Motorola 2011 Annual Report Download - page 53

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47
Adequate Internal Funding Resources
We believe that we have adequate internal resources available to fund expected working capital and capital
expenditure requirements for the next twelve months as supported by the level of cash, cash equivalents, short-term
investments and Sigma Fund balances in the U.S. and the ability to repatriate funds from foreign jurisdictions.
Other Contingencies
Potential Contractual Damage Claims in Excess of Underlying Contract Value: In certain circumstances, our
businesses may enter into contracts with customers pursuant to which the damages that could be claimed by the
other party for failed performance might exceed the revenue we receive from the contract. Contracts with these
types of uncapped damage provisions are fairly rare, but individual contracts could still represent meaningful risk.
There is a possibility that a damage claim by counterparty to one of these contracts could result in expenses to us
that are far in excess of the revenue received from the counterparty in connection with the contract.
Indemnification Provisions: In addition, we may provide indemnifications for losses that result from the
breach of general warranties contained in certain commercial, intellectual property and divestiture agreements.
Historically, we have not made significant payments under these agreements, nor have there been significant claims
asserted against us. However, there is an increasing risk in relation to intellectual property indemnities given the
current legal climate. In indemnification cases, payment by us is conditioned on the other party making a claim
pursuant to the procedures specified in the particular contract, which procedures typically allow us to challenge the
other party’s claims. Further, our obligations under divestiture agreements for indemnification based on breach of
representations and warranties are generally limited in terms of duration, typically not more than 24 months, and
for amounts not in excess of the contract value, and in some instances we may have recourse against third parties
for certain payments made by us.
Intellectual Property Matters: During 2010, we entered into a settlement agreement with another company to
resolve certain intellectual property disputes between the two companies. As a result of the settlement agreement, we
received $65 million in cash and were assigned certain patent properties. As a result of this agreement, we recorded
a pre-tax gain of $39 million (and $55 million was allocated to discontinued operations) during the year ended
December 31, 2010, related to the settlement of the outstanding litigation between the parties.
Legal Matters: We are a defendant in various lawsuits, claims and actions, which arise in the normal course of
business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse
effect on our consolidated financial position, liquidity or results of operations. However, an unfavorable resolution
could have a material adverse effect on our consolidated financial position, liquidity or results of operations in the
periods in which the matters are ultimately resolved.
Significant Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting
period.
Management bases its estimates and judgments on historical experience, current economic and industry
conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following significant accounting policies require significant judgment and estimates:
—Revenue recognition
—Inventory valuation
—Income taxes
—Valuation of Sigma Fund and investment portfolios
—Restructuring activities