Motorola 2006 Annual Report Download

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.06
Motorola, Inc. 2006 Annual Report

Table of contents

  • Page 1
    .06 Motorola, Inc. 2006 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 $42.9 billion in 2006. For more information about our company, our...

  • Page 3
    ...their time, talent and energy to their communities during our Ã'rst Global Day of Service. Investing for the Future In 2006, we made several investments that will drive future growth for this company: Wireless Broadband Ã" As a leading proponent of the mobile Internet, Motorola is well-positioned to...

  • Page 4
    .... Internet Protocol TV (IPTV) Ã" We are an early leader in the emerging opportunity for products for providers of IP-based video entertainment, having already shipped close to 1 million set-tops worldwide. We have also invested in key technologies that will bring our leading video delivery expertise...

  • Page 5
    MOTOROLA, INC. 2006 FORM 10-K

  • Page 6
    (This page intentionally left blank)

  • Page 7
    ...) was approximately $49.2 billion (based on closing sale price of $20.15 per share as reported for the New York Stock Exchange-Composite Transactions). The number of shares of the registrant's Common Stock, $3 par value per share, outstanding as of January 31, 2007 was 2,390,406,528. DOCUMENTS...

  • Page 8
    ... Devices Segment Networks and Enterprise Segment Connected Home Solutions Segment Other Information 2006 Change in Organizational Structure Financial Information About Segments Customers Backlog Research and Development Patents and Trademarks Environmental Quality Employees Financial...

  • Page 9
    ...access network solutions. We are also an industry leader in the development of next-generation IP wireless broadband mobility technologies, offering an entire suite of end-to-end WiMAX infrastructure and customer premises equipment products. In addition, we offer a family of point-to-point and point...

  • Page 10
    ... property used in the design and manufacture of wireless communication terminals and a leading provider of protocol stack software that offers rapid customization of handsets through its AJAR applications framework. In early 2007, Motorola completed the acquisition of Good Technology, Inc...

  • Page 11
    ... In 2006, the segment's total investment in R&D again increased to support new product development. General competitive factors in the market for our products include: design; time-to-market; brand awareness; technology offered; price; product proposition, performance, quality, delivery and warranty...

  • Page 12
    ... 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. Other countries...

  • Page 13
    ... and services, application platforms and third-party switching for CDMA, GSM, iDEN» and UMTS technologies. The segment also offers a portfolio of products, collectively known as Motorola MOTOwi4, which includes WiMAX, to create mobile Internet Protocol (""IP'') broadband access. These technologies...

  • Page 14
    ... the high single digits in 2007. With the completion of the Symbol acquisition in January 2007, Motorola's new enterprise mobility business offers a broad device portfolio which will enable us to compete more effectively in these markets. Our Strategy The Networks and Enterprise segment is executing...

  • Page 15
    ... communications and information systems, especially related to global homeland security. In January 2007, the segment completed the acquisition of Symbol, a leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions. Symbol...

  • Page 16
    ..., 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 Motorola's Wi4 portfolio, including WiMAX. Other countries have also deregulated...

  • Page 17
    ...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 than the segment's, stocking of lifetime buy inventories...

  • Page 18
    ... and services: (i) cable television, Internet Protocol (""IP'') video and broadcast network set-top boxes (""digital entertainment devices''), (ii) end-to-end digital video system solutions, (iii) broadband access networks, and (iv) IP-based data and voice products (including modems). In 2006, the...

  • Page 19
    ...-alone and integrated voice/data/WiFi gateways with support for handing off a mobile voice or data call to a WiFi access point and a carrier's VoIP network, and (ii) next-generation infrastructure products in the cable modem termination system (""CMTS'') and fiber optic network markets which expand...

  • Page 20
    ... communication system operators worldwide, technological leadership and new product development capabilities. We compete worldwide in the market for digital set-top boxes for broadband and satellite networks. Based on 2006 annual sales, we believe we are the leading provider of digital cable set...

