Motorola 2008 Annual Report Download

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Motorola, Inc. 2008 Annual Report

Table of contents

  • Page 1
    Motorola, Inc. 2008 Annual Report

  • Page 2
    ...lifestyles and business continue to expand. Today, Motorola has a portfolio of technologies, solutions and services - including wireless handsets, wireless accessories, digital entertainment devices, wireless access systems, voice and data communications systems, and enterprise mobility products. We...

  • Page 3
    ... for homeland security and public safety customers. In enterprise, our products address the need for converged enterprise communications and productivity enhancing solutions. Our Home & Networks Mobility business continues to lead in market share in digital entertainment devices for cable and IPTV...

  • Page 4
    ... to our customers that we will meet our objectives and continue to advance the way the world connects. In doing so, we will provide a path for profitable growth and improved results for our business and our shareholders. Regards, Greg Brown Co-CEO, Motorola CEO, Broadband Mobility Solutions Sanjay...

  • Page 5
    MOTOROLA, INC. 2008 FORM 10-K

  • Page 6

  • Page 7
    ...Schaumburg, Illinois 60196 (Address of principal executive offices) (847) 576-5000 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $3 Par Value per Share New York Stock Exchange...

  • Page 8
    Table of Contents Page PART I ...Item 1. Business ...General ...Business Segments ...Mobile Devices Segment ...Home and Networks Mobility Segment...Enterprise Mobility Solutions Segment ...Other Information ...Financial Information About Segments ...Customers ...Backlog ...Research and Development ...

  • Page 9
    ...services: (i) digital video, Internet Protocol video and broadcast network interactive set-tops, end-to-end video delivery systems, broadband access infrastructure platforms, and associated data and voice customer premise equipment to cable television and telecom service providers, and (ii) wireless...

  • Page 10
    ... markets. We have taken significant actions in 2008 to simplify our wireless handset platforms and enhance our product portfolio, while reducing the size and cost structure of the Mobile Devices business. These actions will accelerate our speed to market with new products, allow us to offer richer...

  • Page 11
    ... growth. We continue to invest in next-generation technologies for wireless devices based on WiMAX, High-Speed Downlink Packet Access ("HSDPA") and Long-Term Evolution ("LTE"). We believe a strong intellectual property portfolio is critical to our long-term success and to ensuring that we maintain...

  • Page 12
    4 Extended payment terms beyond 60 days are provided to certain customers on a limited basis. A customer's outstanding credit at any point in time is limited to a predetermined amount as established by the Company. Regulatory Matters Radio frequencies are required to provide wireless services. The ...

  • Page 13
    ... and broadcast network interactive set-tops ("digital entertainment devices"), end-to-end video delivery systems, broadband access infrastructure platforms, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers (collectively...

  • Page 14
    ... in HD programming, bundling voice-over-IP services, expanding their broadband data service through Data Over Cable Service Interface Specifications ("DOCSIS") 3.0 channel bonding, and maximizing utilization of network bandwidth using switched digital video technology. Our home business is subject...

  • Page 15
    ... modems, and commercially deploying our Gigabit PON platform. In the networks business, the segment provides equipment and services to over 125 GSM, CDMA, and iDEN networks globally. The segment is investing to be a leader in next-generation wireless broadband technologies with its WiMAX and LTE...

  • Page 16
    ... equipment for broadband networks. Our largest competitor is Cisco. Based on 2008 annual sales, we are the leading provider of digital cable and IPTV set-tops worldwide. Our digital entertainment devices and infrastructure equipment compete with products from a number of different companies...

  • Page 17
    ...heavily used. Historically, reception of digital television programming from a cable broadband network has required a settop with security technology. This security technology has limited the availability of set-tops to those manufactured by a few cable network manufacturers, including Motorola. FCC...

  • Page 18
    ..., manufactures, sells, installs and services analog and digital two-way radio, voice and data communications products and systems for private networks, wireless broadband systems and end-to-end enterprise mobility systems for a wide range of enterprise markets, including government and public safety...

  • Page 19
    ... 27% of the Company's consolidated net sales. Principal Products and Services We are the world's leading provider of advanced mission-critical and commercial enterprise mobility networks, services, applications and devices. In the government and public safety market, Motorola offers an extensive...

  • Page 20
    ... of business activity, (ii) enterprise wireless networks that allocate seamless connectivity inside and outside the enterprise, and (iii) a set of management, security and mobility tools that provide a controlled deployment of the enterprise mobility applications. Customers Our products and services...

