Motorola 2009 Annual Report Download - page 63

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
excluding changes to valuation allowances are estimated to be in the range of $0 to $225 million, with cash
payments not expected to exceed $125 million.
Commitments Under Other Long-Term Agreements: The Company has entered into certain long-term
agreements to purchase software, components, supplies and materials from suppliers. Most of the agreements
extend for periods of one to three years (three to five years for software). Generally, these agreements do not
obligate the Company to make any purchases, and many permit the Company to terminate the agreement with
advance notice (usually ranging from 60 to 180 days). If the Company were to terminate these agreements, it
generally would be liable for certain termination charges, typically based on work performed and supplier
on-hand inventory and raw materials attributable to canceled orders. The Company’s liability would only arise in
the 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, 2009, the total
remaining payments under these contracts are approximately $728 million over the remaining life of the
contracts; however, these contracts can be terminated. Termination would result in a penalty substantially less
than the remaining annual contract payments. The Company would also be required to find another source for
these services, including the possibility of performing them in-house.
As is customary in bidding for and completing network infrastructure projects and pursuant to a practice the
Company has followed for many years, the Company has a number of performance/bid bonds, standby letters of
credit and surety bonds outstanding (collectively, referred to as ‘‘Performance Bonds’’), primarily relating to
projects of the Enterprise Mobility Solutions and Home and Networks Mobility segments. These Performance
Bonds normally have maturities of up to three years and are standard in the industry as a way to give customers
a convenient mechanism to seek resolution if a contractor does not satisfy performance requirements under a
contract. A customer can draw on the Performance Bond only if the Company does not fulfill all terms of a
project contract. If such an occasion occurred, the Company would be obligated to reimburse the financial
institution that issued the Performance Bond for the amounts paid. In its long history, it has been rare for the
Company to have a Performance Bond drawn upon. At December 31, 2009, outstanding Performance Bonds
totaled approximately $1.9 billion, compared to $1.8 billion at the end of 2008. As a result of the Company’s
current credit ratings, issuers of these Performance Bonds may be less likely to provide Performance Bonds on the
Company’s behalf in the future, unless the Company provides collateral. These limitations on issuance may apply
to the renewal and extension of existing Performance Bonds, as well as the issuance of new Performance Bonds.
Such collateral requirements could result in less liquidity for other operational needs. Also, as a result of the
Company’s current credit ratings, there has been an increase in the cost of issuance of Performance Bonds.
Off-Balance Sheet Arrangements: Under the definition contained in Item 303(a)(4)(ii) of Regulation S-K, the
Company does not have any off-balance sheet arrangements.
Long-term Customer Financing Commitments
Outstanding Commitments: Certain purchasers of the Company’s infrastructure equipment may request that
the Company provide long-term financing (defined as financing with terms greater than one year) in connection
with the sale of equipment. These requests may include all or a portion of the purchase price of the equipment.
The Company’s obligation to provide long-term financing may be conditioned on the issuance of a letter of credit
in favor of the Company by a reputable bank to support the purchaser’s credit or a pre-existing commitment
from a reputable bank to purchase the long-term receivables from the Company. The Company had outstanding
commitments to provide long-term financing to third parties totaling $406 million at December 31, 2009,
compared to $370 million at December 31, 2008. Of these amounts, $13 million was supported by letters of
credit or by bank commitments to purchase long-term receivables at December 31, 2009, compared to $266
supported at December 31, 2008. The majority of the outstanding commitments at December 31, 2009 are to a
small number of network operators in the Middle East region. In response to the recent tightening in the credit
markets, certain customers of the Company have requested financing in connection with equipment purchases,
and these types of requests have increased in volume and scope.
Guarantees of Third-Party Debt: In addition to providing direct financing to certain equipment customers,
the Company also assists customers in obtaining financing directly from banks and other sources to fund
equipment purchases. The Company had committed to provide financial guarantees relating to customer financing
totaling $31 million at December 31, 2009, compared to $43 million at December 31, 2008 (including
$27 million and $23 million at December 31, 2009 and 2008, respectively, relating to the sale of short-term
receivables). Customer financing guarantees outstanding were $4 million at December 31, 2009, compared to