  • Page 21
    ... results. Currently, reception of digital television programming from the cable broadband network requires a set-top box with certain technology. This security technology has limited the availability of set-top boxes to those manufactured by a few cable network manufacturers, including Motorola. The...

  • Page 22
    ..., Pennsylvania. We have several offices throughout North America, Europe, Latin America and Asia, and we operate manufacturing facilities in Taipei, Taiwan and Nogales, Mexico. We also use contract manufacturers, primarily in China, for a portion of our cable modem/voice module production in order...

  • Page 23
    ... 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 contained therein or incorporated therein are not intended to be incorporated into this Annual Report...

  • Page 24
    ... software used in the product. These issues may be caused by the components we purchase from other manufacturers. 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...

  • Page 25
    ... customer contracts, to pay damages for failed performance that might exceed the revenue 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...

  • Page 26
    ... 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...

  • Page 27
    ... when a customer initiates actual orders. The design win may never become an actual order or sale. Further, if the customer's plans change, we may commit significant resources to design wins that do not result in actual orders. We have taken, and continue to take, cost-reduction actions. Our ability...

  • Page 28
    ... with integrating financial reporting and internal control systems; (8) difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses; and (9) future impairments of goodwill of an acquired business. In 2006 and early 2007, we made...

  • Page 29
    ...way and we may not have compliant products available in the quantities requested by our customers, thereby impacting our sales and profitability. For example, electronic products sold into Europe were required to meet stringent chemical restrictions by July 1, 2006 under the EU RoHS Directive. China...

  • Page 30
    ... 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. Other countries...

  • Page 31
    ... of the Connected Home Solutions segment's total net sales in 2006. Regulatory changes impacting our cable products may adversely impact our business. Currently, reception of digital television programming from the cable broadband network requires a set-top box with certain technology. This security...

  • Page 32
    ... portfolio worldwide. In addition, as part of Motorola's overall strategy to reduce operating costs and improve the financial performance of the corporation, a number of businesses and facilities have either been sold or are currently for sale. During 2006, facilities in Rohnert Park, California and...

  • Page 33
    ... 3: Legal Proceedings Personal Injury Cases Cases relating to Wireless Telephone Usage On May 26, 2000, a purported nationwide class action suit Naquin, et al., v. Nokia Mobile Phones, et al. was filed against Motorola and several other cellular phone manufacturers and carriers in the Civil District...

  • Page 34
    ... ""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 35
    ... ""controlling persons of Motorola.'' During 2005, the court certified the case as a class action. The case is scheduled for trial beginning April 16, 2007. A purported class action, Howell v. Motorola, Inc., et al., was filed against Motorola and various of its directors, officers and employees in...

  • Page 36
    ... On February 5, 2007, the investigation was terminated by the SEC and the Company was notified that no enforcement action was recommended by the SEC. Charter Communications Class Action Securities Litigation On August 5, 2002, Stoneridge Investment Partners LLC filed a purported class action in the...

  • Page 37
    ...-District Litigation Panel issued a final 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. Adelphia Communications Corp.ÃŒRelated Cases Bankruptcy Court Lawsuit On...

  • Page 38
    ... and President, Broadband Communications Sector (""BCS'') from June 2002 to January 2005; Senior Vice President and General Manager, IP Systems Group, BCS from February 2000 to June 2002. Patricia B. Morrison; age 47; Executive Vice President, Chief Information Officer since February 2007; Senior...

  • Page 39
    ... Motorola common stock to pay the option exercise price in connection with the exercise of employee stock options. (2) Average price paid per share of stock repurchased under the 2006 Stock Repurchase Program is execution price, excluding commissions paid to brokers. (3) On May 18, 2005, the Company...

  • Page 40
    ... 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, 2001 and also assumes the reinvestment of dividends. This graph assumes reinvestment of the Company...

  • Page 41
    ... share Balance Sheet Total assets Long-term debt and redeemable preferred securities Total debt and redeemable preferred securities Total stockholders' equity Other Data Capital expenditures % of sales Research and development expenditures % of sales Year-end employment (in thousands)* * Employment...