  • Page 21
    ..., wireless networks, notebook computers, handheld devices and telephonic and other communication devices, have the technical potential to compete with the business. Competitors such as Intermec, Honeywell and Cisco deliver products in certain parts of the commercial enterprise market. Payment Terms...

  • Page 22
    14 In addition to reallocating TV spectrum at 700 MHz for public safety and commercial use, in November 2008 the FCC issued a decision to open unused portions of the television spectrum below 700 MHz for unlicensed uses, including broadband. The amount and specific location in the TV band of this "...

  • Page 23
    ...extent suppliers' product life cycles are shorter than the segment's, stocking of lifetime buy inventories is required to meet long-term warranty and contractual requirements. In addition, replacement parts are stocked for delivery on customer demand within a short delivery cycle. At the end of 2008...

  • Page 24
    ... data and product application ideas are exchanged among Motorola's business segments on a regular basis. Management believes, looking forward, that Motorola's commitment to R&D programs should allow each of its segments to remain competitive. R&D expenditures relating to new product development or...

  • Page 25
    ..., Inc., Corporate Offices, 1303 East Algonquin Road, Schaumburg, Illinois 60196, E-mail: [email protected]. Our Annual Report on Form 10-K and Definitive Proxy Statement may also be requested in hardcopy by clicking on "Printed Materials" at www.motorola.com/investor. Our Internet website and...

  • Page 26
    ... manufacturing capacity, increased price competition and other market factors. We have lost significant market share in our Mobile Devices businesses and such loss has negatively impacted our performance and may continue to negatively impact our financial results. Our share of the worldwide wireless...

  • Page 27
    ... new products, such as: advanced wireless handsets, including smartphones; WiMAX, LTE and other advanced technologies for wireless broadband networks; products for transmission of telephony and high-speed data over hybrid fiber coaxial cable systems; integrated digital radios; and integrated public...

  • Page 28
    ... in its Sigma Fund, a broadly diversified portfolio of highly rated, short-duration debt securities. There can be no assurance that the value of Sigma Fund investments will not decline further in the future. Also, many of the Company's equity investments are in early-stage technology companies and...

  • Page 29
    .... • Trade terms with suppliers could become less favorable: Given the Company's split rating, suppliers may require letters of credit, cash collateral or other forms of security as part of standard payment conditions. This could result in reduced liquidity and less leverage in pricing negotiations...

  • Page 30
    ... benefits of any strategic alternative undertaken by us. Our future financial results may be negatively impacted if we do not execute on our hardware and software strategy for our Mobile Devices business. As part of our ongoing effort to improve the product portfolio of our Mobile Devices business...

  • Page 31
    ... a result of recent actions to suspend the Company's 401(k) contributions to employee accounts, permanently freeze all future benefit accruals under U.S. pension plans and eliminate merit increase programs in the U.S. and many other markets; (vi) the adequacy of our manufacturing capacity, including...

  • Page 32
    ... 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 33
    ... developed software-related intellectual property as a result of either our use of open-source software code or the use of third-party software that contains open-source code. Because our products are comprised of complex technology, much of which we acquire from suppliers through the purchase of...

  • Page 34
    ... new license agreements that will be sufficient to offset that reduction in our revenue. Many of our components and products are designed or manufactured by third parties and if third-party manufacturers lack sufficient quality control or if there are significant changes in the financial or business...

  • Page 35
    ... 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 employees and integrate the acquired business, we...

  • Page 36
    ... services. The growth of the wireless and personal communications industry may be affected: (i) by regulations relating to the access to allocated spectrum for wireless communication users, especially in urban areas, (ii) if adequate frequencies are not allocated, or (iii) if new technologies...

  • Page 37
    ... sales of set-tops to cable providers. Historically, reception of digital television programming from a cable broadband network has required a settop with security technology. Traditionally, cable service providers sold or leased their set-top to their customer. This security technology has limited...

  • Page 38
    ... of which are located in other countries. Motorola primarily utilizes 10 major facilities for the manufacturing and distribution of its products. These facilities are located in: Hangzhou and Tianjin, China; Taipei, Taiwan; Chennai, India; Penang, Malaysia; Schaumburg, Illinois; Jaguariuna, Brazil...

  • Page 39
    ... 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 40
    ... Litigation Panel issued a final order transferring the case to New York and that transfer is final. Motorola filed a motion to dismiss the complaint in this action on September 19, 2005, which is awaiting decision. Adelphia Communications Corp.-Bankruptcy Court Lawsuit On June 23, 2006, Adelphia...

  • Page 41
    ... packaging and certain "downstream" products that contain them (including Motorola products) and/or limit suppliers' ability to provide certain services and products or take certain actions in the U.S. relating to the packaged chips. On December 1, 2008, an Administrative Law Judge issued an initial...

