Motorola 2012 Annual Report Download - page 17

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our financial results. In addition, credit constraints at single-source suppliers have resulted in accelerated payment of
accounts payable by us, impacting our cash flow.
• Risk of Financial Counterparty Failures Could Negatively Impact our Financial Position: A significant
amount of our international business in 2012 was transacted in local currency. We use derivative financial instruments
to reduce our overall exposure to the effects of currency fluctuations on cash flows. We are exposed to credit loss in
the event of nonperformance by the counterparties to these derivative financial instruments. Although the contracts are
distributed among several leading financial institutions, all of whom presently have investment grade credit ratings,
the default by one or more counterparties could have an adverse impact on our financial statements.
• Returns on Pension and Retirement Plan Assets and Interest Rate Changes Could Affect Our Earnings and
Cash Flow in Future Periods: We have large underfunded pension obligations, in part resulting from the fact that we
retained almost all of the U.S. pension liabilities and a major portion of our non-U.S. pension liabilities following our
divestitures, including the distribution of Motorola Mobility. The funding position of our pension plans is affected by
the performance of the financial markets, particularly the equity and debt markets, and the interest rates used to
calculate our pension obligations for funding and expense purposes. Minimum annual pension contributions are
determined by government regulations and calculated based upon our pension funding status, interest rates, and other
factors. If the financial markets perform poorly, we could be and have been required to make additional large
contributions. The equity and debt markets can be volatile, and therefore our estimate of future contribution
requirements can change dramatically in relatively short periods of time. Similarly, changes in interest rates can affect
our contribution requirements. In volatile interest rate environments, the likelihood of material changes in the future
minimum required contributions increases.
We have direct and indirect exposure to European sovereign and non-sovereign debt, and to European markets and our
revenues and cash flows are exposed to fluctuations in the euro.
We have sizeable operations in Europe, which have been and will be impacted by the ongoing financial situation in
Europe and the volatility of the euro. We view our exposures to the euro as follows as of December 31, 2012:
• Our cash and cash equivalents include approximately $360 million of euro denominated currency.
• Our accounts receivables balance includes approximately $140 million of euro denominated receivables.
• In 2012, approximately 10% of our total sales were euro denominated.
• Company-sponsored defined benefit plans have no material exposure to euro sovereign debt, approximately
$70 million exposure to euro corporate bonds, and approximately $325 million exposure to euro equity
investments.
A significant devaluation of, or movement away from, the use of the euro could have a material adverse effect on our
financial condition and results of operations.
Our success depends in part on our timely introduction of new products and technologies and our results can be impacted by
the effectiveness of our significant investments in new products and technologies.
The markets for certain of our products are characterized by rapidly changing technologies and evolving industry
standards. In addition, new technologies and associated competitors are entering our markets at a faster pace than we have
experienced in the past, including consumer grade products. New products are expensive to develop and bring to market. Our
success depends, in substantial part, on the timely and successful introduction of new products and upgrades of current
products to comply with emerging industry standards and to address competing technological and product developments
carried out by our competitors. The research and development of new, technologically-advanced products is a complex and
uncertain process requiring high levels of innovation and investment, as well as the accurate anticipation of technology and
market trends. Many of our products and systems are complex and we may experience delays in completing development and
introducing new products or technologies in the future. We may focus our resources on technologies that do not become widely
accepted or are not commercially viable or involve compliance obligations with additional areas of regulatory requirements.
Our results are subject to risks related to our significant investment in developing and introducing new products. These
risks include among others: (i) difficulties and delays in the development, production, testing and marketing of products;
(ii) customer acceptance of products; (iii) the development of, approval of, and compliance with industry standards and
regulatory requirements; (iv) the significant amount of resources we must devote to the development of new technologies; and
(v) the ability to differentiate our products and compete with other companies in the same markets.
We are exposed to risks under large, multi-year system and managed services contracts that may negatively impact our
business.
We enter into large, multi-year system and managed services contracts with large municipal, state, nation-wide
government and enterprise customers. This exposes us to risks, including among others: (i) the technological risks, especially