  • Page 42
    ... cable television, Internet Protocol (""IP'') video and broadcast network set-top boxes (""digital entertainment devices''), (ii) end-to-end digital video system solutions, (iii) broadband access networks, and (iv) IP-based data and voice products (including modems). The segment's net sales in 2006...

  • Page 43
    ...from 2005, and gained more than four percentage points of global market share to an estimated 22%. The gain in market share reflected strong demand for our products, particularly our products for GSM and CDMA technologies. The segment had higher net sales in High Growth markets (defined as countries...

  • Page 44
    ...in 2006, Motorola significantly expanded its presence in the enterprise space. In January 2007, we completed the acquisition of Symbol Technologies, Inc. (""Symbol''), an industry leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility...

  • Page 45
    ... video set-top boxes and cable modems, with sales of $3.3 billion in 2006. Motorola shipped over 10 million digital set-tops this year and almost one-third of these shipments were high-definition TV (""HDTV'') capable. Motorola shipped over 10 million data modems, of which 3.7 million were voice...

  • Page 46
    ...home and across mobile applications. 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, short product life cycles and evolving...

  • Page 47
    ...Ì2006 Compared to 2005 Net Sales Net sales were $42.9 billion in 2006, up 22% compared to $35.3 billion in 2005. The increase in net sales includes: (i) a $6.9 billion increase in net sales by the Mobile Devices segment, driven by a 49% increase in unit shipments, reflecting strong demand for GSM...

  • Page 48
    ... sales, in 2005. The increase in SG&A expenses was primarily driven by: (i) increased marketing expenses, mainly in the Mobile Devices segment, to support higher net sales and promote brand awareness, (ii) recognition of share-based compensation expense to SG&A-related employees in connection with...

  • Page 49
    ...the sale of the Company's remaining shares in Sprint Nextel Corporation (""Sprint Nextel''). In 2005, the net gains were primarily related to: (i) a $1.3 billion net gain in connection with the completion of the merger between Sprint Corporation (""Sprint'') and Nextel Communications, Inc. (""Nextel...

  • Page 50
    ... in all three of the Company's segments in 2005 compared to 2004. The overall increase in net sales reflected: (i) a $4.4 billion increase in net sales by the Mobile Devices segment, driven by a 40% increase in unit shipments, reflecting strong demand for GSM handsets, (ii) a $737 million increase...

  • Page 51
    ... Company's shares in Nextel Partners, Inc. Other Charges classified as Other, as presented in Other income (expense), were $109 million in 2005, compared to $140 million in 2004. The $109 million of net charges in 2005 were primarily comprised of: (i) $137 million of debt retirement costs, relating...

  • Page 52
    ... Cost of sales. 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) integrating the former Networks segment and Government and Enterprise Mobility...

  • Page 53
    ...accruals no longer needed. Total employees impacted by these action were approximately 2,600. The following table displays the net reorganization of business charges by segment: Year Ended December 31, Mobile Devices Networks and Enterprise Connected Home Solutions General Corporate 2005 $27 52 4 83...

  • Page 54
    ... for fixed asset adjustment income. Total employees impacted by these actions were approximately 800. The following table displays the net reorganization of business charges by segment: Year Ended December 31, Mobile Devices Networks and Enterprise Connected Home Solutions General Corporate 2004...

  • Page 55
    ...) $(52) 2004 Amount Used $ (31) (95) $(126) Accruals at December 31, 2004 $ 73 41 $114 Liquidity and Capital Resources As highlighted in the consolidated statements of cash flows, the Company's liquidity and available capital resources are impacted by four key components: (i) current cash and cash...

  • Page 56
    ... to its non-U.S. pension plans. The Company contributed $27 million to its retiree health care plan in 2006, compared to $43 million in 2005, and expects to contribute $24 million to this plan in 2007. Retirement-related benefits are further discussed below in the ""Significant Accounting Policies...