  • Page 42
    ..., Networks and Enterprise from April 2006 to June 2007; Vice President, Finance and Controller, Government and Enterprise Mobility Solutions from July 2005 to April 2006; Senior Director and Controller, Connected Home Solutions from February 2000 to July 2005. A. Peter Lawson; age 62; Executive Vice...

  • Page 43
    ...stock during the quarter ended December 31, 2008. ISSUER PURCHASES OF EQUITY SECURITIES (d) Maximum Number (c) Total Number (or Approximate Dollar of Shares Purchased Value) of Shares that (a) Total Number (b) Average Price as Part of Publicly May Yet be Purchased Under the Plans or Announced Plans...

  • Page 44
    ... the S&P Communications Equipment Index. This graph assumes $100 was invested in the stock or the Index on December 31, 2003 and also assumes the reinvestment of dividends. This graph assumes reinvestment of the Company's distribution to its shareholders of 0.110415 shares of Class B common stock of...

  • Page 45
    ... and businesses, net Other Total other income (expense) Earnings (loss) from continuing operations before income taxes Income tax expense (benefit) Earnings (loss) from continuing operations Earnings (loss) from discontinued operations, net of tax Net earnings (loss) Per Share Data (in dollars...

  • Page 46
    ... designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol video and broadcast network interactive set-tops, end-to-end video delivery systems, broadband access infrastructure platforms, and associated data and voice customer premise equipment to cable television and...

  • Page 47
    ..., reflecting savings from costreduction initiatives. • In Our Home and Networks Mobility Business: Net sales were $10.1 billion in 2008, an increase of 1% compared to net sales of $10.0 billion in 2007. On a geographic basis, net sales increased in Latin America and Asia, and decreased in North...

  • Page 48
    ... sales of iDEN, CDMA and GSM technologies, while sales of WiMAX and UMTS technologies and related services increased. Motorola continued its investments in and focus on next-generation wireless broadband technologies, including WiMAX and LTE. Our first sales for WiMAX network equipment were recorded...

  • Page 49
    ... our products and services, and to pursue profitable growth. In 2008, the Company announced that it was pursuing the creation of two independent, publicly traded companies: one comprised of our Mobile Devices business, and the other comprised of our Home and Networks Mobility and Enterprise Mobility...

  • Page 50
    ... customers. We believe that our comprehensive portfolio of products and services, leadership positions in government and public safety and commercial enterprise markets and global network of channel partners and distributors make our Enterprise Mobility Solutions business well positioned to meet...

  • Page 51
    ... products and services that will advance the way the world connects by simplifying and personalizing communications and enhancing mobility. Results of Operations (Dollars in millions, except per share amounts) Net sales Costs of sales Gross margin Selling, general and administrative expenses...

  • Page 52
    ... engineering expenditures for new product development and investment in next-generation technologies. R&D expenditures as a percentage of net sales increased in the Mobile Devices and Enterprise Mobility Solutions segments and decreased in the Home and Networks Mobility segment. The Company...

  • Page 53
    ... net reorganization of business charges included in Other charges, and (iv) $59 million of transaction costs related to the proposed separation of the Company into two independent, publicly traded companies, partially offset by a $48 million gain on the sale of property, plant and equipment. The net...

  • Page 54
    ... The decrease in gross margin in the Home and Networks segment was primarily due to: (i) continuing competitive pricing pressure in the market for GSM infrastructure equipment, and (ii) lower sales of iDEN infrastructure equipment, partially offset by increased sales of digital entertainment devices...

  • Page 55
    ... continued investment in digital entertainment devices and WiMAX. R&D expenditures as a percentage of net sales increased in the Mobile Devices segment and decreased in the Enterprise Mobility Solutions and Home and Networks Mobility segments. Other Charges (Income) The Company recorded net charges...

  • Page 56
    ... a zero-cost collar derivative entered into to protect the value of the Company's investment in Sprint Nextel, and (ii) $60 million of foreign currency gains, partially offset by $27 million of investment impairment charges. Effective Tax Rate The Company recorded $285 million of net tax benefits in...

  • Page 57
    ..., Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions Corporate 2008 $216 53 27 296 38 $334 The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from January 1, 2008 to December 31, 2008...

  • Page 58
    ... December 31, Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2007 $229 71 30 330 64 $394 The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from January 1, 2007...

  • Page 59
    ... December 31, Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2006 $ (1) 124 83 206 7 $213 The following table displays a rollforward of the reorganization of business accruals established for exit costs and employee separation costs from January 1, 2006...

