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Motorola, Inc. 2007 Annual Report
'07

Table of contents

  • Page 1
    '07 Motorola, Inc. 2007 Annual Report

  • Page 2
    ... high-definition television (HDTV) technical standard and demonstrated the world's first WiMAX 802.16e mobile handoff. Today, Motorola develops a portfolio of technologies, solutions and services - including wireless handsets, wireless accessories, digital entertainment devices, wireless access...

  • Page 3
    ... of services and applications across delivery platforms. Our Enterprise Mobility Solutions business delivers exciting new technologies to an expanding mobile workforce and provides an innovative product offering to government and public safety customers. In 2007, we successfully completed the...

  • Page 4
    ... on current plans, the creation of the two stand-alone businesses is expected to take the form of a tax-free distribution to Motorola's shareholders, subject to further financial, tax and legal analysis, resulting in shareholders holding shares of two independent and publicly traded companies. We...

  • Page 5
    MOTOROLA, INC. 2007 FORM 10-K

  • Page 6

  • Page 7
    ...business day of the Registrant's most recently completed second quarter) was approximately $40.6 billion (based on closing sale price of $17.70 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...

  • Page 8
    ... ...Item 1. Business ...General ...Business Segments ...Mobile Devices Segment ...Home and Networks Mobility Segment...Enterprise Mobility Solutions Segment ...Other Information ...2007 Change in Organizational Structure ...Financial Information About Segments ...Customers ...Backlog ...Research and...

  • Page 9
    ... network interactive set-tops ("digital entertainment devices"), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers, and (ii) wireless access...

  • Page 10
    ... price points. The Feature product segment focuses on delivering iconic, fashionable phones with high-end features. During 2007, we refreshed our flagship RAZR franchise with the RAZR2, the luxurious RAZR2 V8, and a RAZR classic with video playback and a digital audio processor music player...

  • Page 11
    ... business. General competitive factors in the market for the segment's products include: design; time-to-market; brand awareness; technology offered; price; product proposition, performance, quality, delivery and warranty; the quality and availability of service; and relationships with key customers...

  • Page 12
    ... costs. Deregulation may introduce new competition and new opportunities for Motorola and our customers. In addition, Mobile WiMAX was recently approved as a global IMT (International Mobile Telecommunications) standard. This action lays the foundation to further expand mobile WiMAX in key bands...

  • Page 13
    ...digital entertainment devices"), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers (collectively, referred to as the "home business"), and (ii...

  • Page 14
    ...allow retail customers direct access to programming. Traditionally, service providers have leased digital entertainment devices to their customers. In the wireless networks market, the majority of installed cellular infrastructure systems are based on CDMA, GSM, UMTS and iDEN technologies. We supply...

  • Page 15
    ...-generation converged IP-based voice, data and video delivery. These solutions include: (i) broadband gateways with support for handing off a mobile voice or data call to a carrier's VoIP or data network, and (ii) next-generation infrastructure products enhancing our cable modem termination system...

  • Page 16
    ... the sale of set-tops and integrated devices, such as televisions and DVRs, that will allow retail customers direct access to programming. Traditionally, cable service providers have leased the set-top to their customers. We also compete worldwide in the market for broadband data and voice products...

  • Page 17
    ... relating to the access to allocated spectrum for wireless communications users, especially in urban areas where spectrum is heavily used. Historically, reception of digital television programming from a cable broadband network has required a settop with security technology. This security technology...

  • Page 18
    .... Major design, integration, manufacturing and distribution centers are located in: Arlington Heights and Schaumburg, Illinois; Chandler, Arizona; Fort Worth, Texas; Taipei, Taiwan; Nogales, Mexico; Bangalore, India; Swindon, England; Hangzhou and Tianjin, China; and Penang, Malaysia. In addition to...

  • Page 19
    ... solutions and individual devices. The segment's products are sold through Motorola's direct sales force and through independent and authorized distributors, dealers and value-added resellers, original equipment manufacturers, service operators and independent commission sales representatives...

  • Page 20
    ... and technology evolves. Key strategies include: (i) continuing investment in our analog radio portfolio while leading the ongoing migration to digital products, (ii) leveraging our wireless broadband portfolio to drive growth and enter new markets, (iii) managing the anticipated public/private...

