Motorola 2005 Annual Report Download

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Motorola, Inc. 2005 Annual Report
.05

Table of contents

  • Page 1
    .05 Motorola, Inc. 2005 Annual Report

  • Page 2
    ... do this by designing and delivering "must have" products, "must do" experiences and powerful networks -along with a full complement of support services. A Fortune 100 company with global presence and impact, Motorola had sales of US $36.8 billion in 2005. For more information about our company, our...

  • Page 3
    ..., communication, monitoring and control. We're capitalizing on creating industry-leading technology to drive this paradigm shift. Our investments over the past two years demonstrate our view of the future: ‚ Mobile Internet (802.16e, 4G Ã" all-IP networks) ‚ Broadband to the home (IPTV, video...

  • Page 4
    ... GSM base stations, wireless backhaul oÃ...erings, a media gateway and alternative power sources. As the innovator in mobile communications, Motorola sees these exciting initiatives and opportunities not only as the future of our business but the mobile communications industry as a whole. The world is...

  • Page 5
    MOTOROLA, INC. 2005 FORM 10-K

  • Page 6
    ... Road, Schaumburg, Illinois 60196 (847) 576-5000 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $3 Par Value per Share New York Stock Exchange Chicago Stock Exchange Rights to...

  • Page 7
    ... on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 8
    ..., communication and information systems for the home and for the office. Motorola wireless and wireline broadband technology enables network operators and retailers to deliver products and services that connect consumers to what they want, when they want it. ‚ Automotive We are a market leader...

  • Page 9
    ... Motorola reports financial results for the following four 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. In 2005...

  • Page 10
    ... for over ten years. Sprint Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. Motorola is currently operating under supply agreements for iDEN handsets and infrastructure equipment that cover the period from January 1, 2005 through December 31...

  • Page 11
    ... 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...

  • Page 12
    ... of: (i) mission-critical wireless communications systems for government and public safety markets worldwide, (ii) business-critical wireless devices, networks and applications focused around mobile computers and the mobile office for world-class enterprise organizations, and (iii) electronics and...

  • Page 13
    ... its automotive electronics business. Our Strategy The segment is the leading provider of mission-critical systems worldwide, with more than 65 years of experience in custom, rugged devices, public safety-grade private networks, sophisticated encryption technology, interoperable voice and broadband...

  • Page 14
    ... license costs. Deregulation may introduce new competition and new opportunities for Motorola and our customers. On February 7, 2005, Sprint Nextel agreed to a plan by federal regulators designed to address interference from iDEN phones with hundreds of public safety communications systems in...

  • Page 15
    ... of piece parts and replacement parts, as well as a variety of basic level assemblies in order to meet delivery requirements. Relatively short delivery requirements and historical trends determine the amounts of inventory to be stocked. To the extent suppliers' product life cycles are shorter...

  • Page 16
    ... supporting high-speed data, video and voice, and (iii) wireless broadband systems. In addition, the segment designs, manufactures and sells embedded communications computing platforms. In 2005, the segment's net sales represented 17% of the Company's consolidated net sales. Principal Products...

  • Page 17
    ...in 2005. In addition, Networks has begun executing on its seamless mobility strategy with major contract wins in PON and wireless broadband. In 2005, we announced an agreement with Verizon to supply FTTP access equipment and related services enabling their triple play offering (voice, data and video...

  • Page 18
    ... for over ten years. Sprint Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. Motorola is currently operating under supply agreements for iDEN handsets and infrastructure equipment that cover the period from January 1, 2005 through December 31...

  • Page 19
    ...'') designs, manufactures and sells a wide variety of broadband products, including: (i) digital systems and set-top boxes for cable television, Internet Protocol (""IP'') video and broadcast networks, (ii) high speed data products, including cable modems and cable modem termination systems (""CMTS...

  • Page 20
    ... around the world. We also provide digital system control equipment, encoders, access control equipment and a wide range of digital satellite receivers. Our digital business (set-top boxes and video infrastructure equipment) accounted for approximately 65% of the segment's revenue in 2005 and is...