  • Page 60
    ... represented future cash payments for lease termination obligations. Employee Separation Costs At January 1, 2006, the Company had an accrual of $53 million for employee separation costs, representing the severance costs for approximately 1,600 employees, of which 1,100 were direct employees and 500...

  • Page 61
    ... related to a significant decrease in net sales, and decreases in accounts receivable in the Enterprise Mobility Solutions and Home and Network Mobility segments. The Company's businesses sell their products in a variety of markets throughout the world and payment terms can vary by market type...

  • Page 62
    ...ii) a $380 million increase in sales of short-term investments. Sigma Fund: The Company and its wholly-owned subsidiaries invest most of their U.S. dollar-denominated cash in a fund (the "Sigma Fund") that is designed to provide investment returns similar to a money market fund. The Company received...

  • Page 63
    ... and net cash used of $1.1 billion in 2006. During 2008, the Company: (i) acquired a controlling interest in Vertex Standard Co. Ltd. (part of the Enterprise Mobility Solutions segment), (ii) acquired the assets related to digital cable set-top products of Zhejiang Dahua Digital Technology Co., LTD...

  • Page 64
    ..., (ii) $440 million received from the issuance of common stock in connection with the Company's employee stock option plans and employee stock purchase plan, and (iii) $50 million in excess tax benefits from share-based compensation. Commercial Paper and Other Short-Term Debt: At December 31, 2008...

  • Page 65
    ... of $3.8 billion, or an average cost of $22.29 per share. Through actions taken in July 2006 and March 2007, the Board of Directors authorized the Company to repurchase an aggregate amount of up to $7.5 billion of its outstanding shares of common stock over a period ending in June 2009. The timing...

  • Page 66
    ... the cancellation of any of these agreements in the future and estimates that purchases from these suppliers will exceed the minimum obligations during the agreement periods. Tax Obligations: The Company has approximately $914 million of unrecognized income tax benefits relating to multiple tax...

  • Page 67
    ... event it terminates the agreements for reasons other than "cause." The Company outsources certain corporate functions, such as benefit administration and information technology-related services. These contracts are expected to expire in 2013. At December 31, 2008, the total remaining payments under...

  • Page 68
    ... The Company's total credit exposure to outstanding short-term receivables that have been sold was $23 million at both December 31, 2008 and 2007. Reserves of $4 million and $1 million were recorded for potential losses at December 31, 2008 and 2007, respectively. Adequate Internal Funding Resources...

  • Page 69
    ...below. Mobile Devices Segment The Mobile Devices segment designs, manufactures, sells and services wireless handsets with integrated software and accessory products, and licenses intellectual property. In 2008, the segment's net sales represented 40% of the Company's consolidated net sales, compared...

  • Page 70
    .... On a product technology basis, net sales of products for: (i) GSM technology decreased substantially, (ii) iDEN and CDMA technologies decreased, and (iii) 3G technologies increased slightly. On a geographic basis, net sales decreased in all regions, and decreased substantially in Asia and EMEA...

  • Page 71
    ... designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol video and broadcast network interactive set-tops, end-to-end video delivery systems, broadband access infrastructure platforms, and associated data and voice customer premise equipment to cable television and...

  • Page 72
    ... on a global basis. The segment is developing infrastructure equipment utilizing LTE technology. LTE has widespread industry support, not only from current GSM/UMTS operators, but also from CDMA/EV-DO based carriers. In February 2008, the segment acquired the assets related to digital cable set-top...

  • Page 73
    ... video, voice and data services. In December 2007, Motorola completed the sale of ECC to Emerson for $346 million in cash. Enterprise Mobility Solutions Segment The Enterprise Mobility Solutions segment designs, manufactures, sells, installs and services analog and digital two-way radio, voice and...

  • Page 74
    ... launch of the MC75, an enterprise digital assistant targeted to the mobile workforce. During 2008, the segment also: (i) acquired a controlling interest in Vertex Standard Co., Ltd., a global provider of two-way radio communication solutions, and (ii) completed the acquisition of AirDefense Inc...

  • Page 75
    ... 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 76
    ... software and silicon platforms in the Mobile Devices segment in 2008. The Company has inventory reserves for pending cancellations of product lines due to technology changes, long-life cycle products, lifetime buys at the end of supplier production runs, business exits, and a shift of production...

  • Page 77
    ... During 2007 and 2008, the Home and Networks Mobility and Enterprise Mobility Solution businesses (collectively referred to as the "Broadband Mobility Solutions business") were profitable in the U.S. and worldwide. Because of the 2007 and 2008 losses at Mobile Devices and the near-term forecasts for...