  • Page 21
    ... highly competitive and acutely influenced by advances in technology, industry standards, product improvements, new product introductions and price competition. Many firms are engaged in the manufacturing and marketing of products in bar code reading equipment, wireless networks and mobile computing...

  • Page 22
    ...MHz band. A number of other countries around the world have also indicated their intention to pursue the availability of digital dividend spectrum. A global focus on enhancing security and "connecting the unconnected" is providing new opportunities for Motorola's wireless broadband and RFID products...

  • Page 23
    ...term warranty and contractual requirements. In addition, replacement parts are stocked for delivery on customer demand within a short delivery cycle. At the end of 2007, the segment had a higher inventory balance than at the end of 2006, primarily as a result of the acquisition of Symbol during 2007...

  • Page 24
    ... on its research and development ("R&D") programs for the development of new products, and on its production engineering capabilities for the improvement of existing products. Technical data and product application ideas are exchanged among Motorola's business segments on a regular basis. Management...

  • Page 25
    ...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 contained therein or incorporated therein are not...

  • Page 26
    ...in developing and introducing new products, such as: advanced wireless handsets; WiMAX; 4G technologies for wireless broadband networks; products for transmission of telephony and high-speed data over hybrid fiber coaxial cable systems; integrated digital radios; and integrated public safety systems...

  • Page 27
    ... in all of our businesses. We have discontinued product lines, exited businesses, consolidated manufacturing operations, increased manufacturing with third parties and reduced our employee population. The impact of these cost-reduction actions on our sales and profitability may be influenced by...

  • Page 28
    ... may be caused by components we purchase from other manufacturers or suppliers. Often these issues are identified prior to the shipment of the products and may cause delays in shipping products to customers, or even the cancellation of orders by customers. Sometimes, we discover quality issues in...

  • Page 29
    ... allow us to supplement internal manufacturing capacity and share the cost of developing next-generation technologies. Other partnerships allow us to offer more services and features to our customers. If such arrangements do not develop as expected, our business could be adversely impacted...

  • Page 30
    ... competitive tools and may generate income under license agreements. We regard our intellectual property rights as proprietary and attempt to protect them with patents, copyrights, trademarks, trade secret laws, confidentiality agreements and other methods. We also generally restrict access to...

  • Page 31
    ... certain of these acquisitions. Key employees of acquired businesses may receive substantial value in connection with a transaction in the form of change-in-control agreements, acceleration of stock options and the lifting of restrictions on other equitybased compensation rights. To retain such...

  • Page 32
    ...of our investments in these companies, and in some cases have. The Sigma Fund, an investment fund owned by the Company, holds U.S. Dollar-denominated debt obligations which include corporate bonds and asset- and mortgage-backed securities. The fair value of these holdings may experience temporary or...

  • Page 33
    ... by the cost of new licenses required to use frequencies and any related frequency relocation costs. The U.S. leads the world in spectrum deregulation, allowing new wireless communications technologies to be developed and offered for sale. Examples include wireless local area network systems, such...

  • Page 34
    ... impact our sales of set-tops. Historically, reception of digital television programming from a cable broadband network has required a settop with security technology. As a result, sourcing of these set-tops was traditionally limited to a few cable network manufacturers, including Motorola. FCC...

  • Page 35
    ...See "Item 1: Business" for information regarding the location of the principal manufacturing facilities for each of Motorola's business segments.) Motorola owns 43 facilities (manufacturing, sales, service and office), 26 of which are located in Americas Region (USA, Canada, Mexico and Latin America...

  • Page 36
    ...is still pending. Iridium-Related Cases Class Action Securities Lawsuits Motorola has been named as one of several defendants in putative class action securities lawsuits arising out of alleged misrepresentations or omissions regarding the Iridium satellite communications business which, on March 15...

  • Page 37
    ... Court of Cook County, Illinois, is a shareholder derivative action against fifteen current and former members of the Motorola Board of Directors and Motorola as a nominal defendant. The lawsuit alleges that the Motorola directors breached their fiduciary duty to the Company and/or committed gross...

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

  • Page 39
    ... 24, 2007, two lawsuits were filed as purportedly derivative actions on behalf of Motorola, Williams v. Zander, et al., and Cinotto v. Zander, et al., in the Circuit Court of Cook County, Illinois against the Company and certain of its current and former officers and directors. These complaints make...

