digital two-way radio,
voice and data communications products and systems for private
networks, wireless broadband systems and end-to-end enterprise
mobility solutions to a wide range of enterprise markets,
including government and public safety agencies (which, together
with all sales to distributors of two-way communication
products, are referred to as the government and public
safety market), as well as retail, utility,
transportation, manufacturing, health care and other commercial
customers (which, collectively, are referred to as the
commercial enterprise market).
|
121
Segment operating results are measured based on operating
earnings adjusted, if necessary, for certain segment-specific
items and corporate allocations. Intersegment and
intergeographic sales are accounted for on an arms-length
pricing basis. Intersegment sales included in other and
eliminations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Mobile Devices
|
|
$
|
53
|
|
|
$
|
56
|
|
|
$
|
65
|
|
Home and Networks Mobility
|
|
|
2
|
|
|
|
14
|
|
|
|
13
|
|
Enterprise Mobility Solutions
|
|
|
86
|
|
|
|
58
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
141
|
|
|
$
|
128
|
|
|
$
|
109
|
|
|
|
Identifiable assets (excluding intersegment receivables) are the
Companys assets that are identified with classes of
similar products or operations in each geographic region.
For the years ended December 31, 2008, 2007 and 2006, no
single customer accounted for more than 10% of net sales.
Segment
information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
Operating Earnings (Loss)
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Mobile Devices
|
|
$
|
12,099
|
|
|
$
|
18,988
|
|
|
$
|
28,383
|
|
|
$
|
(2,199
|
)
|
|
$
|
(1,201
|
)
|
|
$
|
2,690
|
|
Home and Networks Mobility
|
|
|
10,086
|
|
|
|
10,014
|
|
|
|
9,164
|
|
|
|
918
|
|
|
|
709
|
|
|
|
787
|
|
Enterprise Mobility Solutions
|
|
|
8,093
|
|
|
|
7,729
|
|
|
|
5,400
|
|
|
|
1,496
|
|
|
|
1,213
|
|
|
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,278
|
|
|
|
36,731
|
|
|
|
42,947
|
|
|
|
215
|
|
|
|
721
|
|
|
|
4,435
|
|
Other and Eliminations
|
|
|
(132
|
)
|
|
|
(109
|
)
|
|
|
(100
|
)
|
|
|
(2,606
|
)
|
|
|
(1,274
|
)
|
|
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,146
|
|
|
$
|
36,622
|
|
|
$
|
42,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,391
|
)
|
|
|
(553
|
)
|
|
|
4,092
|
|
Total other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246
|
)
|
|
|
163
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,637
|
)
|
|
$
|
(390
|
)
|
|
$
|
4,610
|
|
|
|
The Operating loss in Other and Eliminations consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Goodwill impairment
|
|
$
|
1,619
|
|
|
$
|
|
|
|
$
|
|
|
Amortization of intangible assets
|
|
|
318
|
|
|
|
369
|
|
|
|
100
|
|
Corporate
expenses
(1)
|
|
|
252
|
|
|
|
241
|
|
|
|
279
|
|
Share-based compensation
expense
(2)
|
|
|
224
|
|
|
|
284
|
|
|
|
254
|
|
Asset impairments
|
|
|
129
|
|
|
|
81
|
|
|
|
|
|
Separation-related transaction costs
|
|
|
59
|
|
|
|
|
|
|
|
|
|
Reorganization of business charges
|
|
|
38
|
|
|
|
63
|
|
|
|
7
|
|
Legal settlements, net
|
|
|
14
|
|
|
|
140
|
|
|
|
|
|
In-process research and development charges
|
|
|
1
|
|
|
|
96
|
|
|
|
33
|
|
Gain on sale of property, plant and equipment
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
Charitable contribution to Motorola Foundation
|
|
|
|
|
|
|
|
|
|
|
88
|
|
Settlements and collections related to Telsim
|
|
|
|
|
|
|
|
|
|
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,606
|
|
|
$
|
1,274
|
|
|
$
|
343
|
|
|
|
|
|
|
(1)
|
|
Primarily comprised of: (i) general corporate-related
expenses, (ii) various corporate programs, representing
developmental businesses and research and development projects,
which are not included in any reporting segment, and
(iii) the Companys wholly-owned finance subsidiary.
|
|
(2)
|
|
Primarily comprised of: (i) compensation expense related to
the Companys employee stock options, stock appreciation
rights and employee stock purchase plans, and
(ii) compensation expenses related to the restricted stock
and restricted stock units granted to the corporate employees.
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Capital Expenditures
|
|
|
Depreciation Expense
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Mobile Devices
|
|
$
|
3,559
|
|
|
$
|
6,325
|
|
|
$
|
9,316
|
|
|
$
|
84
|
|
|
$
|
132
|
|
|
$
|
164
|
|
|
$
|
115
|
|
|
$
|
146
|
|
|
$
|
133
|
|
Home and Networks Mobility
|
|
|
7,024
|
|
|
|
7,451
|
|
|
|
6,746
|
|
|
|
147
|
|
|
|
160
|
|
|
|
149
|
|
|
|
135
|
|
|
|
141
|
|
|
|
165
|
|
Enterprise Mobility Solutions
|
|
|
6,000
|
|
|
|
8,694
|
|
|
|
3,268
|
|
|
|
166
|
|
|
|
113
|
|
|
|
190
|
|
|
|
158
|
|
|
|
167
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,583
|
|
|
|
22,470
|
|
|
|
19,330
|
|
|
|
397
|
|
|
|
405
|
|
|
|
503
|
|
|
|
408
|
|
|
|
454
|
|
|
|
390
|
|
Other and Eliminations
|
|
|
11,286
|
|
|
|
12,342
|
|
|
|
19,263
|
|
|
|
107
|
|
|
|
122
|
|
|
|
146
|
|
|
|
103
|
|
|
|
83
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,869
|
|
|
$
|
34,812
|
|
|
$
|
38,593
|
|
|
$
|
504
|
|
|
$
|
527
|
|
|
$
|
649
|
|
|
$
|
511
|
|
|
$
|
537
|
|
|
$
|
463
|
|
|
|
Assets in Other include primarily cash and cash equivalents,
Sigma Fund, deferred income taxes, short-term investments,
property, plant and equipment, investments, and the
administrative headquarters of the Company.
Geographic
area information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
(1)
|
|
|
Assets
|
|
|
Property, Plant, and Equipment
|
|
Years Ended December
31
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
United States
|
|
$
|
14,708
|
|
|
$
|
18,548
|
|
|
$
|
18,776
|
|
|
$
|
17,938
|
|
|
$
|
22,385
|
|
|
$
|
24,212
|
|
|
$
|
1,240
|
|
|
$
|
1,252
|
|
|
$
|
1,089
|
|
China
|
|
|
2,011
|
|
|
|
2,632
|
|
|
|
4,664
|
|
|
|
3,307
|
|
|
|
3,926
|
|
|
|
4,649
|
|
|
|
294
|
|
|
|
311
|
|
|
|
278
|
|
Brazil
|
|
|
1,554
|
|
|
|
1,671
|
|
|
|
1,269
|
|
|
|
1,057
|
|
|
|
1,440
|
|
|
|
1,219
|
|
|
|
110
|
|
|
|
109
|
|
|
|
107
|
|
United Kingdom
|
|
|
936
|
|
|
|
1,070
|
|
|
|
1,306
|
|
|
|
1,314
|
|
|
|
1,305
|
|
|
|
1,773
|
|
|
|
85
|
|
|
|
121
|
|
|
|
134
|
|
Germany
|
|
|
322
|
|
|
|
516
|
|
|
|
874
|
|
|
|
467
|
|
|
|
644
|
|
|
|
1,195
|
|
|
|
57
|
|
|
|
75
|
|
|
|
131
|
|
Israel
|
|
|
696
|
|
|
|
741
|
|
|
|
659
|
|
|
|
1,268
|
|
|
|
1,374
|
|
|
|
1,195
|
|
|
|
141
|
|
|
|
165
|
|
|
|
156
|
|
Singapore
|
|
|
116
|
|
|
|
128
|
|
|
|
176
|
|
|
|
1,875
|
|
|
|
3,120
|
|
|
|
3,713
|
|
|
|
32
|
|
|
|
40
|
|
|
|
39
|
|
Other nations, net of eliminations
|
|
|
9,803
|
|
|
|
11,316
|
|
|
|
15,123
|
|
|
|
643
|
|
|
|
618
|
|
|
|
637
|
|
|
|
483
|
|
|
|
407
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,146
|
|
|
$
|
36,622
|
|
|
$
|
42,847
|
|
|
$
|
27,869
|
|
|
$
|
34,812
|
|
|
$
|
38,593
|
|
|
$
|
2,442
|
|
|
$
|
2,480
|
|
|
$
|
2,267
|
|
|
|
|
|
|
(1)
|
|
Net sales by geographic region are measured by the locale of end
customer.
|
|
|
13.
|
Reorganization
of Businesses
|
The Company maintains a formal Involuntary Severance Plan (the
Severance Plan), which permits the Company to offer
eligible employees severance benefits based on years of service
and employment grade level in the event that employment is
involuntarily terminated as a result of a
reduction-in-force
or restructuring. The Company recognizes termination benefits
based on formulas per the Severance Plan at the point in time
that future settlement is probable and can be reasonably
estimated based on estimates prepared at the time a
restructuring plan is approved by management. Exit costs consist
of future minimum lease payments on vacated facilities and other
contractual terminations. At each reporting date, the Company
evaluates its accruals for employee separation and exit costs to
ensure the accruals are still appropriate. In certain
circumstances, accruals are no longer needed because of
efficiencies in carrying out the plans or because employees
previously identified for separation resigned from the Company
and did not receive severance or were redeployed due to
circumstances not foreseen when the original plans were
initiated. In these cases, the Company reverses accruals through
the consolidated statements of operations where the original
charges were recorded when it is determined they are no longer
needed.