  • Page 78
    ... 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...

  • Page 79
    ... the cost drivers of the underlying benefits. The rate of compensation increase is a key assumption used in the actuarial model for pension accounting and is determined by the Company based upon its long-term plans for such increases. The Company's 2008 and 2007 rate for future compensation increase...

  • Page 80
    ... cash payments are required to fund these policies. The 2008 Split-Dollar Life Insurance policy actual expense was $6 million. As of December 31, 2008, the Company has recorded a liability representing the actuarial present value of the future death benefits as of the employees' expected retirement...

  • Page 81
    ... the Mobile Devices segment meets the requirement of a reporting unit. For the Enterprise Mobility Solutions segment, the Company has identified two reporting units, the Government and Public Safety reporting unit and the Enterprise Mobility reporting unit. For the Home and Networks Mobility segment...

  • Page 82
    .... The Company does not believe the resulting discount rates would be reasonable relative to the risks associated with the future cash flows of these businesses. However, the fair values of the Enterprise Mobility and Mobile Devices reporting units were below their respective book values, indicating...

  • Page 83
    ... be successful in its plans to turn around the Mobile Devices business. The plan to turn around Mobile Devices includes a successful execution of the segment's software platform strategy and the Company's ability to execute its cost savings initiatives. Expectations of future cash flows could change...

  • Page 84
    ... as of January 1, 2008. EITF 06-4 requires that endorsement split-dollar life insurance arrangements, which provide a benefit to an employee beyond the postretirement period be recorded in accordance with SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions" or APB...

  • Page 85
    ... location of such sales, (f) future cash contributions to pension plans or retiree health benefit plans, (g) the Company's ability to collect on its Sigma Fund and other investments, (h) outstanding commercial paper balances and purchase obligation payments, (i) the Company's ability and cost...

  • Page 86
    ... cash, cash equivalents, Sigma Fund investments and short-term investments, as well as accounts payable and receivable. Accounts payable and receivable are reflected at fair value in the financial statements. The fair value of the foreign exchange financial instruments would hypothetically decrease...

  • Page 87
    ...part of its liability management program, the Company historically entered into interest rate swaps ("Hedging Agreements") to synthetically modify the characteristics of interest rate payments for certain of its outstanding long-term debt from fixed-rate payments to short-term variable rate payments...

  • Page 88
    ... Company recorded a net gain of $99 million in connection with the Sprint Nextel Derivative. Fair Value of Financial Instruments The Company's financial instruments include cash equivalents, Sigma Fund investments, short-term investments, accounts receivable, long-term receivables, accounts payable...

  • Page 89
    ... of $128 million, which represented a cost basis of $125 million and a net unrealized gains of $3 million. The value of the available-for-sale equity securities would change by $13 million as of year-end 2008 if the price of the stock in each of the publicly-traded companies were to change by 10...

  • Page 90
    ...Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes. Also, effective December 31, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans...

  • Page 91
    ... per share amounts) Net sales Costs of sales Gross margin Selling, general and administrative expenses Research and development expenditures Other charges Operating earnings (loss) Other income (expense): Interest income, net Gains on sales of investments and businesses, net Other Total other income...

  • Page 92
    ..., 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 equipment, net Sigma Fund Investments Deferred income taxes Goodwill Other...

  • Page 93
    ... of retirement benefits adjustments (net of tax of $39) Year-end and other retirement adjustments (net of tax of $328) Issuance of common stock and stock options exercised Share repurchase program Excess tax benefits from share-based compensation Stock option and employee stock purchase plan expense...

  • Page 94
    ... Share-based compensation expense Gains on sales of investments and businesses, net Deferred income taxes, including change in valuation allowance Change in assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable Inventories Other current assets Accounts payable...

  • Page 95
    ... for discounts, price protection, returns and customer incentives can be reliably estimated. Recorded revenues are reduced by these allowances. The Company bases its estimates on historical experience taking into consideration the type of products sold, the type of customer, and the type of...

  • Page 96
    ... and adjusts its cost basis of the security by the related impairment loss. Beginning in the fourth quarter of 2008, all changes in the fair value of Sigma Fund investments, including temporary unrealized gains (losses) and impairment charges, are recorded in Other within Other income (expense) in...

  • Page 97
    ... 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 of operations. Long-term Receivables: Long-term receivables include trade receivables where contractual terms of...

  • Page 98
    ..., risk free rate, dividend yield, and expected life. Compensation cost for share-based awards is recognized on a straight-line basis over the vesting period. Retirement Benefits: The Company records annual expenses relating to its pension benefit and postretirement plans based on calculations...