  • Page 21
    ...Telco TV'' or ""IPTV'') with products that support delivery of video content using both copperoutside-plant and fiber-to-the-premises networks. During the year, the segment provided end-to-end equipment for the launch of Verizon's FiOS service and won a contract to supply advanced IP interactive set...

  • Page 22
    ... profits arise from the sale of our set-top boxes. We also compete worldwide in the market for broadband data and voice products. We believe that we are the leading provider of cable modems worldwide, competing with a number of consumer electronic companies and various original design manufacturers...

  • Page 23
    ... main business groups, focused on mobile devices, government and enterprise, networks and the connected home. The Mobile Devices business is primarily comprised of the former Personal Communications segment and the Energy Systems group from the former Integrated Electronic Systems segment (""IESS...

  • Page 24
    ... application ideas are exchanged among Motorola's business segments on a regular basis. Management believes, looking forward, that Motorola's commitment to R&D programs, both to improve existing products and services and to develop new products and services, together with its utilization of state-of...

  • Page 25
    ... 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: [email protected], phone: 1-800-262-8509. Our Internet website and the information...

  • Page 26
    ... sell have quality issues resulting from the design or manufacture of the product, or from the software used in the product. 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...

  • Page 27
    ... that the Company receives from the contracts. Recalls involving regulatory agencies can also result in fines and additional costs. Finally, recalls can result in third-party litigation, including class action litigation by persons alleging common harm resulting from the purchase of the products. We...

  • Page 28
    ..., 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...

  • Page 29
    ... number of alternative facilities could cause the period of any manufacturing disruptions to be longer. As a result, we could have difficulties fulfilling our orders and our sales and profits could decline. We may not continue to have access to the capital markets to obtain long-term and short...

  • Page 30
    ... additional, sometimes costly, retention incentives. As a supplier to the automotive industry, we face certain risks due to the nature of the automotive business. As a supplier of automotive electronics and telematics communication products, our sales of these products and our profitability could be...

  • Page 31
    ... we operate may require us to provide long-term customer financing to a customer in order to win a contract. Customer financing arrangements may include all or a portion of the purchase price for our products and services, as well as working capital. In some circumstances, these loans can be very...

  • Page 32
    ... within the cable industry 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 television system operators. Net sales to the Connected Home Solutions segment's largest customer, Comcast, which...

  • Page 33
    ... most television sets by 2007. Such televisions can access certain cable programming without a digital set-top box. As a result, future sales of set-top boxes may be negatively impacted. We rely on complex information technology systems and networks to operate our business. Any significant system or...

  • Page 34
    ... Injury Cases Cases relating to Wireless Telephone Usage Motorola has been the defendant in several cases arising out of its manufacture and sale of wireless telephones. On May 26, 2000, a purported nationwide class action suit Naquin, et al., v. Nokia Mobile Phones, et al was filed against Motorola...

  • Page 35
    ... Columbia. On December 9, 2005, plaintiff filed an amended complaint in Dahlgren. Defendants moved to dismiss Dahlgren on February 3, 2006. On February 15, 2006, the MDL Court remanded Brower to California state court. Case relating to Two-Way Radio Usage On January 23, 2004, Motorola was added as...

  • Page 36
    ... ""cheating'' by fraudulently inducing Iridium India to purchase gateway equipment from Motorola, to acquire Iridium stock, and to invest in developing a market for Iridium services in India. Under the Indian penal code, ""cheating'' is punishable by imprisonment for up to 7 years and a fine of any...

  • Page 37
    ... Telsim. Telsim remains under the control of the Turkish government, pending the closing of the sale of Telsim described below. Motorola is involved in several matters related to Telsim. October 2005 Settlement On October 28, 2005, Motorola signed an agreement resolving its disputes regarding the...

  • Page 38
    ... of the Employment Retirement Income Security Act (""ERISA''). The complaint alleged that the defendants had improperly permitted participants in Motorola's 401(k) Profit Sharing Plan (the ""Plan'') to purchase or hold shares of common stock of Motorola because the price of Motorola's stock was...

  • Page 39
    ..., 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...

  • Page 40
    ...order transferring the case to New York and that transfer is final. On September 19, 2005, Motorola filed a motion to dismiss the complaint in this action which is awaiting decision. Motorola is a defendant in various other suits, claims and investigations that arise in the normal course of business...