2008
Charges
During the year ended December 31, 2008, the Company
committed to implement various productivity improvement plans
aimed at achieving long-term, sustainable profitability by
driving efficiencies and reducing operating costs. All three of
the Companys business segments, as well as corporate
functions, are impacted by these plans, with the majority of the
impact in the Mobile Devices segment. The employees affected are
located in all regions. The Company recorded net reorganization
of business charges of $334 million, including
$86 million of charges in Costs of sales and
$248 million of charges under Other charges in the
Companys consolidated statements of operations. Included
in the aggregate $334 million are charges of
$324 million for employee separation costs,
$66 million for exit costs and $9 million for fixed
asset impairment charges, partially offset by $65 million
of reversals for accruals no longer needed.
123
The following table displays the net charges incurred by
business segment:
|
|
|
|
|
Year Ended December
31,
|
|
2008
|
|
|
|
|
Mobile Devices
|
|
$
|
216
|
|
Home and Networks Mobility
|
|
|
53
|
|
Enterprise Mobility Solutions
|
|
|
27
|
|
|
|
|
|
|
|
|
|
296
|
|
Corporate
|
|
|
38
|
|
|
|
|
|
|
|
|
$
|
334
|
|
|
|
The following table displays a rollforward of the reorganization
of businesses accruals established for exit costs and employee
separation costs from January 1, 2008 to December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at
|
|
|
2008
|
|
|
|
|
|
2008
|
|
|
Accruals at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
2008
(1)
|
|
|
Amount
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Used
|
|
|
2008
|
|
|
|
|
Exit costs
|
|
$
|
42
|
|
|
$
|
66
|
|
|
$
|
1
|
|
|
$
|
(29
|
)
|
|
$
|
80
|
|
Employee separation costs
|
|
|
193
|
|
|
|
324
|
|
|
|
(60
|
)
|
|
|
(287
|
)
|
|
|
170
|
|
|
|
|
|
$
|
235
|
|
|
$
|
390
|
|
|
$
|
(59
|
)
|
|
$
|
(316
|
)
|
|
$
|
250
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
Exit
Costs
At January 1, 2008, the Company had an accrual of
$42 million for exit costs attributable to lease
terminations. The 2008 additional charges of $66 million
are primarily related to: (i) the exit of leased facilities
in the United Kingdom by the Mobile Devices segment, and
(ii) the exit of leased facilities in Mexico by the Home
and Networks Mobility segment. The adjustments of
$1 million reflect $4 million of translation
adjustments, partially offset by $3 million of reversals of
accruals no longer needed. The $29 million used in 2008
reflects cash payments. The remaining accrual of
$80 million, which is included in Accrued liabilities in
the Companys consolidated balance sheets at
December 31, 2008, represents future cash payments,
primarily for lease termination obligations.
Employee
Separation Costs
At January 1, 2008, the Company had an accrual of
$193 million for employee separation costs, representing
the severance costs for approximately 2,800 employees. The
2008 additional charges of $324 million represent severance
costs for approximately an additional 5,800 employees, of
which 2,300 are direct employees and 3,500 are indirect
employees.
The adjustments of $60 million reflect $62 million of
reversals of accruals no longer needed, partially offset by
$2 million of translation adjustments. The $62 million
of reversals represent previously accrued costs for
approximately 600 employees.
During the year ended December 31, 2008, approximately
6,200 employees, of which 3,000 were direct employees and
3,200 were indirect employees, were separated from the Company.
The $287 million used in 2008 reflects cash payments to
these separated employees. The remaining accrual of
$170 million, which is included in Accrued liabilities in
the Companys consolidated balance sheets at
December 31, 2008, is expected to be paid to approximately
2,000 employees.
2007
Charges
During the year ended December 31, 2007, the Company
committed to implement various productivity improvement plans
aimed at achieving long-term, sustainable profitability by
driving efficiencies and reducing operating costs. All three of
the Companys business segments, as well as corporate
functions, are impacted by these plans. The majority of the
employees affected are located in North America and Europe. The
Company recorded net reorganization of business charges of
$394 million, including $104 million of charges in
Costs of sales and $290 million of charges under Other
charges (income) in the Companys consolidated statements
of
124
operations. Included in the aggregate $394 million are
charges of $401 million for employee separation costs,
$42 million for fixed asset impairment charges and
$19 million for exit costs, offset by reversals for
accruals no longer needed.
The following table displays the net reorganization of business
charges by segment:
|
|
|
|
|
Year Ended December
31,
|
|
2007
|
|
|
|
|
Mobile Devices
|
|
$
|
229
|
|
Home and Networks Mobility
|
|
|
71
|
|
Enterprise Mobility Solutions
|
|
|
30
|
|
|
|
|
|
|
|
|
|
330
|
|
General Corporate
|
|
|
64
|
|
|
|
|
|
|
|
|
$
|
394
|
|
|
|
The following table displays a rollforward of the reorganization
of businesses accruals established for exit costs and employee
separation costs from January 1, 2007 to December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at
|
|
|
2007
|
|
|
|
|
|
2007
|
|
|
Accruals at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
2007
(1)(2)
|
|
|
Amount
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Used
|
|
|
2007
|
|
|
|
|
Exit costs
|
|
$
|
54
|
|
|
$
|
19
|
|
|
$
|
2
|
|
|
$
|
(33
|
)
|
|
$
|
42
|
|
Employee separation costs
|
|
|
104
|
|
|
|
401
|
|
|
|
(64
|
)
|
|
|
(248
|
)
|
|
|
193
|
|
|
|
|
|
$
|
158
|
|
|
$
|
420
|
|
|
$
|
(62
|
)
|
|
$
|
(281
|
)
|
|
$
|
235
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
|
(2)
|
|
Includes $6 million of accruals established through
purchase accounting for businesses acquired, covering exit costs
and separation costs for approximately 200 employees.
|
Exit
Costs
At January 1, 2007, the Company had an accrual of
$54 million for exit costs attributable to lease
terminations. The 2007 additional charges of $19 million
are primarily related to the exit of certain activities and
leased facilities in Ireland by the Home and Networks Mobility
segment. The 2007 adjustments of $2 million represent
accruals for exit costs established through purchase accounting
for businesses acquired. The $33 million used in 2007
reflects cash payments. The remaining accrual of
$42 million, which was included in Accrued liabilities in
the Companys consolidated balance sheets at
December 31, 2007, represented future cash payments for
lease termination obligations.
Employee
Separation Costs
At January 1, 2007, the Company had an accrual of
$104 million for employee separation costs, representing
the severance costs for approximately 2,300 employees. The
2007 additional charges of $401 million represent severance
costs for approximately 6,700 employees, of which 2,400
were direct employees and 4,300 were indirect employees.
The adjustments of $64 million reflect $68 million of
reversals of accruals no longer needed, partially offset by
$4 million of accruals for severance plans established
through purchase accounting for businesses acquired. The
$68 million of reversals represent previously accrued costs
for 1,100 employees, and primarily relates to a strategic
change regarding a plant closure and specific employees
previously identified for separation who resigned from the
Company and did not receive severance or who were redeployed due
to circumstances not foreseen when the original plans were
approved. The $4 million of accruals represents severance
plans for approximately 200 employees established through
purchase accounting for businesses acquired.
During the year ended December 31, 2007, approximately
5,300 employees, of which 1,700 were direct employees and
3,600 were indirect employees, were separated from the Company.
The $248 million used in 2007 reflects cash payments to
these separated employees. The remaining accrual of
$193 million is included in Accrued liabilities in the
Companys consolidated balance sheets at December 31,
2007.
125
2006
Charges
During the year ended December 31, 2006, the Company
committed to implement various productivity improvement plans
aimed principally at: (i) reducing costs in its
supply-chain activities, (ii) integration synergies, and
(iii) reducing other operating expenses, primarily relating
to engineering and development costs. The Company recorded net
reorganization of business charges of $213 million,
including $41 million of charges in Costs of sales and
$172 million of charges under Other charges in the
Companys consolidated statements of operations. Included
in the aggregate $213 million are charges of
$191 million for employee separation costs,
$15 million for fixed asset impairment charges and
$30 million for exit costs, partially offset by
$23 million of reversals for accruals no longer needed.