  • Page 99
    ... as of January 1, 2008. EITF 06-4 requires that endorsement split-dollar life insurance arrangements, which provide a benefit to an employee beyond the postretirement period be recorded in accordance with SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions" or APB...

  • Page 100
    ... received. The Company recorded a gain on sale of business of $399 million before income taxes, which is included in Earnings (loss) from discontinued operations, net of tax, in the Company's consolidated statements of operations. On December 2, 2004, the Company completed the separation and spin...

  • Page 101
    ..., 2008 and 2007, the Company was in a loss position and accordingly, the basic and diluted weighted average shares outstanding are equal because any increase to the basic shares would be antidilutive. Once the Company returns to profitability, the diluted impact of stock options, stock appreciation...

  • Page 102
    ... not collect amounts it is owed on securities according to their contractual terms, the Company considers the security to be impaired and adjusts the cost basis of the security accordingly. For the years ended December 31, 2008 and 2007, impairment charges in the Sigma Fund were $186 million and $18...

  • Page 103
    ... ended December 31, 2008, the Company recorded total charges related to Sigma Fund investments, including temporary...sale securities: U.S. government and agency obligations Corporate bonds Common stock and equivalents Other Other securities, at cost Equity method investments Recorded Value Short-term...

  • Page 104
    ... by a $126 million loss on the sale of the Company's remaining shares in Sprint Nextel Corporation ("Sprint Nextel"). Accounts Receivable Accounts receivable, net, consists of the following: December 31 Accounts receivable Less allowance for doubtful accounts 2008 $3,675 (182) $3,493 2007 $5,508...

  • Page 105
    ... costs Value-added tax refunds receivable Long-term receivables, net of allowances of $7 and $5 Other 2008 $ 869 289 136 117 52 353 $1,816 2007 $1,260 364 180 - 68 448 $2,320 Accrued Liabilities Accrued liabilities consists of the following: December 31 Deferred revenue Compensation Customer...

  • Page 106
    ... split dollar life insurance policies Deferred revenue Unrecognized tax benefits Postretirement health care benefit plan Royalty license arrangement Other 2008 $2,202 316 312 261 - 559 $3,650 2007 $ 562 393 933 144 282 560 $2,874 Stockholders' Equity Information Share Repurchase Program Share...

  • Page 107
    ... of long-term debt Weighted average interest rates on short-term borrowings throughout the year Commercial paper(1) Other short-term debt (1) At December 31, 2008, the Company did not have any commercial paper outstanding. In December 2008, the Company completed the open market purchase of $42...

  • Page 108
    ... that are not traded in liquid markets and these are addressed, to the extent reasonably possible, by managing net asset positions, product pricing and component sourcing. At December 31, 2008 and 2007, the Company had net outstanding foreign exchange contracts totaling $2.6 billion and $3.0 billion...

  • Page 109
    ...part of its liability management program, the Company historically entered into interest rate swaps ("Hedging Agreements") to synthetically modify the characteristics of interest rate payments for certain of its outstanding long-term debt from fixed-rate payments to short-term variable rate payments...

  • Page 110
    ... Company recorded a net gain of $99 million in connection with the Sprint Nextel Derivative. Fair Value of Financial Instruments The Company's financial instruments include cash equivalents, Sigma Fund investments, short-term investments, accounts receivable, long-term receivables, accounts payable...

  • Page 111
    ... (benefit) Total income tax expense (benefit) 2008 $ (618) 532 (5) (91) 1,702 49 (53) 1,698 $1,607 2007 $ 40 402 20 462 (633) (50) (64) (747) $(285) 2006 $ 10 488 13 511 892 (147) 93 838 $1,349 Deferred tax charges (benefits) that were recorded within Non-owner changes to equity in the Company...

  • Page 112
    ... During 2007 and 2008, the Home and Networks Mobility and Enterprise Mobility Solution businesses (collectively referred to as the "Broadband Mobility Solutions business") were profitable in the U.S. and worldwide. Because of the 2007 and 2008 losses at Mobile Devices and the near-term forecasts for...

  • Page 113
    ..., net of federal tax benefits that if recognized would affect the effective tax rate. During the fourth quarter of 2008, the Company entered into closing agreements with the appellate level of the Internal Revenue Service ("IRS") on transfer pricing adjustments for tax years 1996 through 2003...

  • Page 114
    ... unrecognized tax benefits will decrease within the next 12 months. The associated net tax benefits, which would favorably impact the effective tax rate, are estimated to be in the range of $0 to $150 million, with cash payments not expected to exceed $50 million. At December 31, 2008, the Company...