  • Page 41
    ...; age 41; Executive Vice President, President, Mobile Devices since January 2005; Executive Vice President and President, Personal Communications Sector (""PCS'') from September 2004 to January 2005; Senior Vice President and General Manager, Europe, Middle East and Africa, PCS from September 2002...

  • Page 42
    ...April 2002; Corporate Vice President, Chief Technology Officer and Director, DigitalDNA Laboratories, Semiconductor Products Sector from December 2000 to October 2001. The above executive officers will serve as executive officers of Motorola until the regular meeting of the Board of Directors in May...

  • Page 43
    ... the Company's equity compensation plans involving the delivery to the Company of 342,415 shares of Motorola common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock granted to Company employees and the surrender of 123 shares of Motorola common stock to...

  • Page 44
    ...(294) (355) Gains on sales of investments and businesses, net 1,861 460 539 81 Other (108) (141) (142) (1,354) Total other income (expense) 1,824 120 103 (1,628) Earnings (loss) from continuing operations before income taxes 6,520 3,252 1,376 (2,071) Income tax expense (benefit) 1,921 1,061 448 (721...

  • Page 45
    ...net sales.* The Connected Home Solutions segment designs, manufactures and sells a wide variety of broadband products, including: (i) digital systems and set-top boxes for cable television, Internet Protocol (""IP'') video and broadcast networks, (ii) high speed data products, including cable modems...

  • Page 46
    ...$990 million, primarily driven by increased customer purchases of cellular infrastructure equipment, as well as increased sales of wireless broadband systems and embedded computing communications systems. On a geographic basis, net sales increased in the Europe, Middle East and Africa region (""EMEA...

  • Page 47
    ...Devices, Government and Enterprise Mobility Solutions, Networks and Connected Home Solutions. ‚ Mobile Devices: During 2005, Motorola expanded its global market share in mobile handsets to approximately 18%. The Company is a strong, profitable and growing #2. For example, during the year, Motorola...

  • Page 48
    ... designed to meet the different needs of operators for lower-cost delivery of data rich multimedia applications and services. ‚ Connected Home Solutions: The Connected Home Solutions business is the world's leading provider of digital video set-top boxes and cable modems. In 2005, Motorola shipped...

  • Page 49
    ...million increase in net sales by the Connected Home Solutions segment, primarily driven by increases in both average selling price (""ASP'') and unit shipments of digital set-top boxes, (iii) a $369 million increase in net sales by the Government and Enterprise Mobility Solutions segment, reflecting...

  • Page 50
    ... 43 automotive electronics market, and (iv) a $306 million increase in net sales by the Networks segment, driven by increased customer purchases of cellular infrastructure equipment, as well as increased sales of wireless broadband systems and embedded computing communications systems. Gross...

  • Page 51
    ... million in cash, in exchange for the Company's shares of Nextel Communications, Inc. (""Nextel'') when Sprint Corporation and Nextel completed their merger in August 2005, and (ii) a $609 million net gain recognized on the sale of a portion of the Company's shares in Nextel during the first half of...

  • Page 52
    ... Mobility Solutions segment, reflecting increased spending by customers in the segment's government, enterprise and automotive markets, and (iv) a $469 million increase in net sales by the Connected Home Solutions segment, primarily due to increased purchases of digital cable set-top boxes by cable...

  • Page 53
    ... the sale of a portion of the Company's shares in Nextel Partners. Other Charges classified as Other, as presented in Other income (expense), were $141 million in 2004, compared to $142 million in 2003. The $141 million of charges in 2004 primarily were: (i) charges of $81 million for costs related...

  • Page 54
    ... in gains on sales of investments and businesses. 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...

  • Page 55
    ... needed. Total employees impacted by these actions are 2,625. The following table displays the net reorganization of business charges by segment: Segment Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions General Corporate Year Ended December 31, 2005 $ 27...

  • Page 56
    ... these actions were approximately 900. The following table displays the net reorganization of business charges by segment for employee separation and exit cost reserves: Year Ended December 31, Segment 2004 Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions...