The following table displays the net reorganization of business
charges by segment:
|
|
|
|
|
Year Ended December
31,
|
|
2006
|
|
|
|
|
Mobile Devices
|
|
$
|
(1
|
)
|
Home and Networks Mobility
|
|
|
124
|
|
Enterprise Mobility Solutions
|
|
|
83
|
|
|
|
|
|
|
|
|
|
206
|
|
General Corporate
|
|
|
7
|
|
|
|
|
|
|
|
|
$
|
213
|
|
|
|
The following table displays a rollforward of the reorganization
of business accruals established for exit costs and employee
separation costs from January 1, 2006 to December 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals at
|
|
|
2006
|
|
|
|
|
|
2006
|
|
|
Accruals at
|
|
|
|
January 1,
|
|
|
Additional
|
|
|
2006
(1)
|
|
|
Amount
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Charges
|
|
|
Adjustments
|
|
|
Used
|
|
|
2006
|
|
|
|
|
Exit costs
|
|
$
|
50
|
|
|
$
|
30
|
|
|
$
|
(7
|
)
|
|
$
|
(19
|
)
|
|
$
|
54
|
|
Employee separation costs
|
|
|
53
|
|
|
|
191
|
|
|
|
(16
|
)
|
|
|
(124
|
)
|
|
|
104
|
|
|
|
|
|
$
|
103
|
|
|
$
|
221
|
|
|
$
|
(23
|
)
|
|
$
|
(143
|
)
|
|
$
|
158
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
Exit
Costs
At January 1, 2006, the Company had an accrual of
$50 million for exit costs attributable to lease
terminations. The 2006 additional charges of $30 million
were primarily related to a lease cancellation by the Enterprise
Mobility Solutions segment. The 2006 adjustments of
$7 million represent reversals of accruals no longer
needed. The $19 million used in 2006 reflects cash payments
to lessors. The remaining accrual of $54 million, which was
included in Accrued liabilities in the Companys
consolidated balance sheets at December 31, 2006,
represented future cash payments for lease termination
obligations.
Employee
Separation Costs
At January 1, 2006, the Company had an accrual of
$53 million for employee separation costs, representing the
severance costs for approximately 1,600 employees, of which
1,100 were direct employees and 500 were indirect employees. The
2006 additional charges of $191 million represented costs
for an additional 3,900 employees, of which 1,700 were
direct employees and 2,200 were indirect employees. The
adjustments of $16 million represented reversals of
accruals no longer needed.
During the year ended December 31, 2006, approximately
3,200 employees, of which 1,400 were direct employees and
1,800 were indirect employees, were separated from the Company.
The $124 million used in 2006 reflects cash payments to
these separated employees. The remaining accrual of
$104 million was included in Accrued liabilities in the
Companys consolidated balance sheets at December 31,
2006.
126
|
|
14.
|
Acquisitions
and Related Intangibles
|
The Company accounts for acquisitions using purchase accounting
with the results of operations for each acquiree included in the
Companys consolidated financial statements for the period
subsequent to the date of acquisition. The pro forma effects of
these acquisitions on the Companys consolidated financial
statements were not significant individually nor in the
aggregate.
The allocation of value to in-process research and development
was determined using expected future cash flows discounted at
average risk adjusted rates reflecting both technological and
market risk as well as the time value of money. Historical
pricing, margins and expense levels, where applicable, were used
in the valuation of the in-process products. The in-process
research and development acquired will have no alternative
future uses if the products are not feasible.
The developmental products for the companies acquired have
varying degrees of timing, technology, costs-to-complete and
market risks throughout final development. If the products fail
to become viable, the Company will unlikely be able to realize
any value from the sale of incomplete technology to another
party or through internal re-use. The risks of market acceptance
for the products under development and potential reductions in
projected sales volumes and related profits in the event of
delayed market availability for any of the products exist.
Efforts to complete all developmental products continue and
there are no known delays to forecasted plans except as
disclosed.
The Company did not have any significant acquisitions during the
year ended December 31, 2008. The following is a summary of
significant acquisitions during the years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-Process
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
|
|
|
|
Quarter
|
|
|
|
|
|
Form of
|
|
|
Development
|
|
|
|
Acquired
|
|
|
Consideration, net
|
|
|
Consideration
|
|
|
Charge
|
|
|
|
|
2007 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Symbol Technologies, Inc.
|
|
|
Q1
|
|
|
$
|
3,528
|
|
|
|
Cash
|
|
|
$
|
95
|
|
Good Technology, Inc.
|
|
|
Q1
|
|
|
$
|
438
|
|
|
|
Cash
|
|
|
|
|
|
Netopia, Inc.
|
|
|
Q1
|
|
|
$
|
183
|
|
|
|
Cash
|
|
|
|
|
|
Terayon Communication Systems, Inc.
|
|
|
Q3
|
|
|
$
|
137
|
|
|
|
Cash
|
|
|
|
|
|
2006 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadbus Technologies, Inc.
|
|
|
Q3
|
|
|
$
|
181
|
|
|
|
Cash
|
|
|
$
|
12
|
|
TTP Communications plc
|
|
|
Q3
|
|
|
$
|
193
|
|
|
|
Cash
|
|
|
$
|
17
|
|
Kreatel Communications AB
|
|
|
Q1
|
|
|
$
|
108
|
|
|
|
Cash
|
|
|
$
|
1
|
|
|
|
The following table summarizes net tangible and intangible
assets acquired and the consideration paid for the acquisitions
identified above:
|
|
|
|
|
|
|
|
|
Years Ended December
31
|
|
2007
|
|
|
2006
|
|
|
|
|
Tangible net assets
|
|
$
|
83
|
|
|
$
|
20
|
|
Goodwill
|
|
|
2,793
|
|
|
|
262
|
|
Other intangibles
|
|
|
1,315
|
|
|
|
170
|
|
In-process research and development
|
|
|
95
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,286
|
|
|
$
|
482
|
|
|
|
|
|
|
|
|
|
|
Consideration, net:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,286
|
|
|
$
|
482
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,286
|
|
|
$
|
482
|
|
|
|
Symbol
Technologies, Inc.
In January 2007, the Company acquired, for $3.5 billion in
net cash, the outstanding common stock of Symbol Technologies,
Inc. (Symbol), a leader in designing, developing,
manufacturing and servicing products and systems used in
end-to-end enterprise mobility solutions featuring rugged mobile
computing, advanced data capture, radio frequency identification
(RFID), wireless infrastructure and mobility
management.
127
The fair value of acquired in-process research and development
was $95 million. The acquired in-process research and
development will have no alternative future uses if the products
are not feasible and, as such, costs were expensed at the date
of acquisition. At the date of acquisition, 31 projects were in
process and were completed through 2008. The average risk
adjusted rate used to value these projects is
15-16%.
The
allocation of value to in-process research and development was
determined using expected future cash flows discounted at
average risk adjusted rates reflecting both technological and
market risk as well as the time value of money.
The fair value of the acquired intangible assets was
$1.0 billion at the time of acquisition. Intangible assets
are included in Other assets in the Companys consolidated
balance sheets. The intangible assets are being amortized over
periods ranging from 1 to 8 years on a straight-line
basis. The Company recorded $2.3 billion of goodwill, none
of which is expected to be deductible for tax purposes.
The results of the operations of Symbol have been included in
the Enterprise Mobility Solutions segment in the Companys
consolidated financial statements subsequent to the date of
acquisition. The pro forma effects of this acquisition on the
Companys consolidated financial statements were not
significant.
Good
Technology, Inc.
In January 2007, the Company acquired Good Technology, Inc.
(Good), a provider of enterprise mobile computing
software and services, for $438 million in net cash. The
Company recorded $296 million in goodwill, none of which is
expected to be deductible for tax purposes and $158 million
in identifiable intangible assets. However, due to recent
changes in software platform strategy, impairment charges of
$123 million were recorded for the year ended
December 31, 2008, representing write-downs of:
(i) $121 million of intangible assets, primarily
relating to completed technology and other intangibles, and
(ii) $2 million of property, plant and equipment.
The results of operations of Good have been included in the
Enterprise Mobility Solutions segment in the Companys
consolidated financial statements subsequent to the date of
acquisition. The pro forma effects of this acquisition on the
Companys consolidated financial statements were not
significant.
Netopia,
Inc.
In February 2007, the Company acquired Netopia, Inc.
(Netopia), a broadband equipment provider for DSL
customers, which allows for phone, TV and fast Internet
connections, for $183 million in net cash. The Company
recorded $61 million in goodwill, none of which is expected
to be deductible for tax purposes, and $100 million in
identifiable intangible assets. Intangible assets are included
in Other assets in the Companys consolidated balance
sheets. The intangible assets are being amortized over a period
of 7 years on a straight-line basis.
The results of operations of Netopia have been included in the
Home and Networks Mobility segment in the Companys
consolidated financial statements subsequent to the date of
acquisition. The pro forma effects of this acquisition on the
Companys consolidated financial statements were not
significant.
Terayon
Communication Systems, Inc.
In July 2007, the Company acquired Terayon Communication
Systems, Inc. (Terayon), a provider of real-time
digital video networking applications to cable, satellite and
telecommunication service providers worldwide, for
$137 million in net cash. The Company recorded
$21 million in goodwill, none of which is expected to be
deductible for tax purposes, and $52 million in
identifiable intangible assets. Intangible assets are included
in Other assets in the Companys consolidated balance
sheets. The intangible assets are being amortized over periods
ranging from 4 to 6 years on a straight-line basis.
The results of operations of Terayon have been included in the
Home and Networks Mobility segment in the Companys
consolidated financial statements subsequent to the date of
acquisition. The pro forma effects of this acquisition on the
Companys consolidated financial statements were not
significant.
Broadbus
Technologies, Inc.
In September 2006, the Company acquired Broadbus Technologies,
Inc. (Broadbus), a provider of television on demand
technology, for $181 million in cash. The Company recorded
$131 million in goodwill, none of which
128
is expected to be deductible for tax purposes, a
$12 million charge for acquired in-process research and
development costs, and $30 million in identifiable
intangible assets. The acquired in-process research and
development will have no alternative future uses if the products
are not feasible. At the date of the acquisition, two projects
were in process. During the year ended December 31, 2008,
one of the projects was completed while the other project was
abandoned. The average risk adjusted rate used to value this
project was 22%. The allocation of value to in-process research
and development was determined using expected future cash flows
discounted at average risk adjusted rates reflecting both
technological and market risk as well as the time value of
money. These research and development costs were expensed at the
date of acquisition. Intangible assets are included in Other
assets in the Companys consolidated balance sheets. The
intangible assets are being amortized over periods ranging from
3 to 5 years on a straight-line basis.