  • Page 40
    ... Panel issued a final order transferring the case to New York and that transfer is final. Motorola filed a motion to dismiss the complaint in this action on September 19, 2005, which is awaiting decision. Adelphia Communications Corp.-Bankruptcy Court Lawsuit On June 23, 2006, Adelphia objected to...

  • Page 41
    ..., International Sales Operations, Networks and Enterprise from May 2006 to May 2007; Senior Vice President, International Sales Operations, Government and Enterprise Mobility Solutions from May 2005 to May 2006; Executive Vice President and President, Global Relations and Resources Organization...

  • Page 42
    ... equity compensation plans involving the delivery to the Company of 12,043 shares of Motorola common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock granted to Company employees. (2) Through actions taken on July 24, 2006 and March 21, 2007, the Board...

  • Page 43
    ... is treated as a non-taxable cash dividend of $2.06 (the value of 0.110415 Freescale Class B Shares, based on Freescale Semiconductor's December 2, 2004 closing price of $18.69) that would have been reinvested in Motorola common stock at the close of business on December 2, 2004. Five-Year...

  • Page 44
    ... preferred securities Total stockholders' equity Other Data Capital expenditures % of sales Research and development expenditures % of sales Year-end employment (in thousands)* 2007 $ 36,622 26,670 9,952 5,092 4,429 984 (553) 91 50 22 163 (390) (285) (105) 56 (49) Years Ended December 31 2006 2005...

  • Page 45
    ...digital entertainment devices"), end-to-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers (collectively, referred to as the "home business"), and (ii...

  • Page 46
    ... share to be approximately 14% for the full year 2007. During 2007, the Mobile Devices business launched 41 new phones, including several devices based on its newer open software platforms. New devices included: the RAZR2 Feature Phone for GSM, CDMA and UMTS technologies; the ROKR Z6 family of music...

  • Page 47
    .... Motorola shipped over 15 million digital entertainment devices during the year, with nearly one-third of these shipments being HD/DVR capable. In 2007, Motorola shipped over 11 million modems and achieved the milestone of shipping its 50 millionth cable/voice modem. Sales in the home business grew...

  • Page 48
    ... and public safety and commercial enterprise markets, global network of channel partners, and distributors and solid market growth make our Enterprise Mobility Solutions segment well positioned for continued success. Although the Company implemented a number of actions last year to reduce cost...

  • Page 49
    ... We conduct our business in highly competitive markets, facing both new and established competitors. The markets for many of our products are characterized by rapidly changing technologies, frequent new product introductions, changing consumer trends, short product life cycles and evolving industry...

  • Page 50
    ... from the Symbol business acquired in January 2007, as well as higher net sales in the government and public safety market due to strong demand in North America. The 9% increase in net sales in the Home and Networks Mobility segment was primarily driven by a 51% increase in unit shipments of digital...

  • Page 51
    ... $1.3 billion in net tax expense in 2006. The Company's net tax benefit for 2007 was favorably impacted by an increase in tax credits compared to 2006. The Company's net tax benefit was also favorably impacted by: (i) the settlement of tax positions, (ii) tax incentives received, and (iii) reversal...

  • Page 52
    ... unit shipments, (ii) savings from supply chain cost-reduction initiatives, and (iii) increased income from intellectual property and technology licensing, partially offset by an 11% decline in ASP. The Enterprise Mobility Solutions segment also achieved higher gross margin in 2006 compared to 2005...

  • Page 53
    ... Solutions segments, and (ii) recognition of share-based compensation expense to R&D-related employees in connection with the adoption of SFAS 123R. R&D expenditures as a percentage of net sales decreased in 2006 compared to 2005, driven by decreases in the Mobile Devices and Home and Networks...

  • Page 54
    ... of the American Jobs Creation Act of 2004 and an $81 million net tax benefit on the stock sale of a sensor business that was divested in 2005. Earnings from Continuing Operations The Company had earnings from continuing operations before income taxes of $4.6 billion in 2006, compared to earnings...

  • Page 55
    ... accruals for severance plans established through purchase accounting for businesses acquired. The $68 million of reversals represent previously accrued costs for 1,100 employees, and primarily relates to a strategic $ 54 104 $158 2007 Additional Charges $ 19 401 $420 2007(1)(2) Adjustments $ 2 (64...