  • Page 57
    ... all segments. The following table displays the net reorganization of business charges by segment: Segment Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions Other Products General Corporate Year Ended December 31, 2003 $ 51 32 (40) (7) 4 40 (1) $ 39 The...

  • Page 58
    ... days at December 31, 2004. The Company's businesses sell their products in a variety of markets throughout the world. Payment terms can vary by market type and geographic location. Accordingly, the Company's levels of accounts receivable and DSO can be impacted by the timing and level of sales that...

  • Page 59
    ...the sale of a portion of the Company's shares in Sprint Nextel Corporation during the fourth quarter of 2005, (iii) $232 million from the sale of a portion of the Company's shares in Semiconductor Manufacturing International Corporation, and (iv) $96 million received in connection with the merger of...

  • Page 60
    ...to these sales, the Company owned 25 million shares of common stock and 29.7 million shares of non-voting common stock of Nextel. On August 12, 2005, Sprint Corporation completed its merger (the ""Sprint Nextel Merger'') with Nextel. In connection with the Sprint Nextel Merger, Motorola received $46...

  • Page 61
    ... proceeds received from the issuance of common stock in connection with the Company's employee stock option plans and employee stock purchase plan, and (ii) $1.3 billion in distributions from discontinued operations. Short-term Debt: At December 31, 2005, the Company's outstanding notes payable and...

  • Page 62
    ... the MEUs, the Company sold 69.4 million shares of common stock to the holders of the MEUs. The purchase price per share was $17.30 resulting in aggregate proceeds of $1.2 billion. Given the Company's cash position, it may from time to time seek to opportunistically retire certain of its outstanding...

  • Page 63
    ... time-to-time or for extended periods. As further described under ""Customer Financing Arrangements'' below, for many years the Company has utilized a number of receivables programs to sell a broadly-diversified group of short-term receivables to third parties. Certain of the short-term receivables...

  • Page 64
    ...to canceled orders. The Company's liability would only arise in the event it terminates the agreements for reasons other than ""cause.'' In 2003, the Company entered into outsourcing contracts for certain corporate functions, such as benefit administration and information technology related services...

  • Page 65
    ... commercial paper, access to the short-term and long-term debt markets, and proceeds from sales of available-for-sale securities and other investments. Customer Financing Commitments and Guarantees Outstanding Commitments: Certain purchasers of the Company's infrastructure equipment continue to...

  • Page 66
    ... 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. Legal Matters: The Company has several lawsuits filed against it relating to the Iridium program, as further described under...

  • Page 67
    ...and 2003 are presented below. Mobile Devices Segment The Mobile Devices segment designs, manufactures, sells and services wireless handsets, with integrated software and accessory products. In 2005, Mobile Devices' net sales represented 58% of the Company's consolidated net sales, compared to 55% in...

  • Page 68
    ... for over ten years. Sprint Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service business. Motorola is currently operating under supply agreements for iDEN handsets and infrastructure equipment that cover the period from January 1, 2005 through December 31...

  • Page 69
    ... The Government and Enterprise Mobility Solutions segment designs, manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems to a wide range of publicsafety, government, utility, transportation and other worldwide markets, and...

  • Page 70
    ...(""FTTN'') transmission systems supporting high-speed data, video and voice, and (iii) wireless broadband systems. In addition, the segment designs, manufactures, and sells embedded communications computing platforms. In 2005, the segment's net sales represented 17% of the Company's consolidated net...

  • Page 71
    ...Connected Home Solutions segment designs, manufactures and sells a wide variety of broadband products, including: (i) digital systems and set-top boxes for cable television, Internet Protocol (""IP'') video and broadcast networks, (ii) high speed data products, including cable modems and cable modem...

  • Page 72
    ... or upgrading their communications systems and services. After a number of years of decreased capital spending, in 2004 and 2005 our cable operator customers increased their purchases of the segment's products and services, primarily due to increased demand for advanced digital set-top boxes to...

  • Page 73
    ... CONDITION AND RESULTS OF OPERATIONS of digital systems and set-top boxes for cable television, IP video and broadcast networks, enabling the segment to offer a full range of connected home solutions which enable customers to be seamlessly connected, informed and entertained. Segment ResultsÌ2004...