  • Page 115
    ... cost Curtailment gain Net periodic pension cost (benefit) Officers' Plan and MSPP Years Ended December 31 Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized net loss Unrecognized prior service cost Curtailment gain Settlement loss Net periodic pension cost 2008...

  • Page 116
    ...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 117
    ...to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the pension plans retain professional investment managers that invest plan assets in equity and fixed income securities and cash. In addition, some plans invest in insurance contracts. The Company's measurement...

  • Page 118
    ... domestic employees meeting certain age and service requirements upon termination of employment (the "Postretirement Health Care Benefits Plan"). For eligible employees hired prior to January 1, 2002, the Company offsets a portion of the postretirement medical costs to the retired participant...

  • Page 119
    ...31 Change in plan assets: Fair value at January 1 Return on plan assets Company contributions Benefit payments made with plan assets Fair value at December 31 Funded status of the plan Unrecognized net loss Unrecognized prior service cost Accrued postretirement health care cost Components of accrued...

  • Page 120
    ... cash payments are required to fund these policies. The 2008 Split-Dollar Life Insurance policy actual expense was $6 million. As of December 31, 2008, the Company has recorded a liability representing the actuarial present value of the future death benefits as of the employees' expected retirement...

  • Page 121
    ... 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 trading day of the purchase...

  • Page 122
    ...The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding based on the simplified method permitted under Staff Accounting Bulletin No. 110, "Shared-Based Payment". The Company has applied a forfeiture rate, estimated based...

  • Page 123
    ... for the Company's employee stock options, stock appreciation rights, employee stock purchase plans, restricted stock and restricted stock units was as follows: Year Ended December 31 Share-based compensation expense included in: Costs of sales Selling, general and administrative expenses Research...

  • Page 124
    ... Directors of Motorola, Inc. approved the cancellation of the 2006-2008 performance cycle and the 2007-2009 performance cycle under the Company's Long Range Incentive Plan of 2006 without the payment of awards for such performance cycles, as reported on Form 8-K, filed April 25, 2008. 9. Fair Value...

  • Page 125
    ...value were as follows: December 31, 2008 Assets: Sigma Fund securities: U.S. government and agency obligations Corporate bonds Asset-backed securities Mortgage-backed securities Available-for-sale securities: U.S. government and agency obligations Corporate bonds Asset-backed securities Common stock...

  • Page 126
    ...fund equipment purchases. The Company had committed to provide financial guarantees relating to customer financing totaling $43 million and $42 million at December 31, 2008 and 2007, respectively (including $23 million at both December 31, 2008 and 2007 relating to the sale of short-term receivables...

  • Page 127
    ... 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 Telekomunikasyon Hizmetleri A.S. Pursuant to the settlement...

  • Page 128
    ... and broadcast network interactive set-tops ("digital entertainment devices"), end-to-end video delivery systems, broadband access infrastructure platforms, and associated data and voice customer premise equipment ("broadband gateways") to cable television and telecom service providers (collectively...

  • Page 129
    ... items and corporate allocations. Intersegment and intergeographic sales are accounted for on an arm's-length pricing basis. Intersegment sales included in other and eliminations were: Years Ended December 31 Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions 2008 $ 53 2 86...

  • Page 130
    ... Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions Other and Eliminations 2008 $ 3,559 7,024 6,000 16,583 11,286 $27,869 2006 $ 9,316 6,746 3,268 19,330 19,263 $38,593 Assets in Other include primarily cash and cash equivalents, Sigma Fund, deferred income taxes, short-term...

  • Page 131
    ..., Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions Corporate 2008 $216 53 27 296 38 $334 The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from January 1, 2008 to December 31, 2008...

  • Page 132
    ... December 31, Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2007 $229 71 30 330 64 $394 The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from January 1, 2007...

  • Page 133
    ... December 31, Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions General Corporate 2006 $ (1) 124 83 206 7 $213 The following table displays a rollforward of the reorganization of business accruals established for exit costs and employee separation costs from January 1, 2006...

  • Page 134
    ... Symbol Technologies, Inc. In January 2007, the Company acquired, for $3.5 billion in net cash, the outstanding common stock of Symbol Technologies, Inc. ("Symbol"), a leader in designing, developing, manufacturing and servicing products and systems used in end-to-end enterprise mobility solutions...

  • Page 135
    ... on the Company's consolidated financial statements were not significant. Good Technology, Inc. In January 2007, the Company acquired Good Technology, Inc. ("Good"), a provider of enterprise mobile computing software and services, for $438 million in net cash. The Company recorded $296 million...