  • Page 56
    ...longer needed. Total employees impacted by the actions committed to in 2006 were 3,900. The following table displays the net reorganization of business charges by segment: Year Ended December 31, Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2006 $ (1) 124...

  • Page 57
    ... 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 Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2005 $27 7 49 83...

  • Page 58
    ... 10.0 at December 31, 2007, compared to 11.0 at December 31, 2006, primarily due to lower than expected sales volumes in the Mobile Devices business. Inventory turns were calculated using an annualized rolling three months of cost of sales method. The Company's days sales in inventory ("DSI") was 36...

  • Page 59
    ...-U.S. pension plans. The Company contributed $15 million to its retiree health care plan in 2007, compared to $27 million in 2006, and expects to contribute approximately $20 million to this plan in 2008. Retirement-related benefits are further discussed below in the "Significant Accounting Policies...

  • Page 60
    ...acquisition of Symbol Technologies, Inc. (part of the Enterprise Mobility Solutions segment), (ii) $438 million for the acquisition of Good Technology, Inc. (part of the Enterprise Mobility Solutions segment), (iii) $183 million for Netopia, Inc. (part of the Home and Networks Mobility segment), (iv...

  • Page 61
    ... and employee stock purchase plan, (ii) $165 million in excess tax benefits from share-based compensation, and (iii) $66 million in net proceeds from commercial paper and short-term borrowings. Commercial Paper and Other Short-Term Debt: At December 31, 2007, the Company's outstanding notes payable...

  • Page 62
    ...-ever share repurchase program in May 2005, the Company has repurchased a total of 384.6 million of its common shares for an aggregate cost of $7.7 billion. All repurchased shares have been retired. Through actions taken in July 2006 and March 2007, the Board of Directors authorized the Company to...

  • Page 63
    ... long-term debt securities can be found in Note 4, "Debt and Credit Facilities," to the Company's consolidated financial statements. Purchase Obligations: The Company has entered into agreements for the purchase of inventory, license of software, promotional activities, and research and development...

  • Page 64
    ...'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 under these...

  • Page 65
    ... future credit facilities, the ability to issue commercial paper, and access to the short-term and long-term debt markets. Other Contingencies Potential Contractual Damage Claims in Excess of Underlying Contract Value: In certain circumstances, our businesses may enter into contracts with customers...

  • Page 66
    ... financial statements. Net sales and operating results for the Company's three operating segments for 2007, 2006 and 2005 are presented below. Mobile Devices Segment The Mobile Devices segment designs, manufactures, sells and services wireless handsets with integrated software and accessory products...

  • Page 67
    ...these international markets are Brazil, China and Mexico. In January 2008, the Company announced that it is evaluating alternatives for the structural and strategic realignment of the Mobile Devices business to better equip it to recapture global market leadership and enhance shareholder value. This...

  • Page 68
    ...digital entertainment devices"), end-toend video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers (collectively, referred to as the "home business"), and (ii...

  • Page 69
    ... for phone, TV and fast Internet connections, (ii) Tut Systems, Inc., a leading developer of edge routing and video encoders, (iii) Modulus Video, Inc., a provider of MPEG-4 Advanced Coding compression systems designed for delivery of high-value video content in IP set-top devices for the digital...

  • Page 70
    ..., manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems for private networks, wireless broadband systems and end-to-end enterprise mobility solutions to a wide range of enterprise markets, including government and public...

  • Page 71
    ... partner on projects. During 2007, the Company completed the acquisition of: (i) Symbol Technologies, Inc., a leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions, and (ii) Good Technology, Inc., a provider of enterprise...

  • Page 72
    ... of wireless and wireline networks and two-way radio voice and data systems. These systems are designed to meet specific customer requirements and specifications and generally require extended periods to complete. If the Company can reliably estimate revenues and contract costs and the technology is...

  • Page 73
    ... represented 12% of the gross inventory balance at both December 31, 2007 and 2006. The Company has inventory reserves for pending cancellations of product lines due to technology changes, long-life cycle products, lifetime buys at the end of supplier production runs, business exits, and a shift of...

