Motorola 2005 Annual Report Download - page 77

70 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
benefits are accounted for in accordance with Statement No. 112, ""Accounting for Postemployment Benefits''
(""SFAS 112''). Under the provisions of SFAS 112, 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 primarily
consist of future minimum lease payments on vacated facilities.
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 Company's 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 to some of its foreign entities (the ""Non-U.S. Plans'').
The Company also has a noncontributory supplemental retirement benefit plan (the ""Officers' Plan'') for its
elected officers. The Officers' Plan contains provisions for 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, no new elected officers were
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 in excess of the limitations imposed
by the Internal Revenue Code on the Regular Pension Plan. All newly-elected officers are participants in MSPP.
Elected officers covered under the Officers' Plan or who participated in the restricted stock buy-out are not eligible
to participate in MSPP.
Certain healthcare benefits are available to eligible domestic employees meeting certain age and service
requirements upon termination of employment (the ""Postretirement Healthcare 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 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 for Pensions,'' and SFAS No. 106, ""Employers'
Accounting for Postretirement Benefits Other Than Pensions,'' respectively. These models 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