  • Page 57
    ... from the sale of the automotive electronics business, (ii) $820 million from the sale of the Company's remaining shares in Sprint Nextel Corporation (""Sprint Nextel'') and the termination and cash settlement of a zero-cost collar derivative relating to these Sprint Nextel shares (the ""Sprint...

  • Page 58
    ... of $60 million. At December 31, 2005, the Company's available-for-sale securities portfolio had an approximate fair market value of $1.2 billion, which represented a cost basis of $1.1 billion and a net unrealized gain of $157 million. Sprint Nextel Investment: During the first quarter of 2006, the...

  • Page 59
    ... used to pay dividends, partially offset by proceeds of $1.2 billion received from the issuance of common stock in connection with the Company's employee stock option plans and employee stock purchase plan. Short-term Debt: At December 31, 2006, the Company's outstanding notes payable and current...

  • Page 60
    ... common stock (""ASB''). In October 2006, the Company received the final distribution of shares under the ASB. The total shares purchased under the ASB were 50.5 million shares. The ASB completed the 2005 Stock Repurchase Program. On July 24, 2006, the Board of Directors authorized the Company to...

  • Page 61
    ...period. The Company estimates purchases during that period that exceed the minimum obligations. The Company outsources certain corporate functions, such as benefit administration and information technology-related services. These contracts are expected to expire in 2013. The total remaining payments...

  • Page 62
    ... to fund equipment purchases. The Company had committed to provide financial guarantees relating to customer financing totaling $122 million and $140 million at December 31, 2006 and December 31, 2005, respectively (including $19 million and $66 million, respectively, relating to the sale of short...

  • Page 63
    ... Insurance Fund (""TMSF'') are third-party beneficiaries of the settlement agreement. In settlement of its claims, the Company received $410 million in cash in 2006 and $500 million in 2005. The Company is permitted to, and will continue to, enforce its U.S. court judgment against the Uzan family...

  • Page 64
    ... in average selling price (""ASP''). On a product technology basis, net sales of products for GSM and CDMA technologies increased and net sales of products for iDEN and UMTS technologies decreased. On a geographic basis, net sales increased in High Growth markets (defined as countries in the Middle...

  • Page 65
    ... Hong Kong. During 2006, the segment completed the acquisition of TTP Communications plc, a developer of intellectual property used in the design and manufacture of wireless communication terminals and a leading provider of protocol stack software that offers rapid customization of handsets through...

  • Page 66
    ... in 39 countries through 2006. Sprint Nextel is the segment's largest customer and the segment has been Sprint Nextel's sole supplier of iDEN network infrastructure equipment for more than ten years. Sprint Nextel uses Motorola's proprietary iDEN technology to support its nationwide wireless service...

  • Page 67
    ... designs, manufactures, sells and services: (i) cable television, Internet Protocol (""IP'') video and broadcast network set-top boxes (""digital entertainment devices''), (ii) end-to-end digital video system solutions, (iii) broadband access networks, and (iv) IP-based data and voice products

  • Page 68
    ... Netopia, Inc., a broadband equipment provider for DSL customers, which allows for phone, TV and fast Internet connections. The segment also announced its intention to acquire Tut Systems, Inc., a leading developer of edge routing and video encoders. Years Ended December 31 2006 2005 2004 $3,327 224...

  • Page 69
    ... or upgrading their communications systems and services. After a number of years of decreased capital spending, in 2005 and 2004 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 70
    ... on historical experience taking into account the type of products sold, the type of customer and the type of transaction specific to each arrangement. The Company's long-term contracts may involve the design, engineering, manufacturing and installation of wireless networks and two-way radio voice...

  • Page 71
    ...and customer requirements. As indicated above, the Company's inventory reserves represented 12% and 18% of the gross inventory balance at December 31, 2006 and 2005, respectively. The Company has inventory reserves for pending cancellations of product lines due to technology changes, long-life cycle...

  • Page 72
    ... of the economic environment on our customer base. 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...

  • Page 73
    ... 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's investment return assumption for the Regular Pension Plan and Postretirement Health Care Benefits Plan was 8.5% in 2006 and 2005...