  • Page 74
    ..., manufacturing and installation of wireless 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...

  • Page 75
    ...balance at December 31, 2005 and 2004. These reserve levels are maintained by the Company to provide for unique circumstances facing our businesses. The Company has inventory reserves for pending cancellations of product lines due to technology changes, long-life cycle products, lifetime buys at the...

  • Page 76
    .... Additionally, the available-for-sale securities portfolio reflected a net pre-tax unrealized gain position of $157 million and $2.3 billion at December 31, 2005 and 2004, respectively. The Company performs a goodwill impairment test at the reporting unit level at least annually as of October, or...

  • Page 77
    ... costs to the retired participant. As of January 1, 2005, the Postretirement Healthcare Benefits Plan has been closed to new participants. The Company accounts for its pension benefits and its postretirement health care benefits using actuarial models required by SFAS No. 87, ""Employers' Accounting...

  • Page 78
    ... various plans exceeded the fair-market value of the plan assets for these plans at December 31, 2005. The Company recorded a non-cash, after-tax, net charge of $208 million to equity relating to the Regular Pension Plan, the Officers' Plan, and certain non-U.S. subsidiaries retirement programs in...

  • Page 79
    ...1, 2005 The Company announced its decision, effective January 1, 2005, to realign its businesses into four operating business groups: (i) Mobile Devices, (ii) Government and Enterprise Mobility Solutions, (iii) Networks, and (iv) Connected Home Solutions. The historical segment financial information...

  • Page 80
    ...of the timing and level of sales and the geographic location of such sales, (e) future cash contributions to pension plans or retiree health benefit plans, (f) outstanding commercial paper balances, (g) the Company's ability and cost to access the capital markets, (h) the Company's ability to retire...

  • Page 81
    ... are not traded in liquid markets and these are addressed, to the extent reasonably possible, through managing net asset positions, product pricing and component sourcing. At December 31, 2005 and 2004, the Company had net outstanding foreign exchange contracts totaling $2.8 billion and $3.9 billion...

  • Page 82
    ... upon the price of Nextel common stock on the various settlement dates, the maximum aggregate number of shares was 25 million and the minimum number of shares was 18.5 million. Prior to August 12, 2005, changes in the fair value of these variable share forward purchase agreements (the ""Variable...

  • Page 83
    ... equivalents, Sigma Funds, short-term investments, accounts receivable, long-term finance receivables, accounts payable, accrued liabilities, notes payable, long-term debt, foreign currency contracts and other financing commitments. Using available market information, the Company determined that the...

  • Page 84
    ... or the competitive position of Motorola. » 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...

  • Page 85
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Motorola, Inc.'s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal ControlÃŒIntegrated Framework issued by the Committee of...

  • Page 86
    ... except per share amounts) Net sales Costs of sales Gross margin Selling, general and administrative expenses Research and development expenditures Other charges (income) Operating earnings Other income (expense): Interest income (expense), net Gains on sales of investments and businesses, net Other...

  • Page 87
    ...Funds Short-term investments Accounts receivable, net Inventories, net Deferred income taxes Other current assets Total current assets Property, plant and equipment, net Investments Deferred income taxes Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable...

  • Page 88
    ...) Issuance of common stock and stock options exercised (including tax benefits of $51 million) Gain on sale of subsidiary stock Issuance of stock related to Equity Security Units Net loss on derivative instruments (net of tax effect of $39) Dividends declared ($0.16 per share) Spin-off of Freescale...

  • Page 89
    ... INVESTING Acquisitions and investments, net Proceeds from sale of investments and businesses Capital expenditures Proceeds from sale of property, plant and equipment Purchases of Sigma Funds investments, net Sales (purchases) of short-term investments Net cash used for investing activities...

  • Page 90
    ...-Term Contracts Ì For long-term contracts that involve customization or modification of the Company's 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...

  • Page 91
    ... securities represent the investment of cash that is available for current operations. 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...

  • Page 92
    ... based on quoted market prices and market interest rates as of the end of the reporting period. The Company's financial instruments include cash and cash equivalents, Sigma Funds, short-term investments, accounts receivable, long-term finance receivables, accounts payable, accrued liabilities, notes...