  • Page 74
    ... fair value of the reporting unit is determined using a combination of present value techniques and quoted market prices of comparable businesses. At December 31, 2007 and 2006, the net book values of these assets were as follows (in millions): December 31 Sigma Fund Investments Property, plant and...

  • Page 75
    ...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 2007 and 2006. The investment return assumption for the Officers' Plan was 6% in 2007 and 2006. At...

  • Page 76
    ...million from Deferred income taxes to Other liabilities in the Company's consolidated balance sheets. In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). SFAS...

  • Page 77
    ... nature of our customers and served markets: (i) Mobile Devices, (ii) Home and Networks Mobility, and (iii) Enterprise Mobility Solutions. The Form 8-K filed on July 17, 2007 presented the Company's segment net sales and operating earnings for 2006 and first quarter of 2007 reclassified to reflect...

  • Page 78
    ... of business programs and employee separation costs, (d) the Company's ability and cost to repatriate funds, (e) the impact of the timing and level of sales and the geographic location of such sales, (f) future cash contributions to pension plans or retiree health benefit plans, (g) the Company...

  • Page 79
    ... entity holding the instrument, consist primarily of cash, cash equivalents, Sigma Fund investments and short-term investments, as well as accounts payable and receivable. Accounts payable and receivable are reflected at fair value in the financial statements. The fair value of the foreign exchange...

  • Page 80
    ... the years ended December 31, 2007, 2006 and 2005, on a pre-tax basis, income (expense) of $(16) million, $(98) million and $21 million, respectively, was reclassified from equity to earnings in the Company's consolidated statements of operations. At December 31, 2007, the maximum term of derivative...

  • Page 81
    ... fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company's consolidated statements of operations. The weighted average...

  • Page 82
    ... Value of Financial Instruments The Company's financial instruments include cash equivalents, Sigma Fund investments, short-term investments, accounts receivable, long-term finance receivables, accounts payable, accrued liabilities, derivatives and other financing commitments. The Company's Sigma...

  • Page 83
    ..., Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - 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), Motorola, Inc.'s internal control...

  • Page 84
    ... per share amounts) Net sales Costs of sales Gross margin Selling, general and administrative expenses Research and development expenditures Other charges (income) Operating earnings (loss) Other income (expense): Interest income, net Gains on sales of investments and businesses, net Other Total...

  • Page 85
    77 Motorola, Inc. and Subsidiaries Consolidated Balance Sheets (In millions, except per share amounts) ASSETS Cash and cash equivalents Sigma Fund Short-term investments Accounts receivable, net Inventories, net Deferred income taxes Other current assets Total current assets Property, plant and ...

  • Page 86
    ... program Excess tax benefits from share-based compensation Stock option and employee stock purchase plan expense Net gain on derivative instruments (net of tax of $6) Dividends declared ($0.19 per share) Balances at December 31, 2006 Cumulative effect - FIN 48 Effect of Non-U.S. pension plan...

  • Page 87
    ...cash other charges Share-based compensation expense Gains on sales of investments and businesses, net Deferred income taxes Change in assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable Inventories Other current assets Accounts payable and accrued liabilities...

  • Page 88
    ... Contracts-For long-term contracts that involve customization 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 complete the contract...

  • Page 89
    ... is recorded until maturity of the security. During the year ended 2007, the Sigma Fund fair value was no longer approximated by the amortized cost method and, accordingly, an unrealized holding loss was recorded. For all available-for-sale securities, any unrealized holding gains and losses, net of...

  • Page 90
    ... Company recognized the effect of income tax positions only if such positions were probable of being sustained. The Company records interest related to unrecognized tax benefits in Interest expense and penalties in Selling, general and administrative expenses in the Company's consolidated statements...

  • Page 91
    ...million from Deferred income taxes to Other liabilities in the Company's consolidated balance sheets. In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS 158"). SFAS...

  • Page 92
    ... of the agreement with the employee. Under the provisions of these Statements, a liability should be accrued equal to the actuarial present value of the future death benefit over the service period. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company will adopt...

  • Page 93
    ...on sales of investments and businesses, net Earnings before income taxes Income tax expense (benefit) Earnings from discontinued operations, net of tax 2007 $ - 10 - 10 (46) 56 2006 $860 87 399 482 82 400 2005 $1,581 118 16 135 76 59 3. Other Financial Data Statement of Operations Information Other...