The results of operations of Broadbus have been included in the
Home and Networks Mobility segment in the Companys
consolidated financial statements subsequent to the date of
acquisition. The pro forma effects of this acquisition on the
Companys consolidated financial statements were not
significant.
TTP
Communications plc
In August 2006, the Company acquired TTP Communications plc
(TTPCom), a provider of wireless software platforms,
protocol stacks and semiconductor solutions, for
$193 million in cash. The Company recorded $52 million
in goodwill, a portion of which is expected to be deductible for
tax purposes, a $17 million charge for acquired in-process
research and development costs, and $118 million in
identifiable intangible assets. The acquired in-process research
and development will have no alternative future uses if the
products are not feasible. At the date of the acquisition, a
total of four projects were in process. The average risk
adjusted rate used to value these projects was 18%. These
projects have since been completed. The allocation of value to
in-process research and development was determined using
expected future cash flows discounted at average risk adjusted
rates reflecting both technological and market risk as well as
the time value of money. These research and development costs
were expensed at the date of acquisition. However, due to
changes in software platform strategy, impairment charges of
$89 million were recorded for the year ended
December 31, 2007, representing write-downs of:
(i) $81 million of intangible assets, primarily
relating to completed technology and other intangibles, and
(ii) $8 million of property, plant and equipment.
The results of operations of TTPCom have been included in the
Mobile Devices segment in the Companys consolidated
financial statements subsequent to the date of acquisition. The
pro forma effects of this acquisition on the Companys
consolidated financial statements were not significant.
Kreatel
Communications AB
In February 2006, the Company acquired Kreatel Communications AB
(Kreatel), a leading developer of innovative
Internet Protocol (IP) based digital set-tops and
software, for $108 million in cash. The Company recorded
$79 million in goodwill, a portion of which is expected to
be deductible for tax purposes, a $1 million charge for
acquired in-process research and development costs, and
$22 million in identifiable intangible assets. The acquired
in-process research and development will have no alternative
future uses if the products are not feasible. At the date of the
acquisition, a total of two projects were in process. These
projects have since been completed. The average risk adjusted
rate used to value these projects was 19%. The allocation of
value to in-process research and development was determined
using expected future cash flows discounted at average risk
adjusted rates reflecting both technological and market risk as
well as the time value of money. These research and development
costs were expensed at the date of acquisition. Intangible
assets are included in Other assets in the Companys
consolidated balance sheets. The intangible assets are being
amortized over periods ranging from 2 to 4 years on a
straight-line basis.
The results of operations of Kreatel have been included in the
Home and Networks Mobility segment in the Companys
consolidated financial statements subsequent to the date of
acquisition. The pro forma effects of this acquisition on the
Companys consolidated financial statements were not
significant.
129
Intangible
Assets
Amortized intangible assets were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
December 31
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completed technology
|
|
$
|
1,127
|
|
|
$
|
633
|
|
|
$
|
1,234
|
|
|
$
|
484
|
|
Patents
|
|
|
292
|
|
|
|
125
|
|
|
|
292
|
|
|
|
69
|
|
Customer-related
|
|
|
277
|
|
|
|
104
|
|
|
|
264
|
|
|
|
58
|
|
Licensed technology
|
|
|
129
|
|
|
|
118
|
|
|
|
123
|
|
|
|
109
|
|
Other intangibles
|
|
|
150
|
|
|
|
126
|
|
|
|
166
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,975
|
|
|
$
|
1,106
|
|
|
$
|
2,079
|
|
|
$
|
819
|
|
|
|
Amortization expense on intangible assets, which is included
within Other and Eliminations, was $318 million,
$369 million $100 million for the years ended
December 31, 2008, 2007 and 2006, respectively. As of
December 31, 2008 future amortization expense is estimated
to be $278 million for 2009, $256 million in 2010,
$242 million in 2011, $50 million in 2012 and
$29 million in 2013.
Amortized intangible assets, excluding goodwill, by business
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
December 31
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
Mobile Devices
|
|
$
|
45
|
|
|
$
|
45
|
|
|
$
|
36
|
|
|
$
|
36
|
|
Home and Networks Mobility
|
|
|
722
|
|
|
|
522
|
|
|
|
712
|
|
|
|
455
|
|
Enterprise Mobility Solutions
|
|
|
1,208
|
|
|
|
539
|
|
|
|
1,331
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,975
|
|
|
$
|
1,106
|
|
|
$
|
2,079
|
|
|
$
|
819
|
|
|
|
During the year ended December 31, 2008, the Company
recorded an impairment of intangible assets of $121 million
due to a change in a technology platform strategy, relating to
completed technology and other intangibles, in the Enterprise
Mobility Solutions segment. During the year ended
December 31, 2007 due to a change in software platform
strategy, the Company recorded an impairment of intangible
assets of $81 million, primarily relating to completed
technology and other intangibles, in the Mobile Devices segment.
Goodwill
The following tables display a rollforward of the carrying
amount of goodwill from January 1, 2007 to
December 31, 2008, by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Segment
|
|
2008
|
|
|
Acquired
|
|
|
Adjustments
(1)
|
|
|
Impaired
|
|
|
2008
|
|
|
|
|
Mobile Devices
|
|
$
|
19
|
|
|
$
|
15
|
|
|
$
|
21
|
|
|
$
|
(55
|
)
|
|
$
|
|
|
Home and Networks Mobility
|
|
|
1,576
|
|
|
|
12
|
|
|
|
(179
|
)
|
|
|
|
|
|
|
1,409
|
|
Enterprise Mobility Solutions
|
|
|
2,904
|
|
|
|
60
|
|
|
|
28
|
|
|
|
(1,564
|
)
|
|
|
1,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,499
|
|
|
$
|
87
|
|
|
$
|
(130
|
)
|
|
$
|
(1,619
|
)
|
|
$
|
2,837
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
During the year ended December 31, 2008, the Company
finalized its assessment of the Internal Revenue Code
Section 382 Limitations (IRC Section 382)
relating to the pre-acquisition tax loss carry-forwards of its
2007 acquisitions. As a result of the IRC Section 382
studies, the company recorded additional deferred tax assets and
a corresponding reduction in goodwill, which is reflected in the
adjustment column above.
In the fourth quarter of 2008, we conducted our annual
assessment of goodwill for impairment. The Company performed
extensive valuation analyses, utilizing both income and market
approaches, in our goodwill
130
assessment process. The goodwill impairment test is performed at
the reporting unit level. A reporting unit is an operating
segment or one level below an operating segment. The Company has
determined that the Mobile Devices segment meets the requirement
of a reporting unit. For the Enterprise Mobility Solutions
segment, the Company has identified two reporting units, the
Government and Public Safety reporting unit and the Enterprise
Mobility reporting unit. For the Home and Networks Mobility
segment, the Company has identified two reporting units, the
Home reporting unit and the Public Networks reporting unit.
During this quarter, we experienced a sustained, significant
decline in our stock price that reduced the market
capitalization below the book value of the Company. The reduced
market capitalization reflected the macroeconomic declines
coupled with the market view on the performance of the Mobile
Devices reporting unit. The Company has considered this decline
in our stock price in our impairment assessment.
The Company has weighted the valuation of its reporting units at
75% based on the income approach and 25% based on the market
based approach consistent with prior periods. The Company
believes that this weighting is appropriate since it is often
difficult to find other appropriate market participants that are
similar to our reporting units and the Company view of future
discounted cash flows is more reflective of the value of the
reporting units. If a heavier weighting was put on the market
based approach for certain reporting units, a higher fair value
would have been determined.
The determination of fair value of the reporting units and other
assets and liabilities within the reporting units requires us to
make significant estimates and assumptions. These estimates and
assumptions primarily include, but are not limited to, the
discount rate, terminal growth rates, earnings before
depreciation and amortization, and capital expenditures
forecasts. Due to the inherent uncertainty involved in making
these estimates, actual results could differ from those
estimates. The Company assigned discount rates ranging from 13
to 14% for the Home, Public Networks, Government and Public
Safety and Enterprise Mobility Reporting units. The Company
assigned a discount rate of 25% to the Mobile Devices reporting
unit commensurate with development stage enterprises or
turnaround opportunities. The Company believes this rate
reflects the inherent uncertainties of the Mobile Devices
reporting units projected cash flows. The Company
evaluated the merits of each significant assumption, both
individually and in the aggregate, used to determine the fair
value of the reporting units, as well as the fair values of the
corresponding assets and liabilities within the reporting units,
and concluded they are reasonable.
Based on the results of Step One of our annual assessment of the
recoverability goodwill, the fair values of the Home, Public
Networks and Government and Public Safety reporting units
exceeded their book value, indicating that there was no
impairment of goodwill at these reporting units.
However, the fair value of the Enterprise Mobility and Mobile
Devices reporting units was below their respective book values,
indicating a potential impairment of goodwill and the
requirement to perform Step Two of the analysis for these
reporting units. The Company acquired the main components of the
Enterprise Mobility reporting unit in 2007 at which time the
book value and fair value of the reporting unit was the same.