  • Page 93
    ..., the FASB issued Statement No. 123R (""SFAS 123R''), a revision to Statement No. 123, ""Accounting for Stock-Based Compensation.'' This standard requires the Company to measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The...

  • Page 94
    ... spin-off was effected by way of a pro rata non-cash dividend to Motorola stockholders, which reduced retained earnings by $2.5 billion. Holders of Motorola stock at the close of business on November 26, 2004 received a dividend of .110415 shares of Freescale Semiconductor Class B common stock per...

  • Page 95
    ...earnings consist of the following: Years Ended December 31 Other charges (income): Settlements and collections related to Telsim Reorganization of businesses Goodwill impairment Iridium settlements In-process research and development charges Insurance settlements Other 2005 2004 2003 $(515) $(44...

  • Page 96
    ...earnings basis for the year ended December 31, 2003, the assumed conversions of the zero coupon notes due 2009, equity security units and 200.9 million stock options were excluded because their inclusion would have been antidilutive. Balance Sheet Information Accounts Receivable Accounts Receivable...

  • Page 97
    ... zero the Company's debt security holdings in a European cable operator and other cost-based investment write-downs. Investment impairment charges are included in Other within Other income (expense) in the Company's consolidated statements of operations. Gains on sales of investments and businesses...

  • Page 98
    ...to these sales, the Company owned 25 million shares of common stock and 29.7 million shares of non-voting common stock of Nextel. On August 12, 2005, Sprint Corporation completed its merger (the ""Sprint Nextel Merger'') with Nextel. In connection with the Sprint Nextel Merger, Motorola received $46...

  • Page 99
    ..., net of tax Net unrealized losses on securities, net of tax 2005 2004 $ (204) $200 1,116 282 $(1,320) $(82) Share Repurchase Program On May 18, 2005, the Company announced that its Board of Directors authorized the Company to purchase up to $4 billion of its outstanding common stock over a 36...

  • Page 100
    ... presented in Other income (expense) in the Company's consolidated statements of operations, was $137 million. On September 1, 2005, the Company retired approximately $1 million of the $398 million of 6.5% Debentures due 2025 (the ""2025 Debentures'') in connection with the holders of the debentures...

  • Page 101
    ... was 12.5 basis points. Important terms of the credit agreement include covenants relating to net interest coverage and total debt to book capitalization ratios. The Company was in compliance with the terms of the credit agreement at December 31, 2005. The Company's current corporate credit ratings...

  • Page 102
    ...are not traded in liquid markets and these are addressed, to the extent reasonably possible, through managing net asset positions, product pricing, and component sourcing. At December 31, 2005 and 2004, the Company had net outstanding foreign exchange contracts totaling $2.8 billion and $3.9 billion...

  • Page 103
    ... or options relating to debt instruments at December 31, 2005 or 2004. The Company designated its interest rate swap agreements as part of a fair value hedging relationship. Interest expense on the debt is adjusted to include the payments made or received under such hedge agreements. The Company is...

  • Page 104
    ... upon the price of Nextel common stock on the various settlement dates, the maximum aggregate number of shares was 25 million and the minimum number of shares was 18.5 million. Prior to August 12, 2005, changes in the fair value of these variable share forward purchase agreements (the ""Variable...

  • Page 105
    ... income tax expense Total income tax expense 2005 2004 2003 $ 265 $ 44 $115 637 456 300 19 6 16 921 506 431 891 547 (14) (42) (94) Ì 151 102 31 1,000 555 17 $1,921 $1,061 $448 Deferred tax charges (benefits) that were recorded within Non-Owner Changes to Equity in the Company's consolidated...

  • Page 106
    ...31 Inventory Employee benefits Capitalized items Tax basis differences on investments Depreciation tax basis differences on fixed assets Undistributed non-U.S. earnings Tax carryforwards Available for sale securities Business reorganization Long-term financing reserves Warranty and customer reserves...

  • Page 107
    ... were utilized during the year. The Company believes that the remaining deferred tax assets of its non-U.S. subsidiaries are more likely than not to be realizable based on estimates of future taxable income and the implementation of tax planning strategies. During 2005, the Internal Revenue Service...

