Motorola 2008 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2008 Motorola annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

Inventory, Raw Materials, Right of Return and Seasonality
The segment’s practice is to carry reasonable amounts of inventory to meet customers’ delivery requirements
in a manner consistent with industry standards. The segment provides custom products which requires the stocking
of inventories and large varieties of piece parts and replacement parts in order to meet delivery and warranty
requirements. To the 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, the segment had a
higher inventory balance than at the end of 2007, primarily as a result of the Company acquiring a controlling
interest in Vertex Standard Co, Ltd., in January 2008.
Availability of materials and components required by the segment is relatively dependable, but fluctuations in
supply and market demand could cause selective shortages and affect results. We currently procure certain
materials and components from single-source vendors. A material disruption from a single-source vendor may have
a material adverse impact on our results of operations. If certain key suppliers were to become capacity
constrained or insolvent as a result of the ongoing global financial crisis, it could result in a reduction or
interruption in supplies or an increase in the price of supplies and adversely impact the segment’s financial results.
Natural gas, electricity and, to a lesser extent, oil are the primary sources of energy for our manufacturing
operations, which are currently in adequate supply. In addition, the cost to operate our facilities and freight costs
are dependent on world oil prices, which fluctuated significantly during 2008 and impacted our manufacturing and
shipping costs. Labor is generally available in reasonable proximity to the segment’s manufacturing facilities.
However, difficulties in obtaining any of these items or a significant cost increase could affect the segment’s results.
Generally, the segment’s contracts do not include a right of return, other than for standard warranty
provisions. For new product introductions in our government and public safety market, we may enter into
milestone contracts providing that the product could be returned if we do not achieve the milestones. Due to
buying patterns in the markets we serve, sales tend to be somewhat higher in the fourth quarter.
Our Facilities/Manufacturing
Our primary offices are located in Schaumburg, Illinois and Holtsville, New York. Our other major facilities
are located in: Penang, Malaysia; Reynosa, Mexico; Krakow, Poland; Berlin, Germany; and Arad, Israel. In
addition to our own manufacturing, we utilize non-affiliated electronics manufacturing suppliers and distribution
and logistics services providers in order to enhance our ability to lower costs and deliver products that meet
consumer demands.
Other Information
Financial Information About Segments. The response to this section of Item 1 incorporates by reference
Note 12, “Information by Segment and Geographic Region,” of Part II, Item 8: Financial Statements and
Supplementary Data of this document.
Customers. Motorola has several large customers, the loss of one or more of which could have a material
adverse effect on the Company. In 2008, aggregate net sales to the Company’s five largest customers represented
approximately 25% of the Company’s sales. No single customer accounted for more than 10% of the Company’s
net sales in 2008.
Approximately 2% of Motorola’s net sales in 2008 were to various branches and agencies, including the
armed services, of the U.S. Government. All contracts with the U.S. Government are subject to cancellation at the
convenience of the Government.
Government contractors, including Motorola, are routinely subjected to numerous audits and investigations,
which may be either civil or criminal in nature. The consequences of these audits and investigations may include
administrative action to suspend business dealings with the contractor and to exclude it from receiving new
business. In addition, Motorola, like other contractors, reviews aspects of its government contracting operations,
and, where appropriate, takes corrective actions and makes voluntary disclosures to the U.S. Government. These
audits and investigations could adversely affect Motorola’s ability to obtain new business from the
U.S. Government.
15