Because of this fact, the Enterprise Mobility reporting unit was
most likely to experience a decline in its fair value below its
book value as a result of lower values in the overall market and
the deteriorating macroeconomic environment and the
markets view of its near term impact on the reporting
unit. The decline in the fair value of the Mobile Devices
reporting unit below its book value is a result of the
deteriorating macroeconomic environment, lower expected sales
and cash flows as a result of the decision to consolidate
platforms announced in the fourth quarter of 2008, and the
uncertainty around the reporting units future cash flow.
For the year ended December 31, 2008, the Company
determined that goodwill relating to the Enterprise Mobility
Solution and Mobile Devices segments were impaired, resulting in
charges of $1.6 billion and $55 million, respectively.
Additional impairment charges could be recognized in the near
term if the Companys market capitalization continues to
decline or macroeconomic conditions continue to deteriorate. No
impairment charges were required for the years ended
December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Segment
|
|
2007
|
|
|
Acquired
|
|
|
Dispositions
|
|
|
Adjustments
|
|
|
2007
|
|
|
|
|
Mobile Devices
|
|
$
|
69
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(50
|
)
|
|
$
|
19
|
|
Home and Networks Mobility
|
|
|
1,266
|
|
|
|
427
|
|
|
|
(119
|
)
|
|
|
2
|
|
|
|
1,576
|
|
Enterprise Mobility Solutions
|
|
|
371
|
|
|
|
2,569
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
2,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,706
|
|
|
$
|
2,996
|
|
|
$
|
(119
|
)
|
|
$
|
(84
|
)
|
|
$
|
4,499
|
|
|
|
131
|
|
15.
|
Valuation
and Qualifying Accounts
|
The following table presents the valuation and qualifying
account activity for the years ended December 31, 2008,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
January 1
|
|
|
Earnings
|
|
|
Used
|
|
|
Adjustments
(1)
|
|
|
December 31
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization of Businesses
|
|
$
|
235
|
|
|
$
|
390
|
|
|
$
|
(316
|
)
|
|
$
|
(59
|
)
|
|
$
|
250
|
|
Allowance for Doubtful Accounts
|
|
|
184
|
|
|
|
63
|
|
|
|
(35
|
)
|
|
|
(30
|
)
|
|
|
182
|
|
Allowance for Losses on Long-term Receivables
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
7
|
|
Inventory Reserves
|
|
|
371
|
|
|
|
735
|
|
|
|
(366
|
)
|
|
|
20
|
|
|
|
760
|
|
Warranty Reserves
|
|
|
416
|
|
|
|
452
|
|
|
|
(488
|
)
|
|
|
(95
|
)
|
|
|
285
|
|
Customer Reserves
|
|
|
972
|
|
|
|
1,587
|
|
|
|
(1,544
|
)
|
|
|
(416
|
)
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization of Businesses
|
|
|
158
|
|
|
|
420
|
|
|
|
(281
|
)
|
|
|
(62
|
)
|
|
|
235
|
|
Allowance for Doubtful Accounts
|
|
|
78
|
|
|
|
130
|
|
|
|
(3
|
)
|
|
|
(21
|
)
|
|
|
184
|
|
Allowance for Losses on Long-term Receivables
|
|
|
10
|
|
|
|
2
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
5
|
|
Inventory Reserves
|
|
|
416
|
|
|
|
546
|
|
|
|
(524
|
)
|
|
|
(67
|
)
|
|
|
371
|
|
Warranty Reserves
|
|
|
530
|
|
|
|
756
|
|
|
|
(735
|
)
|
|
|
(135
|
)
|
|
|
416
|
|
Customer Reserves
|
|
|
1,305
|
|
|
|
2,809
|
|
|
|
(2,205
|
)
|
|
|
(937
|
)
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization of Businesses
|
|
|
103
|
|
|
|
221
|
|
|
|
(143
|
)
|
|
|
(23
|
)
|
|
|
158
|
|
Allowance for Doubtful Accounts
|
|
|
101
|
|
|
|
50
|
|
|
|
(58
|
)
|
|
|
(15
|
)
|
|
|
78
|
|
Allowance for Losses on Long-term Receivables
|
|
|
12
|
|
|
|
5
|
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
10
|
|
Inventory Reserves
|
|
|
529
|
|
|
|
517
|
|
|
|
(490
|
)
|
|
|
(140
|
)
|
|
|
416
|
|
Warranty Reserves
|
|
|
467
|
|
|
|
977
|
|
|
|
(891
|
)
|
|
|
(23
|
)
|
|
|
530
|
|
Customer Reserves
|
|
|
1,171
|
|
|
|
4,218
|
|
|
|
(3,597
|
)
|
|
|
(487
|
)
|
|
|
1,305
|
|
|
|
|
|
|
(1)
|
|
Includes translation adjustments.
|
132
|
|
16.
|
Quarterly
and Other Financial Data (unaudited)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
(1)
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
7,448
|
|
|
$
|
8,082
|
|
|
$
|
7,480
|
|
|
$
|
7,136
|
|
|
$
|
9,433
|
|
|
$
|
8,732
|
|
|
$
|
8,811
|
|
|
$
|
9,646
|
|
Costs of sales
|
|
|
5,303
|
|
|
|
5,757
|
|
|
|
5,677
|
|
|
|
5,014
|
|
|
|
6,979
|
|
|
|
6,279
|
|
|
|
6,306
|
|
|
|
7,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
2,145
|
|
|
|
2,325
|
|
|
|
1,803
|
|
|
|
2,122
|
|
|
|
2,454
|
|
|
|
2,453
|
|
|
|
2,505
|
|
|
|
2,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,183
|
|
|
|
1,115
|
|
|
|
1,044
|
|
|
|
988
|
|
|
|
1,313
|
|
|
|
1,296
|
|
|
|
1,210
|
|
|
|
1,273
|
|
Research and development expenditures
|
|
|
1,054
|
|
|
|
1,048
|
|
|
|
999
|
|
|
|
1,008
|
|
|
|
1,117
|
|
|
|
1,115
|
|
|
|
1,100
|
|
|
|
1,097
|
|
Other charges
|
|
|
177
|
|
|
|
157
|
|
|
|
212
|
|
|
|
1,801
|
|
|
|
390
|
|
|
|
200
|
|
|
|
205
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(269
|
)
|
|
|
5
|
|
|
|
(452
|
)
|
|
|
(1,675
|
)
|
|
|
(366
|
)
|
|
|
(158
|
)
|
|
|
(10
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(194
|
)
|
|
|
4
|
|
|
|
(397
|
)
|
|
|
(3,657
|
)
|
|
|
(218
|
)
|
|
|
(38
|
)
|
|
|
40
|
|
|
|
111
|
|
Net earnings (loss)
|
|
|
(194
|
)
|
|
|
4
|
|
|
|
(397
|
)
|
|
|
(3,657
|
)
|
|
|
(181
|
)
|
|
|
(28
|
)
|
|
|
60
|
|
|
|
100
|
|
Per Share Data (in dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.09
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.18
|
)
|
|
$
|
(1.61
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
Diluted earnings (loss) per common share
|
|
|
(0.09
|
)
|
|
|
0.00
|
|
|
|
(0.18
|
)
|
|
|
(1.61
|
)
|
|
|
(0.09
|
)
|
|
|
(0.02
|
)
|
|
|
0.02
|
|
|
|
0.05
|
|
Net Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
|
(0.09
|
)
|
|
|
0.00
|
|
|
|
(0.18
|
)
|
|
|
(1.61
|
)
|
|
|
(0.08
|
)
|
|
|
(0.01
|
)
|
|
|
0.03
|
|
|
|
0.04
|
|
Diluted earnings (loss) per common share
|
|
|
(0.09
|
)
|
|
|
0.00
|
|
|
|
(0.18
|
)
|
|
|
(1.61
|
)
|
|
|
(0.08
|
)
|
|
|
(0.01
|
)
|
|
|
0.03
|
|
|
|
0.04
|
|
Dividends declared
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
Dividends paid
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.05
|
|
Stock prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
16.20
|
|
|
|
10.38
|
|
|
|
10.50
|
|
|
|
7.52
|
|
|
|
20.91
|
|
|
|
19.18
|
|
|
|
18.88
|
|
|
|
19.68
|
|
Low
|
|
|
8.98
|
|
|
|
7.20
|
|
|
|
6.52
|
|
|
|
3.00
|
|
|
|
17.45
|
|
|
|
17.32
|
|
|
|
15.61
|
|
|
|
14.87
|
|
|
|
|
|
|
(1)
|
|
Includes: (i) a $2.1 billion charge related to
increase the U.S. deferred tax asset valuation allowance, as
described in Note 6, Income Taxes, (ii) a
$1.6 billion charge related to the impairment of goodwill,
as described in Note 14, Acquisitions and Related
Intangibles, and (iii) accumulated temporary
unrealized losses in Sigma Fund investments, as described in
Note 3, Other Financial Data.
|
|
*
|
|
Certain amounts in prior years financial statements and
related notes have been reclassified to conform to the 2008
presentation.
|
133
Item 9: Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A: Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures.
Under the supervision and with the participation of our senior
management, including our chief executive officers and chief
financial officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), as of the end of the period covered
by this annual report (the Evaluation Date). Based
on this evaluation, our chief executive officers and chief
financial officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the
information relating to Motorola, including our consolidated
subsidiaries, required to be disclosed in our Securities and
Exchange Commission (SEC) reports (i) is
recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is
accumulated and communicated to Motorolas management,
including our chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding
required disclosure.
Managements
Report on Internal Control Over Financial Reporting.