  • Page 74
    ... to its non-U.S. pension plans during 2007. For the Postretirement Health Care Benefits Plan, the Company currently estimates 2007 expenses for continuing operations will be approximately $21 million. The 2006 and 2005 actual expenses were $22 million and $27 million, respectively. Motorola is...

  • Page 75
    ... the Company's consolidated financial statements. In September 2006, the FASB issued SFAS No. 158, ""Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans'' (""SFAS 158''). SFAS 158 requires employers to (i) recognize the funded status of their defined benefit pension and...

  • Page 76
    ...location of such sales, (f) future cash contributions to pension plans or retiree health benefit plans, (g) outstanding commercial paper balances, (h) the Company's ability and cost to access the capital markets, (i) the Company's ability to retire outstanding debt, (j) adequacy of resources to fund...

  • Page 77
    ... 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, 2006 and 2005, the Company had net outstanding foreign exchange contracts totaling $4.8 billion and $2.8 billion...

  • Page 78
    ... 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 Nextel's spin-off of Embarq Corporation through a dividend to Sprint Nextel shareholders, the Company received...

  • Page 79
    ...cash 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...

  • Page 80
    ... by 10% from current levels. Except as noted below, the Company had no outstanding commodity derivatives, currency swaps or options relating to debt instruments at December 31, 2006 or December 31, 2005. The Company designated the above interest rate swap agreements as part of a fair value...

  • Page 81
    ...158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans Ì an amendment of FASB Statements No. 87, 88, 106, and 132(R). We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Motorola...

  • Page 82
    74 Motorola, Inc. and Subsidiaries Consolidated Statements of Operations (In millions, 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):...

  • Page 83
    ... debt Accounts payable Accrued liabilities Current liabilities held for sale Total current liabilities Long-term debt Other liabilities Non-current liabilities held for sale Stockholders' equity Preferred stock, $100 par value Common stock, $3 par value Issued shares: 2006Ì2,399.1 and 2005Ì2,502...

  • Page 84
    ...on securities (net of tax of $37) Foreign currency translation adjustments (net of tax of $1) Retirement benefits adjustments (net of tax of $150) Issuance of common stock and stock options exercised Share repurchase program Excess tax benefits from share-based compensation Stock option and employee...

  • Page 85
    ... of common stock Purchase of common stock Excess tax benefits from share-based compensation Net payments related to debt redemption Distribution from (to) discontinued operations Payment of dividends Net cash used for financing activities from continuing operations Effect of exchange rate changes...

  • Page 86
    ... criteria, the following specific revenue recognition policies are followed: Products and Equipment Ì For product and equipment sales, delivery generally does not occur until the products or equipment have been shipped, risk of loss has transferred to the customer, and objective evidence exists...

  • Page 87
    ...and 74 days at December 31, 2006 and 2005, respectively. The Company values investments in the Sigma Funds using the amortized cost method, which approximates current market value. Under this method, securities are valued at cost when purchased and thereafter a constant proportionate amortization of...

  • Page 88
    .... 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...

  • Page 89
    ... the Company's consolidated financial statements. In September 2006, the FASB issued SFAS No. 158, ""Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans'' (""SFAS 158''). SFAS 158 requires employers to (i) recognize the funded status of their defined benefit pension and...

  • Page 90
    ... of $397 million related to the excess of the IPO price over the book value of the shares sold. Concurrently in July 2004, Freescale Semiconductor issued senior debt securities in an aggregate principal amount of $1.25 billion. On December 2, 2004, Motorola completed the spin-off of its remaining...

  • Page 91
    ... Property, plant and equipment, net Investments Deferred income taxes, non-current Other assets Liabilities Accounts payable Accrued liabilities Other liabilities 2005 $144 100 35 33 251 10 49 13 $635 $111 209 4 $324 3. Other Financial Data Statement of Operations Information Other Charges (Income...