  • Page 136
    ...August 2006, the Company acquired TTP Communications plc ("TTPCom"), a provider of wireless software platforms, protocol stacks and semiconductor solutions, for $193 million in cash. The Company recorded $52 million in goodwill, a portion of which is expected to be deductible for tax purposes, a $17...

  • Page 137
    ... 31, 2008, by business segment: Segment Mobile Devices Home and Networks Mobility Enterprise Mobility Solutions (1) Includes translation adjustments. During the year ended December 31, 2008, the Company finalized its assessment of the Internal Revenue Code Section 382 Limitations ("IRC Section...

  • Page 138
    ... could differ from those estimates. The Company assigned discount rates ranging from 13 to 14% for the Home, Public Networks, Government and Public Safety and Enterprise Mobility Reporting units. The Company assigned a discount rate of 25% to the Mobile Devices reporting unit commensurate with...

  • Page 139
    ..., 2007 and 2006: Balance at January 1 2008 Reorganization of Businesses Allowance for Doubtful Accounts Allowance for Losses on Long-term Receivables Inventory Reserves Warranty Reserves Customer Reserves 2007 Reorganization of Businesses Allowance for Doubtful Accounts Allowance for Losses on Long...

  • Page 140
    ... valuation allowance, as described in Note 6, "Income Taxes", (ii) a $1.6 billion charge related to the impairment of goodwill, as described in Note 14, "Acquisitions and Related Intangibles", and (iii) accumulated temporary unrealized losses in Sigma Fund investments, as described in Note 3, "Other...

  • Page 141
    ...in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to Motorola's management, including our chief executive officer and chief financial officer...

  • Page 142
    ...OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Motorola, Inc.: We have audited Motorola Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee...

  • Page 143
    ... (principal 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]...

  • Page 144
    ... IV Item 15: Exhibits, Financial Statement Schedules (a) 1. Financial Statements See Part II, Item 8 hereof. 2. Financial Statement Schedule and Independent Auditors' Report All schedules omitted are inapplicable or the information required is shown in the consolidated financial statements or notes...

  • Page 145
    ...Dollar Life Insurance Arrangements, effective January 1, 2008, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, effective January 1, 2007, and Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension...

  • Page 146
    ...-Chief Executive Officer and Director (Principal Executive Officer) Co-Chief Executive Officer and Director (Principal Executive Officer) Senior Vice President, Corporate Controller and Acting Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) Chairman of the Board...

  • Page 147
    ... /s/ SAMUEL C. SCOTT III Samuel C. Scott III /s/ RON SOMMER Ron Sommer /s/ JAMES R. STENGEL James R. Stengel Director Title Date February 26, 2009 Director February 26, 2009 Director February 26, 2009 /s/ ANTHONY J. VINCIQUERRA Anthony J. Vinciquerra DOUGLAS A. WARNER III Douglas A. Warner III...

  • Page 148
    ... to Exhibit 10.1 to Motorola's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 1-7221)). 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...

  • Page 149
    ...File No. 1-7221)). Form of Motorola, Inc. Award Document for the Motorola Omnibus Incentive Plan of 2006, Terms and Conditions Related to Employee Nonqualified Stock Options for Paul J. Liska (Sign-on Grant) (incorporated by reference to Exhibit 10.12 to Motorola's Annual Report on Form 10-K for the...

  • Page 150
    ...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 151
    ... No. 1-7221)). Form of Deferred Stock Units Agreement between Motorola, Inc. and its non-employee directors, relating to the deferred stock units issued in lieu of cash compensation to directors under the Motorola Omnibus Incentive Plan of 2003 or any successor plan, for acquisitions from January...

  • Page 152
    ...Motorola, Inc. Executive Severance Plan, as amended through December 31, 2008, Effective October 1, 2008. Motorola, Inc. Retiree Basic Life Insurance for Elected Officers prior to January 1, 2004 who retire after January 1, 2005 (incorporated by reference to Exhibit 10.36 to Motorola's Annual Report...

  • Page 153
    145 Exhibit No. *31.1 *31.2 *31.3 *32.1 *32.2 *32.3 Exhibit Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Dr. Sanjay K. Jha pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Edward J. Fitzpatrick pursuant to ...

  • Page 154
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  • Page 155
    ... Communications 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] +1 847 538 7367 Common Stock Motorola common stock is listed on the New York and Chicago Stock Exchanges. Annual...

  • Page 156
    .... 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 US Patent & Trademark Office. All other product or service names are the property of their respective owners. © 2009 Motorola, Inc. All rights reserved...