  • Page 94
    ...Ended December 31 Available-for-sale securities: Cash Certificates of deposit Commercial paper Government and agencies Corporate bonds Asset-backed securities Mortgage-backed securities Common stock and equivalents Other Other securities, at cost Equity method investments Cost Basis 16 665 1,282 44...

  • Page 95
    ...for-sale securities: Commercial paper Certificates of deposit Bank obligation notes Government and agencies Short-term corporate obligation Corporate bonds Asset-backed securities Mortgage-backed securities Common stock and equivalents Other Other securities, at cost Equity method investments Sigma...

  • Page 96
    .... In exchange for this agreement, Nextel paid Motorola a fee of $50 million in 2005. Accounts Receivable Accounts receivable, net, consists of the following: December 31 Accounts receivable Less allowance for doubtful accounts 2007 $5,508 (184) $5,324 2006 $7,587 (78) $7,509 Inventories Inventories...

  • Page 97
    ... payables Compensation Customer downpayments Warranty reserves Tax liabilities Other 2007 $1,235 972 875 772 509 416 234 2,988 $8,001 2006 $ 730 1,305 1,481 777 532 530 444 2,877 $8,676 Other Liabilities Other liabilities consists of the following: December 31 Defined benefit plans Unrecognized tax...

  • Page 98
    ...-ever share repurchase program in May 2005, the Company has repurchased a total of 384.6 million of its common shares for an aggregate cost of $7.7 billion. All repurchased shares have been retired. Through actions taken in July 2006 and March 2007, the Board of Directors authorized the Company to...

  • Page 99
    ... 8.0 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, 2007. The Company's current corporate credit ratings are "BBB" on rating watch...

  • Page 100
    ... 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, 2007 and 2006, the Company had net outstanding foreign exchange contracts totaling $3.0 billion and $4.8 billion, respectively...

  • Page 101
    ... maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and accordingly the changes in the fair value of the Interest Agreements are included in Other income (expense) in the Company's consolidated statements of operations. The weighted average...

  • Page 102
    ... during the fourth quarter of 2005. Fair Value of Financial Instruments The Company's financial instruments include cash equivalents, Sigma Fund investments, short-term investments, accounts receivable, long-term finance receivables, accounts payable, accrued liabilities, derivatives and other...

  • Page 103
    ... expense (benefit) Total income tax expense (benefit) 2007 $ 40 402 20 462 (633) (50) (64) (747) $(285) 2006 10 488 13 511 892 (147) 93 838 $1,349 $ 2005 $ 240 638 15 893 891 (42) 151 1,000 $1,893 Deferred tax charges (benefits) that were recorded within Non-owner changes to equity in the Company...

  • Page 104
    ... 31 Inventory Accrued liabilities and allowances 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 Warranty and customer...

  • Page 105
    ...Unlimited 2012 Unlimited 2008 Various 2014-2021 Unlimited The Company adopted FIN 48 on January 1, 2007. The adoption resulted in a $120 million reduction of the Company's unrecognized tax benefits and related interest accrual and has been reflected as an increase in the opening balance of Retained...

  • Page 106
    ...1996-2007 2003-2007 1998-2007 2004-2007 2002-2007 1995-2007 2004-2007 2002-2007 1997-2007 1998-2007 1998-2007 7. Retirement Benefits Pension Benefit Plans The Company's noncontributory pension plan (the "Regular Pension Plan") covers U.S. employees who became eligible after one year of service. The...

  • Page 107
    ... benefits in excess of the limitations imposed by the Internal Revenue Code on the Regular Pension Plan. Elected officers covered under the Officers' Plan or who participated in the restricted stock buy-out are not eligible to participate in MSPP. Effective January 1, 2005, newly hired employees...

  • Page 108
    ...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 109
    ... Actual Mix 2007 2006 70% 27% 3% 75% 24% 1% Within the equity securities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and international stocks. Within the fixed income securities asset class, the investment...

  • Page 110
    ... service requirements upon termination of employment (the "Postretirement Health Care Benefits Plan"). For eligible employees hired prior to January 1, 2002, the Company offsets a portion of the postretirement medical costs to the retired participant. As of January 1, 2005, the Postretirement Health...