  • Page 92
    ...Sheet Information Accounts Receivable Accounts receivable, net, consists of the following: December 31 Accounts receivable Less allowance for doubtful accounts 2006 2005 $7,587 $5,753 (78) (101) $7,509 $5,652 Inventories Inventories, net, consist of the following: December 31 Finished goods Work...

  • Page 93
    ... 2005 2004 $1,848 $434 (3) 26 $1,845 $460 In 2006, the $41 million of net gains was primarily related to a $141 million gain on the sale of the Company's remaining shares in Telus Corporation, partially offset by a $126 million loss on the sale of the Company's remaining shares in Sprint Nextel...

  • Page 94
    ... the first half of 2005, the Company sold 22.5 million shares of common stock of Nextel Communications, Inc. (""Nextel''). The Company received approximately $679 million in cash and realized a pretax gain of $609 million from these sales. On August 12, 2005, Sprint Corporation completed its merger...

  • Page 95
    ... net of tax Net unrealized losses on securities, net of tax 2006 2005 $ 31 $ (204) 91 1,116 $(60) $(1,320) Share Repurchase Program In May 2005, the Board of Directors authorized the Company to purchase up to $4.0 billion of its outstanding shares of common stock over a period of up to 36 months...

  • Page 96
    ... value adjustment Notes payable and current portion of long-term debt 2006 $ 71 300 371 1,340 (18) $1,693 2005 $ 29 300 329 119 Ì $448 Weighted average interest rates on short-term borrowings Commercial paper Other short-term debt 5.1% 5.8% 3.4% 3.4% In January 2007, the Company repaid, at...

  • Page 97
    ... amounts unused was 6.5 basis points. Important terms of the 5-Year Credit Facility include a covenant relating to the ratio of total debt to EBITDA. The Company was in compliance with the terms of the 5-year Credit Facility at December 31, 2006. The Company's current corporate credit ratings are...

  • Page 98
    ... had no outstanding commodity derivatives, currency swaps or options relating to debt instruments at December 31, 2006 or December 31, 2005. The Company designated the above interest rate swap agreements as part of a fair value hedging relationship. As such, changes in the fair value of the hedging...

  • Page 99
    ... 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 Nextel's spin-off of Embarq Corporation through a dividend to Sprint Nextel shareholders, the Company received...

  • Page 100
    ...cash 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...

  • Page 101
    ...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 Deferred revenue Valuation allowances Deferred charges Other 2006 2005 $ 163 $ 223...

  • Page 102
    .... The Internal Revenue Service (""IRS'') is currently conducting its field examination of the Company's 2001 through 2003 tax returns. In June 2006, in connection with this examination, the Company received notices of proposed adjustments for the 2001 and 2002 taxable years relating to transfer...

  • Page 103
    ... January 1, 2007, their current eligible compensation is frozen for calculation purposes. As of December 31, 2006, the Company was required to apply SFAS No. 158, ""Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans'' (""SFAS 158'') to recognize the funded status of its...

  • Page 104
    ... Plan, Officers' Plan and 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 2006...

  • Page 105
    ...Return on plan assets Company contributions Employee contributions 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 Prepaid (accrued) pension...

  • Page 106
    ...60% 4.14% N/A December 31 Accumulated benefit obligation Regular $4,969 2006 Officers' and MSPP $125 Non U.S. $1,690 Regular $4,759 2005 Officers' and MSPP $149 Non U.S. $1,429 The Company has adopted a pension investment policy designed to meet or exceed the expected rate of return on plan...

  • Page 107
    ... be paid: Officers and MSPP $13 15 14 14 25 45 Non U.S. $27 30 33 36 40 267 Year 2007 2008 2009 2010 2011 2012-2016 Postretirement Health Care Benefit Plan Regular $ 186 196 206 218 233 1,473 Certain health care benefits are available to eligible domestic employees meeting certain age and service...

  • Page 108
    ...Health Care Benefit Plan 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 postretirement health care expense The funded status of the plan...