Motorolas management is responsible for establishing and
maintaining adequate internal control over financial reporting
as such term is defined in
Rule 13a-15(f)
of the Exchange Act. Under the supervision and with the
participation of our senior management, including our chief
executive officers and chief financial officer, we assessed the
effectiveness of our internal control over financial reporting
as of December 31, 2008, using the criteria set forth in
the
Internal ControlIntegrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management has
concluded that our internal control over financial reporting is
effective as of December 31, 2008. The Companys
independent registered public accounting firm, KPMG LLP, has
issued an attestation report on the Companys internal
control over financial reporting. The report on the audit of
internal control over financial reporting appears in this
Form 10-K.
Changes
in Internal Control Over Financial Reporting.
There have been no changes in our internal control over
financial reporting that occurred during the quarter ended
December 31, 2008 that have materially affected or are
reasonably likely to materially affect our internal control over
financial reporting.
134
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Motorola, Inc.:
We have audited Motorola Inc.s internal control over
financial reporting as of December 31, 2008, based on
criteria established in
Internal
Control Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Motorola Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting in Item 9A: Controls and Procedures. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Motorola, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Motorola, Inc. and Subsidiaries
as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders equity
and cash flows for each of the years in the three-year period
ended December 31, 2008, and our report dated
February 26, 2009 expressed an unqualified opinion on those
consolidated financial statements.
Chicago, Illinois
February 26, 2009
135
Item 9B: Other
Information
None
PART III
The response to this Item required by Item 401 of
Regulation S-K,
with respect to directors, incorporates by reference the
information under the caption Nominees of
Motorolas Proxy Statement for the 2009 Annual Meeting of
Stockholders (the Proxy Statement) and, with respect
to executive officers, is contained in Part I hereof under
the caption Executive Officers of the Registrant
and, with respect to the audit committee, incorporates by
reference the information under the caption What Are the
Committees of the Board? and Report of Audit and
Legal Committee of Motorolas Proxy Statement.
The response to this Item required by Item 405 of
Regulation S-K
incorporates by reference the information under the caption
Other MattersSection 16(a) Beneficial Ownership
Reporting Compliance of Motorolas Proxy Statement.
The response to this Item also incorporates by reference the
information under the caption CommunicationsHow Can
I Recommend a Director Candidate to the Governance and
Nominating Committee? of Motorolas Proxy Statement.
Motorola has adopted a code of ethics, the Motorola Code of
Business Conduct (the Code), that applies to all
employees, including Motorolas principal executive
officer, principal financial officer and controller (principal
accounting officer). The Code is posted on Motorolas
Internet website, www.motorola.com/investor, and is available
free of charge, upon request to Investor Relations, Motorola,
Inc., Corporate Offices, 1303 East Algonquin Road, Schaumburg,
Illinois 60196,
E-mail:
investors@motorola.com. Any amendment to, or waiver from, the
Code will be posted on our Internet website within four business
days following the date of the amendment or waiver.
Motorolas Code of Business Conduct applies to all Motorola
employees worldwide, without exception, and describes employee
responsibilities to the various stakeholders involved in our
business. The Code goes beyond the legal minimums by
implementing the values we share as employees of
Motorolaour key beliefsuncompromising integrity and
constant respect for people. The Code places special
responsibility on managers and prohibits retaliation for
reporting issues.
Item 11: Executive
Compensation
The response to this Item incorporates by reference the
information under the captions How Are the Directors
Compensated?, Compensation Discussion and
Analysis, Report of the Compensation and Leadership
Committee on Executive Compensation, Summary
Compensation Table, Grants of Plan-Based Awards in
2008, Outstanding Equity Awards at 2008 Fiscal
Year-End, Option Exercises and Stock Vested for
2008, Pension Benefits in 2008,
Nonqualified Deferred Compensation in 2008, and
Employment Contracts, Termination of Employment and Change
in Control Arrangements of Motorolas Proxy Statement.
Item 12: Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The response to this Item incorporates by reference the
information under the captions Equity Compensation Plan
Information and Ownership of Securities of
Motorolas Proxy Statement.
Item 13: Certain
Relationships and Related Transactions, and Director
Independence
The response to this Item incorporates by reference the relevant
information under the caption Related Person Transaction
Policy and Procedures and Which Directors Are
Independent of Motorolas Proxy Statement.
Item 14: Principal
Accounting Fees and Services
The response to this Item incorporates by reference the
information under the caption Independent Registered
Public Accounting Firm and Audit and Legal Committee
Pre-Approval Policies of Motorolas
Proxy Statement.
137
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Motorola, Inc.:
We consent to the incorporation by reference in the registration
statements on
Form S-8
(Nos.
33-59285,
333-51847,
333-88735,
333-36308,
333-37114,
333-53120,
333-60560,
333-60612,
333-60976,
333-87724,
333-87728,
333-87730,
333-104259,
333-105107,
333-123879,
333-133736,
333-142845
and
333-155334)
and
S-3
(Nos.
333-76637
and
333-36320)
of Motorola, Inc. of our reports dated February 26, 2009,
with respect to the consolidated balance sheets of Motorola,
Inc. and Subsidiaries as of December 31, 2008 and 2007, and
the related consolidated statements of operations,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2008, and the
effectiveness of internal control over financial reporting as of
December 31, 2008, which reports appear in the
December 31, 2008 annual report on
Form 10-K
of Motorola, Inc. Our report on the consolidated financial
statements refers to the adoption of the provisions of Statement
of Financial Accounting Standards No. 157,
Fair Value
Measurements
, effective January 1, 2008, Emerging
Issues Task Force Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements,
effective January 1, 2008, Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
, effective
January 1, 2007, and Statement of Financial Accounting
Standards No. 158,
Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R),
effective December 31, 2006.
Chicago, Illinois
February 26, 2009
138
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Motorola, Inc. has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOTOROLA, INC.
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|
|
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By:
/s/
Sanjay
K. Jha
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Gregory Q. Brown
Co-Chief Executive Officer
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|
Sanjay K. Jha
Co-Chief Executive Officer
|
February 26, 2009
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of Motorola, Inc. and in the capacities and on
the dates indicated.
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Signature
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Title
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Date
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/s/
Gregory
Q. Brown
Gregory
Q. Brown
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Co-Chief Executive Officer
and Director
(Principal Executive Officer)
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February 26, 2009
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/s/
Sanjay
K. Jha
Sanjay
K. Jha
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Co-Chief Executive Officer
and Director
(Principal Executive Officer)
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February 26, 2009
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/s/
Edward
J. Fitzpatrick
Edward
J. Fitzpatrick
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Senior Vice President,
Corporate Controller and
Acting Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
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February 26, 2009
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/s/
David
W. Dorman
David
W. Dorman
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Chairman of the Board
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February 26, 2009
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/s/
William
R. Hambrecht
William
R. Hambrecht
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Director
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February 26, 2009
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/s/
Judy
C. Lewent
Judy
C. Lewent
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Director
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February 26, 2009
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/s/
Keith
A. Meister
Keith
A. Meister
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Director
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|
February 26, 2009
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/s/
Thomas
J. Meredith
Thomas
J. Meredith
|
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Director
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|
February 26, 2009
|
|
|
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/s/
Nicholas
Negroponte
Nicholas
Negroponte
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Director
|
|
February 26, 2009
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139
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Signature
|
|
Title
|
|
Date
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/s/
Samuel
C. Scott III
Samuel
C. Scott III
|
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Director
|
|
February 26, 2009
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/s/
Ron
Sommer
Ron
Sommer
|
|
Director
|
|
February 26, 2009
|
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|
|
/s/
James
R. Stengel
James
R. Stengel
|
|
Director
|
|
February 26, 2009
|
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/s/
Anthony
J. Vinciquerra
Anthony
J. Vinciquerra
|
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Director
|
|
February 26, 2009
|
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|
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|
|
/s/
Douglas
A. Warner III
Douglas
A. Warner III
|
|
Director
|
|
February 26, 2009
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/s/
Dr. John
A. White
Dr. John
A. White
|
|
Director
|
|
February 26, 2009
|
|
|
|
|
|
/s/
Miles
D. White
Miles
D. White
|
|
Director
|
|
February 26, 2009
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140
EXHIBIT INDEX
|
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|
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Exhibit No.
|
|
Exhibit
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|
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|
|
|
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3
|
.1
|
|
Restated Certificate of Incorporation of Motorola, Inc., as
amended through May 3, 2000 (incorporated by reference to
Exhibit 3(i)(b) to Motorolas Quarterly Report on Form 10-Q
for the fiscal quarter ended April 1, 2000) (File No. 1-7221)).
|
|
|
|
|
|
|
3
|
.2
|
|
Motorola, Inc. Amended and Restated Bylaws as of August 4, 2008
(incorporated by reference to Exhibit 3.1 to Motorolas
Report on Form 8-K filed on August 4, 2008 (File No. 1-7221)).
|
|
|
|
|
|
|
4
|
.1(a)
|
|
Senior Indenture, dated as of May 1, 1995, between The Bank of
New York Trust Company, N.A. (as successor Trustee to JPMorgan
Chase Bank (as successor in interest to Bank One Trust Company)
and BNY Midwest Trust Company (as successor in interest to
Harris Trust and Savings Bank) and Motorola, Inc. (incorporated
by reference to Exhibit 4(d) of the Registrants
Registration Statement on Form S-3 dated September 25, 1995
(Registration No. 33-62911)).
|
|
|
|
|
|
|
4
|
.1(b)
|
|
Instrument of Resignation, Appointment and Acceptance, dated as
of January 22, 2001, among Motorola, Inc., Bank One Trust
Company, N.A. and BNY Midwest Trust Company (as successor in
interest to Harris Trust and Savings Bank) (incorporated by
reference to Exhibit 4.2(b) to Motorolas Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (File No.