  • Page 111
    ... Health Care Benefit Plan in 2008 will include amortization of the unrecognized net loss and prior service costs, currently included in Non-owner changes in equity, of $2 million. The Company has adopted an investment policy for plan assets designed to meet or exceed the expected rate of return...

  • Page 112
    ..., 2007, 2006 and 2005 were $116 million, $105 million and $105 million, respectively. 8. Share-Based Compensation Plans and Other Incentive Plans Stock Options and Employee Stock Purchase Plan The Company grants options to acquire shares of common stock to certain employees, non-employee directors...

  • Page 113
    ... 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 114
    ...for future share-based award grants under the 2006 Motorola Omnibus Plan, covering all equity awards to employees and non-employee directors. The following table summarizes information about stock options outstanding and exercisable at December 31, 2007 (in thousands, except exercise price and years...

  • Page 115
    ... employee compensation expense determined under fair value-based method for all awards, net of related tax effects Pro forma earnings (loss) Basic earnings (loss) per common share: As reported Pro forma Diluted earnings (loss) per common share: As reported Pro forma Continuing Operations 2007 2006...

  • Page 116
    ... tax benefits for the years 2007 and 2006, respectively, have been classified as a financing cash inflow. Motorola Incentive Plan The Motorola Incentive Plan provides eligible employees with an annual payment, calculated as a percentage of an employee's eligible earnings, in the year after the close...

  • Page 117
    ... at December 31, 2007 and 2006, respectively, relating to the sale of short-term receivables). 10. Commitments and Contingencies Leases The Company owns most of its major facilities and leases certain office, factory and warehouse space, land, and information technology and other equipment under...

  • Page 118
    ...financial position, liquidity or results of operations. Telsim Class Action Securities: In April 2007, the Company entered into a settlement agreement in regards to In re Motorola Securities Litigation, a class action lawsuit relating to the Company's disclosure of its relationship with Telsim Mobil...

  • Page 119
    ...digital entertainment devices"), endto-end video delivery solutions, broadband access infrastructure systems, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers (collectively, referred to as the "home business"), and (ii...

  • Page 120
    ..., Sigma Fund, deferred income taxes, short-term investments, property, plant and equipment, investments, and the administrative headquarters of the Company. Geographic area information Net Sales* 2006 Assets** 2006 Property, Plant, and Equipment 2007 2006 2005 Years Ended December 31 2007 2005...

  • Page 121
    ...-term, sustainable profitability by driving efficiencies and reducing operating costs. All three of the Company's business segments, as well as corporate functions, are impacted by these plans. The majority of the employees affected are located in North America and Europe. The Company recorded net...

  • Page 122
    ...longer needed. Total employees impacted by the actions committed to in 2006 were 3,900. The following table displays the net reorganization of business charges by segment: Year Ended December 31, Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2006 $ (1) 124...

  • Page 123
    ... 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 Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2005 $27 7 49 83...

  • Page 124
    ... except as disclosed. The following is a summary of significant acquisitions in 2007, 2006 and 2005: In-Process Research and Development Charge $95 - - - $12 $17 $ 1 - Quarter Acquired 2007 Acquisitions Symbol Technologies, Inc. Good Technology, Inc. Netopia, Inc. Terayon Communication Systems, Inc...

  • Page 125
    ...Technologies, Inc. In January 2007, the Company acquired, for $3.5 billion in net cash, the outstanding common stock of Symbol Technologies, Inc. ("Symbol"), a leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions featuring...

  • Page 126
    ...the Company's consolidated financial statements were not significant. Terayon Communication Systems, Inc. In July 2007, the Company acquired Terayon Communication Systems, Inc. ("Terayon"), a provider of realtime digital video networking applications to cable, satellite and telecommunication service...

  • Page 127
    ...of intangible assets, primarily relating to completed technology and other intangibles, and (ii) $8 million of property, plant and equipment. The results of operations of TTPCom have been included in the Mobile Devices segment in the Company's consolidated financial statements subsequent to the date...

  • Page 128
    ... relating to completed technology and other intangibles, in the Mobile Devices segment. The following tables display a rollforward of the carrying amount of goodwill from January 1, 2006 to December 31, 2007, by business segment: Segment Mobile Devices Home and Networks Mobility Enterprise Mobility...