  • Page 109
    ... net periodic cost for the Postretirement Health Care Benefit Plan in 2007. In connection with the spin-off of Freescale Semiconductor, post-retirement health care benefit obligations relating to eligible former and active vested Freescale Semiconductor employees on December 2, 2004 (""Spin-off Date...

  • Page 110
    ... Stock Purchase Plan The Company grants options to acquire shares of common stock to certain employees, non-employee directors and to existing option holders in connection with the merging of option plans following an acquisition. Each option granted has an exercise price of 100% of the fair market...

  • Page 111
    ... 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 Company's stock on the close of the first trading day or last...

  • Page 112
    ... 31, 2006, the Company had $408 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...

  • Page 113
    ... 31, 2006 was seven and six 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 Company's common stock which are awarded to employees and non-employee directors. The...

  • Page 114
    ... to stock compensation costs for such options. As a result of adopting SFAS 123R, $165 million of excess tax benefits for 2006 have been classified as a financing cash inflow. Motorola Incentive Plan The Motorola Incentive Plan provides eligible employees with an annual payment, calculated...

  • Page 115
    ... Fund (""TMSF'') are third-party beneficiaries of the settlement agreement. In settlement of its claims, the Company received $410 million in cash in 2006 and $500 million in cash in 2005. The Company is permitted to, and will continue to, enforce its U.S. court judgment against the Uzan family...

  • Page 116
    ... to fund equipment purchases. The Company had committed to provide financial guarantees relating to customer financing totaling $122 million and $140 million at December 31, 2006 and December 31, 2005, respectively (including $19 million and $66 million, respectively, relating to the sale of short...

  • Page 117
    ... worldwide enterprise markets (referred to as the ""private networks'' market). In January 2007, the segment completed the acquisition of Symbol Technologies Inc., a leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions...

  • Page 118
    ... strategy, legal, human resources, finance and CEO and CFO functional staff expenses, (ii) corporate marketing expenses, and (iii) research and development projects. In 2006, the Company also recorded income of $418 million for a payment relating to the Telsim settlement, partially offset by...

  • Page 119
    ... end customer. ** Excludes assets held for sale relating to discontinued operations of $635 million and $774 million at December 31, 2005 and 2004, respectively. 12. Shareholder Rights Plan Effective August 1, 2006 (the ""Termination Date''), the Company terminated its shareholder rights plan. The...

  • Page 120
    ... no longer needed. Total employees impacted by the actions committed to in 2006 are 3,900. The following table displays the net reorganization of business charges by segment: Year Ended December 31, Mobile Devices Networks and Enterprise Connected Home Solutions General Corporate 2006 $ (1) 157 50...

  • Page 121
    ... by segment: Year Ended December 31, Mobile Devices Networks and Enterprise Connected Home Solutions General Corporate 2005 $27 52 4 83 8 $91 The following table displays a rollforward of the reorganization of business accruals established for exit costs and employee separation costs from January...

  • Page 122
    ... by segment: Year Ended December 31, Mobile Devices Networks and Enterprise Connected Home Solutions General Corporate 2004 $(28) 2 (4) (30) 15 $(15) The following table displays a rollforward of the reorganization of business accruals established for exit costs and employee separation costs from...

  • Page 123
    ... Other intangibles In-process research and development Consideration: Cash Stock 2006 $ 20 262 170 30 $ 482 $ 482 Ì $ 482 2005 2004 $ 39 178 55 18 $ 290 $ 290 Ì $ 290 Broadbus Technologies, Inc. In September 2006, the Company acquired Broadbus Technologies, Inc. (""Broadbus''), a leading...

  • Page 124
    .... MeshNetworks In November 2004, the Company acquired MeshNetworks, Inc. (""MeshNetworks''), a developer 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...

  • Page 125
    ... 2007, the Networks and Enterprise segment completed the acquisition of Symbol Technologies, Inc. (""Symbol''), for approximately $3.9 billion in cash. Symbol is a leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions...

  • Page 126
    ...firms using a combination of present value techniques and quoted market prices of comparable businesses. No impairment charges were required for the year ended December 31, 2006 or December 31, 2005. For the year ended December 31, 2004, the Company determined that goodwill related to a sensor group...