1-7221)).
|
|
|
|
|
|
|
|
|
|
Certain instruments defining the rights of holders of long-term
debt of Motorola and of all its subsidiaries for which
consolidated or unconsolidated financial statements are required
to be filed are being omitted pursuant to paragraph(4)(iii)(A)
of Item 601 of Regulation S-K. Motorola agrees to furnish a copy
of any such instrument to the Commission upon request.
|
|
|
|
|
|
|
10
|
.1
|
|
Motorola Omnibus Incentive Plan of 2006 (As Amended and Restated
as of January 30, 2008) (incorporated by reference to Exhibit
10.1 to Motorolas Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.2
|
|
Form of Motorola, Inc. Award DocumentTerms and Conditions
Related to Employee Nonqualified Stock Options relating to the
Motorola Omnibus Incentive Plan of 2006 for grants on or after
May 6, 2008 (incorporated to Exhibit 10.54 to Motorolas
Quarterly Report on Form 10-Q for the fiscal quarter ended March
29, 2008 (File No. 1-7221).
|
|
|
|
|
|
|
10
|
.3
|
|
Form of Motorola Stock Option Consideration Agreement for grants
on or after May 6, 2008 (incorporated to Exhibit 10.56 to
Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 2008 (File No. 1-7221)).
|
|
|
|
|
|
|
*10
|
.4
|
|
Form of Motorola, Inc. Restricted Stock Unit Agreement relating
to the Motorola Omnibus Incentive Plan of 2006 for grants to
Appointed Vice Presidents and Elected Officers, effective
January 1, 2009.
|
|
|
|
|
|
|
10
|
.5
|
|
Form of Motorola, Inc. Restricted Stock Unit Agreement relating
to the Motorola Omnibus Incentive Plan of 2006 for grants to
Appointed Vice Presidents and Elected Officers on or after
May 6, 2008, (incorporated by reference to Exhibit 10.55 to
Motorolas Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 2008) (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.6
|
|
Form of Motorola, Inc. Award DocumentTerms and Conditions
Related to Employee Nonqualified Stock Options relating to the
Motorola Omnibus Incentive Plan of 2006 for grants on or after
February 11, 2007 (incorporated by reference to Exhibit 10.37 to
Motorolas Report on Form 8-K filed on February 15, 2007
(File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.7
|
|
Form of Motorola Stock Option Consideration Agreement for grants
on or after February 27, 2007 (incorporated by reference to
Exhibit 10.4 to Motorolas Annual Report on Form 10-K for
the fiscal year ended December 31, 2006 (File No. 1-27221)).
|
141
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|
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|
|
Exhibit No.
|
|
Exhibit
|
|
|
10
|
.8
|
|
Form of Motorola, Inc. Restricted Stock Unit Agreement relating
to the Motorola Omnibus Incentive Plan of 2006 for grants on or
after February 27, 2007, (incorporated by reference to Exhibit
10.3 to Motorolas Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 (File No. 1-27221)).
|
|
|
|
|
|
|
10
|
.9
|
|
Form of Motorola, Inc. Award DocumentTerms and Conditions
Related to Employee Nonqualified Stock Options for Edward J.
Zander, relating to the Motorola Omnibus Incentive Plan of 2006
or any successor plan for grants on or after February 11, 2007
(incorporated by reference to Exhibit 10.5 to Motorolas
Annual Report on Form 10-K for the fiscal year ended December
31, 2006 (File No. 1-27221)).
|
|
|
|
|
|
|
10
|
.10
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Edward J. Zander relating to the Motorola Omnibus Incentive Plan
for 2006 for grants on or after February 11, 2007 (incorporated
by reference to Exhibit 10.6 to Motorolas Annual Report on
Form 10-K for the fiscal year ended December 31, 2006 (File No.
1-27221)).
|
|
|
|
|
|
|
10
|
.11
|
|
Form of Motorola Stock Option Consideration Agreement for Edward
J. Zander for grants on or after May 2, 2006 (incorporated by
reference to Exhibit 10.41 to Motorolas Quarterly Report
on Form 10-Q for the fiscal quarter ended July 1, 2006) ( File
No. 1-7221)).
|
|
|
|
|
|
|
10
|
.12
|
|
Motorola, Inc. Award Document for the Motorola Omnibus Incentive
Plan of 2006, Terms and Conditions Related to Employee
Nonqualified Stock Options, granted to Edward J. Zander on
May 8, 2007 (Market-based vesting) (incorporated by
reference to Exhibit 10.40 to Motorolas Report on Form 8-K
filed on May 14, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.13
|
|
Motorola, Inc. Award Document for the Motorola Omnibus Incentive
Plan of 2006, Terms and Conditions Related to Employee
Nonqualified Stock Options granted to Gregory Q. Brown on
January 31, 2008 (Market-based vesting) (incorporated by
reference to Exhibit 10.9 to Motorolas Annual Report on
Form 10-K for the fiscal year ended December 31, 2007 (File No.
1-7221)).
|
|
|
|
|
|
|
10
|
.14
|
|
Form of Motorola Stock Option Consideration Agreement for
Gregory Q. Brown for grants on or after January 31, 2008
(incorporated by reference to Exhibit 10.10 to Motorolas
Annual Report on Form 10-K for the fiscal year ended December
31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.15
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Gregory Q. Brown relating to the Motorola Omnibus Incentive Plan
of 2006 for grants on or after January 31, 2008, (incorporated
by reference to Exhibit No. 10.11 to Motorolas Annual
Report on Form 10-K for the fiscal year ended December 31, 2007)
(File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.16
|
|
Form of Motorola, Inc. Award Document for the Motorola Omnibus
Incentive Plan of 2006, Terms and Conditions Related to Employee
Nonqualified Stock Options for Paul J. Liska (Sign-on Grant)
(incorporated by reference to Exhibit 10.12 to Motorolas
Annual Report on Form 10-K for the fiscal year ended December
31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.17
|
|
Form of Motorola, Inc. Award Document for the Motorola Omnibus
Incentive Plan of 2006, Terms and Conditions Related to Employee
Nonqualified Stock Options for Paul J. Liska (Market-based
vesting) (incorporated by reference to Exhibit 10.13 to
Motorolas Annual Report on Form 10-K for the fiscal year
ended December 31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.18
|
|
Form of Motorola Stock Option Consideration Agreement for Paul
J. Liska (incorporated by reference to Exhibit 10.14 to
Motorolas Annual Report on Form 10-K for the fiscal year
ended December 31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.19
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Paul J. Liska relating to the Motorola Omnibus Incentive Plan of
2006 (Sign-on Grant) (incorporated by reference to Exhibit No.
10.15 to Motorolas Annual Report on Form 10-K for the
fiscal year ended December 31, 2007) (File No. 1-7221)).
|
142
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
10
|
.20
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Paul J. Liska relating to the Motorola Omnibus Incentive Plan of
2006 (incorporated by reference to Exhibit No. 10.16 to
Motorolas Annual Report on Form 10-K for the fiscal year
ended December 31, 2007)
(File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.21
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Paul J. Liska relating to the Motorola Omnibus Incentive Plan of
2006 for grants on or after May 6, 2008 (incorporated by
reference to Exhibit No. 10.58 to Motorolas Quarterly
Report on Form 10-Q for the fiscal quarter ended June 28, 2008
(File No. 1-7221)).
|
|
|
|
|
|
|
*10
|
.22
|
|
Amendment approved on December 30, 2008 to the form of
Restricted Stock Unit Award Agreements described above as
Exhibits 10.5, 10.8, 10.15, 10.19, 10.20 and 10.21.
|
|
|
|
|
|
|
10
|
.23
|
|
Form of Deferred Stock Units Agreement between Motorola, Inc.
and its non-employee directors, relating to the deferred stock
units issued in lieu of cash compensation to directors under the
Motorola Omnibus Incentive Plan of 2006 or any successor plan,
for acquisitions on or after February 11, 2007 (incorporated by
reference to Exhibit 10.8 to Motorolas Annual Report on
Form 10-K for the fiscal year ended December 31, 2006 (File No.