  • Page 108
    ... plan, officers' plan, MSPP and Non U.S. plans was as follows: Regular Pension Plan Years Ended December 31 Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized net loss Unrecognized prior service cost Settlement/curtailment gain Net periodic pension cost 2005...

  • Page 109
    ...1 Return on plan assets Company contributions Employee contributions Discontinued operations Foreign exchange valuation adjustment Tax payments from plan assets Benefit payments from plan assets Fair value at December 31 Funded status of the plan Unrecognized net loss Unrecognized prior service cost...

  • Page 110
    ...the last several years, has resulted in a decline in the plans' funded status. Consequently, the Company's accumulated benefits obligation exceeded the fairmarket value of the plan assets for various plans including the Regular Pension Plan, the Officers' Pension Plan and certain Non U.S. plans. The...

  • Page 111
    ...retiree health care expenses were as follows: Years Ended December 31 Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized net loss Unrecognized prior service cost Settlement/curtailment gain Net retiree health care expense 2005 5.75% 8.50% 2004 6.00% 8.50% 2005...

  • Page 112
    ... 31 Change in plan assets: Fair value at January 1 Return on plan assets Company contributions Benefit payments made with plan assets Fair value at December 31 Funded status of the plan Unrecognized net loss Unrecognized prior service cost Accrued retiree health care cost 2005 2004 $ 544 $ 535...

  • Page 113
    ... contributions of $43 million were made to the retiree healthcare plan in 2005. The Company expects to make a cash contribution of $45 million to the retiree health care plan in 2006. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: 2006...

  • Page 114
    ... up to 10% of eligible compensation on an after-tax basis. The price an employee pays per share is 85% of the lower of the fair market value of the Company's 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...

  • Page 115
    ...for the year ended December 31, 2003. Before 2005, profit sharing contributions were generally based upon pre-tax earnings, as defined, with an adjustment for the aggregate matching contribution. Motorola Incentive Plan: The Motorola Incentive Plan provides eligible employees with an annual payment...

  • Page 116
    ... include reclassified incentive compensation costs, which were previously reported as a component of Selling, general and administrative (""SG&A'') expenditures, to Cost of sales and Research and development (""R&D'') expenditures based upon the function in which the related employees operate. The...

  • Page 117
    ..., relating to the sale of short-term receivables). 9. Commitments and Contingencies Leases The Company owns most of its major facilities, but does lease certain office, factory and warehouse space, land, and information technology and other equipment under principally non-cancelable operating...

  • Page 118
    .... The Government and Enterprise Mobility Solutions segment designs, manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems to a wide range of public safety, government, utility, transportation and other worldwide markets, and...

  • Page 119
    ...Connected Home Solutions segment designs, manufactures and sells a wide variety of broadband products, including: (i) digital systems and set-top boxes for cable television, Internet Protocol (""IP'') video and broadcast networks, (ii) high speed data products, including cable modems and cable modem...

  • Page 120
    ... Funds, deferred income taxes, marketable securities, property, plant and equipment, investments, and the administrative headquarters of the Company. Geographic area information Net Sales* 2004 Assets** 2004 Property, Plant, and Equipment 2005 2004 2003 Years Ended December 31 United States China...

  • Page 121
    ...: Year Ended December 31, 2005 $ 27 64 3 4 98 8 $106 Segment Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions General Corporate The following table displays a rollforward of the reorganization of business accruals established for exit costs and employee...

  • Page 122
    ... net reorganization of business charges by segment for employee separation and exit cost reserves: Year Ended December 31, 2004 $(27) 9 Ì (4) (22) 15 $ (7) Segment Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions General Corporate The following table...

  • Page 123
    ... $ 39 Segment Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions Other Products General Corporate The following table displays a rollforward of the reorganization of business accruals established for exit costs and employee separation costs from January...

  • Page 124
    ... have varying degrees of timing, technology, costs-tocomplete 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...

  • Page 125
    ...of mobile mesh networking and position location technologies that allow customers to deploy high-performance, Internet Protocol-based wireless broadband networks, for $169 million in cash. The Company recorded approximately $119 million in goodwill, none of which is expected to be deductible for tax...