  • Page 129
    ... Share Data (in dollars) Continuing Operations: Basic earnings (loss) per common share Diluted earnings (loss) per common share Net Earnings: Basic earnings (loss) per common share Diluted earnings (loss) per common share Dividends declared Dividends paid Stock prices High Low 2007 2nd 3rd 2006 4th...

  • Page 130
    ... our internal control over financial reporting is effective as of December 31, 2007. The Company's independent registered public accounting firm, KPMG LLP, has issued an attestation report on the Company's internal control over financial reporting. The report on the audit of internal control over...

  • Page 131
    ... 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, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity and cash flows...

  • Page 132
    ... 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 133
    ... 2007 (Market-based vesting) Motorola, Inc. Award Document for the Motorola Omnibus Incentive Plan of 2006, Terms and Conditions Related to Employee Nonqualified Stock Options granted to Gregory Q. Brown on January 31, 2008 (Market-based vesting) Form of Motorola Stock Option Consideration Agreement...

  • 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
    ..., 2003, as amended Chairman/CEO Retirement Term Sheet dated November 29, 2007 for Edward J. Zander Amended and Restated Employment Agreement between Thomas J. Meredith and Motorola, Inc. Agreement between Motorola, Inc. and Adrian Nemcek dated July 18, 2006 Agreement between Motorola, Inc. and David...

  • Page 136
    ...in Income Taxes, effective January 1, 2007, Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, effective January 1, 2006, and Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an...

  • Page 137
    ... Officer) Executive Vice President, Acting Chief Financial Officer and Director (Principal Financial Officer) Senior Vice President, Finance and Corporate Controller (Principal Accounting Officer) Chairman of the Board Director Director Director Director Director Director Date February 28, 2008...

  • Page 138
    ... /s/ /s/ ANTHONY J. VINCIQUERRA Anthony J. Vinciquerra DOUGLAS A. WARNER III Douglas A. Warner III Director Director Director Director Title Date February 28, 2008 February 28, 2008 February 28, 2008 February 28, 2008 /s/ DR. JOHN A. WHITE Dr. John A. White /s/ MILES D. WHITE Miles D. White

  • Page 139
    ... (As Amended and Restated as of January 30, 2008). Form of Motorola, Inc. Award Document-Terms and Conditions Related to Employee Nonqualified Stock Options relating to the Motorola Omnibus Incentive Plan of 2006 for grants on or after February 11, 2007 (incorporated by reference to Exhibit 10.37 to...

  • Page 140
    ...non-employee directors, relating to the deferred stock units issued in lieu of cash compensation to directors under the Motorola Omnibus Incentive Plan of 2006 or any successor plan, for acquisitions on or after February 11, 2007 (incorporated by reference to Exhibit 10.8 to Motorola's Annual Report...

  • Page 141
    ... Related to Employee Nonqualified Stock Options, relating to the Motorola Omnibus Incentive Plan of 2003, the Motorola Omnibus Incentive Plan of 2002, the Motorola Omnibus Incentive Plan of 2000, the Motorola Amended and Restated Incentive Plan of 1998 and the Motorola Compensation/ Acquisition Plan...

  • Page 142
    ... non-employee directors, relating to the deferred stock units issued in lieu of cash compensation to directors under the Motorola Omnibus Incentive Plan of 2003 or any successor plan, for acquisitions from January 1, 2006 to February 11, 2007 (incorporated by reference to Motorola's Annual Report on...

  • Page 143
    ... (File No. 1-7221)). Agreement between Ruth Fattori and Motorola, Inc. dated December 20, 2007. Statement regarding Computation of Ratio of Earnings to Fixed Charges. Subsidiaries of Motorola. Consent of Independent Registered Public Accounting Firm, see page 128 of the Annual Report on Form 10-K of...

  • Page 144

  • Page 145
    ...Solutions business Inquiries should be directed to: Investor Relations, Motorola, Inc. Corporate Offices 1303 East Algonquin Road Schaumburg, IL 60196 U.S.A. E-mail: [email protected] 800 262 8509 Common Stock Motorola common stock is listed on the New York and Chicago Stock Exchanges. Annual...

  • Page 146
    ..., Inc. 1303 E. Algonquin Road Schaumburg, Illinois 60196 U.S.A. +1 847 576 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. © 2008 Motorola, Inc. All rights...