1-27221)).
|
|
|
|
|
|
|
10
|
.24
|
|
Form of Deferred Stock Units Award Agreement between Motorola,
Inc. and its non-employee directors under the Motorola Omnibus
Incentive Plan of 2006 or any successor plan for grants on or
after February 11, 2007 (incorporated by reference to Exhibit
10.9 to Motorolas Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 (File No. 1-27221)).
|
|
|
|
|
|
|
10
|
.25
|
|
Motorola Omnibus Incentive Plan of 2003, as amended through
April 2, 2004 (incorporated by reference to Exhibit 10.1 to
Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.26
|
|
Motorola Omnibus Incentive Plan of 2002, as amended through
April 2, 2004 (incorporated by reference to Exhibit 10.2 to
Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.27
|
|
Motorola Omnibus Incentive Plan of 2000, as amended through
April 2, 2004 (incorporated by reference to Exhibit 10.3 to
Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.28
|
|
Motorola Compensation/Acquisition Plan of 2000, as amended
through April 2, 2004 (incorporated by reference to Exhibit 10.4
to Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.29
|
|
Motorola Amended and Restated Incentive Plan of 1998, as amended
through April 2, 2004 (incorporated by reference to Exhibit 10.5
to Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.30
|
|
Form of Motorola, Inc. Award DocumentTerms and Conditions
Related to Non-Employee Director Nonqualified Stock Options
relating to the Motorola Omnibus Incentive Plan of 2002
(incorporated by reference to Exhibit 10.2 to Motorolas
Quarterly Report on Form 10-Q for the fiscal quarter ended March
30, 2002 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.31
|
|
Form of Motorola, Inc. Award DocumentTerms and Conditions
Related to Employee Nonqualified Stock Options, relating to the
Motorola Omnibus Incentive Plan of 2003, the Motorola Omnibus
Incentive Plan of 2002, the Motorola Omnibus Incentive Plan of
2000, the Motorola Amended and Restated Incentive Plan of 1998
and the Motorola Compensation/Acquisition Plan of 2000 for
grants on or after May 2, 2005 (incorporated by reference to
Exhibit 10.46 to Motorolas Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 2005 (File No. 1-7221)).
|
143
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
10
|
.32
|
|
Form of Motorola, Inc. Restricted Stock Unit Agreement (Cliff
Vesting), relating to the Motorola Omnibus Incentive Plan of
2003, the Motorola Omnibus Incentive Plan of 2002, the Motorola
Omnibus Incentive Plan of 2000 and the Motorola
Compensation/Acquisition Plan of 2000, for grants on or after
July 29, 2004 (incorporated by reference to Exhibit 10.12 to
Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended July 3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.33
|
|
Form of Motorola, Inc. Restricted Stock Unit Agreement (Periodic
Vesting), relating to the Motorola Omnibus Incentive Plan of
2003, the Motorola Omnibus Incentive Plan of 2002, the Motorola
Omnibus Incentive Plan of 2000 and the Motorola Compensation/
Acquisition Plan of 2000, for grants on or after July 29, 2004
(incorporated by reference to Exhibit 10.34 to Motorolas
Quarterly Report on Form 10-Q for the fiscal quarter ended July
3, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.34
|
|
Form of Motorola, Inc. Award DocumentTerms and Conditions
Related to Employee Nonqualified Stock Options for Edward J.
Zander, relating to the Motorola Omnibus Incentive Plan of 2003,
the Motorola Omnibus Incentive Plan of 2002, the Motorola
Omnibus Incentive Plan of 2000 and the Motorola Amended and
Restated Incentive Plan of 1998, for grants on or after February
14, 2005 (incorporated by reference to Exhibit 10.24(b) to
Motorolas Annual Report on Form 10-K for the fiscal year
ended December 31, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.35
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Edward J. Zander, relating to the Motorola Omnibus Incentive
Plan of 2003, for grants on or after May 3, 2005 (incorporated
by reference to Exhibit No. 10.45 to Motorolas Report on
Form 8-K filed on May 6, 2005
(File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.36
|
|
Form of Motorola, Inc. Restricted Stock Unit Award Agreement for
Edward J. Zander, relating to the Motorola Omnibus Incentive
Plan of 2003 (incorporated by reference to Exhibit 10.33 to
Motorolas Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2004
(File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.37
|
|
Form of Deferred Stock Units Agreement between Motorola, Inc.
and its non-employee directors, relating to the deferred stock
units issued in lieu of cash compensation to directors under the
Motorola Omnibus Incentive Plan of 2003 or any successor plan,
for acquisitions from January 1, 2006 to February 11, 2007
(incorporated by reference to Exhibit No. 10.25 to
Motorolas Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.38
|
|
Motorola Non-Employee Directors Stock Plan, as amended and
restated on May 6, 2003 (incorporated by reference to Exhibit
10.20 to Motorolas Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 2003 (File No. 1-7221)).
|
|
|
|
|
|
|
*10
|
.39
|
|
2008 Motorola Incentive Plan, Amended and Restated as of
December 31, 2008.
|
|
|
|
|
|
|
10
|
.40
|
|
Motorola Long-Range Incentive Plan (LRIP) of 2006 (as amended
and restated as of July 28, 2008) (incorporated by reference to
Exhibit 10.37 to Motorolas Form 10-Q for the fiscal
quarter ended September 27, 2008 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.41
|
|
Motorola Elected Officers Supplementary Retirement Plan, as
amended through May 8, 2007 (incorporated by reference to
Exhibit No. 10.29 to Motorolas Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2007 (File No.
1-7221)).
|
|
|
|
|
|
|
10
|
.42
|
|
First Amendment to the Motorola Elected Officers Supplementary
Retirement Plan (as amended through May 8, 2007), adopted
December 15, 2008 (incorporated by reference to Exhibit 10.1 to
Motorolas Report on Form 8-K filed on December 17, 2008
(File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.43
|
|
Motorola Management Deferred Compensation Plan, as amended
through May 2, 2006 (incorporated by reference to Exhibit
No. 10.29 to Motorolas Quarterly Report on Form 10-Q
for the fiscal quarter ended April 1, 2006 (File No. 1-7221)).
|
|
|
|
|
|
|
*10
|
.44
|
|
Motorola, Inc. Senior Officer Amended and Restated Change in
Control Severance Plan.
|
144
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
*10
|
.45
|
|
Motorola, Inc. Executive Severance Plan, as amended through
December 31, 2008, Effective October 1, 2008.
|
|
|
|
|
|
|
10
|
.46
|
|
Motorola, Inc. Retiree Basic Life Insurance for Elected Officers
prior to January 1, 2004 who retire after January 1, 2005
(incorporated by reference to Exhibit 10.36 to Motorolas
Annual Report on Form 10-K for the fiscal year ended December
31, 2004 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.47
|
|
Arrangement for directors fees and retirement plan for
non-employee directors (description incorporated by reference
from the information under the caption How Are the
Directors Compensated? of Motorolas Proxy Statement
for the Annual Meeting of Stockholders to be held on May 4, 2009
(Motorola Proxy Statement)).
|
|
|
|
|
|
|
10
|
.48
|
|
Insurance covering non-employee directors and their spouses
(including a description incorporated by reference from the
information under the caption Director Retirement Plan and
Insurance Coverage of the Motorola Proxy Statement and to
Exhibit 10.57 to Motorolas Report on Form 10-Q for the
fiscal quarter ended March 29, 2008 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.49
|
|
Employment Agreement dated August 27, 2008 by and between
Motorola, Inc. and Gregory Q. Brown (incorporated by reference
to Exhibit 10.1 to Motorolas Report on
Form 8-K
filed on August 29, 2008 (File
No. 1-7221)).
|
|
|
|
|
|
|
*10
|
.50
|
|
Amendment made on December 15, 2008 to the Employment
Agreement dated August 27, 2008 by and between Motorola,
Inc. and Gregory Q. Brown.
|
|
|
|
|
|
|
10
|
.51
|
|
Employment Agreement dated August 4, 2008, by and between
Motorola, Inc. and Sanjay K. Jha (incorporated by reference to
Exhibit 10.1 to Motorolas Report on
Form 8-K
filed on August 4, 2008 (File
No. 1-7221)).
|
|
|
|
|
|
|
*10
|
.52
|
|
Amendment made on December 15, 2008 to the Employment
Agreement dated August 4, 2008 by and between Motorola,
Inc. and Sanjay K. Jha.
|
|
|
|
|
|
|
*10
|
.53
|
|
Description of Certain Compensatory Arrangements between
Motorola, Inc. and Gregory Q. Brown and between Motorola, Inc.
and Sanjay K. Jha, as of December 15, 2008.
|
|
|
|
|
|
|
*10
|
.54
|
|
Description of Certain Compensatory Arrangements between
Motorola, Inc. and Paul J. Liska, as of December 31, 2008.
|
|
|
|
|
|
|
10
|
.55
|
|
Employment Agreement between Motorola, Inc. and Edward J. Zander
dated as of December 15, 2003 as amended through May 11, 2007
(incorporated by reference to Exhibit 10.35 to Motorolas
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.56
|
|
Chairman/CEO Retirement Term Sheet dated November 29, 2007 for
Edward J. Zander (incorporated by reference to Exhibit 10.47 to
Motorolas Annual Report on Form 10-K for the fiscal year
ended December 31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.57
|
|
Amended and Restated Employment Agreement between Thomas J.
Meredith and Motorola, Inc. (As Amended January 30, 2008)
(incorporated by reference to Exhibit 10.48 to Motorolas
Annual Report on Form 10-K for the fiscal year ended December
31, 2007 (File No. 1-7221)).
|
|
|
|
|
|
|
10
|
.58
|
|
Severance Agreement between Stuart Reed and Motorola, Inc. dated
March 7, 2008 (incorporated to Exhibit 10.53 to Motorolas
Quarterly Report on Form 10-Q for the fiscal quarter ended March
29, 2008 (File No. 1-7221)).
|
|
|
|
|
|
|
*12
|
|
|
Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
|
|
|
|
|
|
|
*21
|
|
|
Subsidiaries of Motorola.
|
|
|
|
|
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm, see
page 137 of the Annual Report on Form 10-K of which this
Exhibit Index is a part.
|
145
|
|
|
|
|
Exhibit No.
|
|
Exhibit
|
|
|
*31
|
.1
|
|
Certification of Gregory Q. Brown pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
*31
|
.2
|
|
Certification of Dr. Sanjay K. Jha pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
*31
|
.3
|
|
Certification of Edward J. Fitzpatrick pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
*32
|
.1
|
|
Certification of Gregory Q. Brown pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
*32
|
.2
|
|
Certification of Dr. Sanjay K. Jha pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
*32
|
.3
|
|
Certification of Edward J. Fitzpatrick pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|