  • Page 127
    ... for the years ended December 31, 2006, 2005 and 2004: Balance at Charged to January 1 Earnings 2006 Reorganization of Businesses Allowance for Doubtful Accounts Allowance for Losses on Finance Receivables Inventory Reserves Warranty Reserves Customer Reserves 2005 Reorganization of Businesses...

  • Page 128
    120 16. Quarterly and Other Financial Data (unaudited)* 2006 1st Operating Results Net sales Costs of sales Gross margin Selling, general and administrative expenses Research and development expenditures Other charges (income) Operating earnings Earnings from continuing operations Net earnings Per ...

  • Page 129
    ... 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...

  • Page 130
    ... 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, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity and cash flows...

  • Page 131
    ...Awards at 2006 Fiscal Year-End,'' ""Option Exercises and Stock Vested for 2006,'' ""Pension Benefits in 2006,'' ""Nonqualified Deferred Compensation in 2006,'' and ""Employment Contracts, Termination of Employment and Change in Control Arrangements'' of Motorola's Proxy Statement. Item 12: Security...

  • Page 132
    ... to this Item incorporates by reference the relevant information under the caption ""Related Person Transaction Policy and Procedures'' and ""Which Directors Are Independent'' of Motorola's Proxy Statement. Item 14: Principal Accounting Fees and Services The response to this Item incorporates by...

  • Page 133
    ...J. Zander relating to the Motorola Omnibus Incentive Plan of 2006 Form of Motorola Stock Option Consideration Agreement for Edward J. Zander, Chairman and Chief Executive Officer, Motorola, Inc. Form of Deferred Stock Units Agreement between Motorola, Inc. and its non-employee directors, relating to...

  • Page 134
    ... Retirement Plan Motorola Management Deferred Compensation Plan Motorola, Inc. Senior Officer Change in Control Severance Plan Motorola, Inc. Retiree Basic Life Insurance for Elected Officers prior to January 1, 2004 who retire after January 1, 2005 Arrangement for directors' fees for non-employee...

  • Page 135
    ..., effective January 1, 2006 and Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans Ì an amendment of FASB Statements No. 87, 88, 106, and 132(R), effective December 31, 2006. Chicago, Illinois February 28, 2007

  • Page 136
    ... EDWARD J. ZANDER Edward J. Zander Chairman of the Board and Chief Executive Officer February 28, 2007 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 137
    ... /s/ SAMUEL C. SCOTT III Samuel C. Scott III /s/ RON SOMMER Ron Sommer JAMES R. STENGEL James R. Stengel Director Title Date February 28, 2007 Director February 28, 2007 /s/ Director February 28, 2007 /s/ DOUGLAS A. WARNER III Douglas A. Warner III DR. JOHN A. WHITE Dr. John A. White MILES...

  • Page 138
    ...Chief Executive Officer, Motorola, Inc., as amended on May 2, 2006 (incorporated by reference to Exhibit 10.41 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2006) (File No. 1-7221)). Form of Deferred Stock Units Agreement between Motorola, Inc. and its non-employee...

  • Page 139
    ... 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 Nonqualified Stock Options relating to the Motorola Omnibus Incentive Plan of 2002 (incorporated...

  • Page 140
    ... by reference from the information under the caption ""How Are the Directors Compensated?'' of Motorola's Proxy Statement for the Annual Meeting of Stockholders currently scheduled to be held on May 7, 2007 (""Motorola Proxy Statement'')). Insurance covering non-employee directors and their spouses...

  • Page 141
    ... Exhibit 10.45 to Motorola's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2006) (File No. 1-7221)). Description of Future Compensation Arrangements between Motorola, Inc. and David Devonshire, Executive Vice President and Chief Financial Officer of the Company, as of March 2002...

  • Page 142
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  • Page 143
    ... by 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 2006 Form 10-K, as filed with the SEC, is included within this Annual Report...

  • Page 144
    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. 2007