  • Page 126
    ...257 251 758 Ì $1,283 $ $ Segment Mobile Devices Government and Enterprise Mobility Solutions Networks Connected Home Solutions Other Acquired $ Ì 134 59 Ì Ì $193 Adjustments 125) $(125) $ The goodwill impairment test is performed at the reporting unit level and is a two-step analysis. First...

  • Page 127
    ..., the Company determined that goodwill related to a sensor group, which was subsequently divested in 2005, was impaired by a total of $125 million. For the year ended December 31, 2003 the Company determined that goodwill at the infrastructure reporting unit of the Connected Home Solutions segment...

  • Page 128
    ...York Stock Exchange market prices and has not been adjusted to reflect the spin-off of Freescale Semiconductor, on December 2, 2004, in which holders of Motorola common stock at the close of business on November 26, 2004 received a dividend of .110415 shares of Freescale Semiconductor Class B common...

  • Page 129
    ... is accumulated and communicated to Motorola's management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Management's Report on Internal Control Over Financial Reporting. Motorola's management is responsible...

  • Page 130
    ...PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Motorola, Inc.: We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting in Item 9A: Controls and Procedures, that Motorola, Inc. maintained effective internal...

  • Page 131
    ... accounting officer). The Code is posted on Motorola's 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: [email protected], phone...

  • Page 132
    ... 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 Motorola's Proxy Statement. Item 13: Certain...

  • Page 133
    ...Stock Units Agreement Motorola 2006 Incentive Plan Motorola Long-Range Incentive Plan (LRIP) of 2005 Motorola Elected Officers Supplementary Retirement Plan Motorola Management Deferred Compensation Plan Motorola, Inc. Senior Officer Change in Control Severance Plan Motorola, Inc. Retiree Basic Life...

  • Page 134
    ... effectiveness of internal control over financial reporting as of December 31, 2005, and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005, annual report on Form 10-K of Motorola, Inc. Chicago, Illinois February 28...

  • Page 135
    ... EDWARD J. ZANDER Edward J. Zander Chairman of the Board and Chief Executive Officer February 28, 2006 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...

  • Page 136
    ... Signature /s/ JAMES R. STENGEL James R. Stengel Director Title Date February 28, 2006 /s/ DOUGLAS A. WARNER III Douglas A. Warner III DR. JOHN A. WHITE Dr. John A. White MILES D. WHITE Miles D. White Director February 28, 2006 /s/ Director February 28, 2006 /s/ Director February 28, 2006

  • Page 137
    ...to the Tax Sharing Agreement between Motorola, Inc. and Freescale Semiconductor, Inc. entered into as of June 18, 2004. (incorporated by reference to Exhibit 10(b)(ii) of Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004 (File No. 1-7221)). Employee Matters Agreement...

  • Page 138
    ... Share Option Plan of 1996, as amended through May 7, 1997 (incorporated by reference to Exhibit 10.6 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 1-7221)). Form of Motorola, Inc. Award DocumentÃŒTerms and Conditions Related to Non-Employee Director...

  • Page 139
    ...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 Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 1-7221)). Arrangement for directors' fees and retirement plan...

  • Page 140
    ...reference from the information under the caption ""How Are the Directors Compensated?'' of the Motorola Proxy Statement and to Exhibit 10.38 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 1-7221)). Employment Agreement between Motorola, Inc. and Edward...

  • Page 141
    ... contacting the Investor Relations Department as listed above. Independent Registered Public Accounting Firm KPMG LLP 303 East Wacker Drive Chicago, IL 60601 U.S.A. Non-Incorporation of Form 10-K ''Wrap'' Motorola's 2005 Form 10-K, as filed with the SEC, is included within this Annual Report. Other...

  • Page 142
    Motorola, Inc. 1303 E. Algonquin Road Schaumburg, Illinois 60196 U.S.A. 847-576-5000 www.motorola.com MOTOROLA and the Stylized M Logo are registered in the U.S. Patent and Trademark Office. All other product or service names are the property of their registered owners. © Motorola, Inc. 2006