payments. The remaining accrual of $52$56 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at AprilJuly 4, 2009, represents future cash payments primarily for lease termination obligations.
remaining accrual of $44$34 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at March 29,June 28, 2008, representsrepresented future cash payments primarily for lease termination obligations.
22
Employee Separation Costs
At January 1, 2008, the Company had an accrual of $193 million for employee separation costs, representing the severance costs for approximately 2,800 employees. The 2008 additional charges of $113$154 million representrepresented severance costs for approximately an additional 2,6003,000 employees, of which 1,300 arewere direct employees and 1,300 are1,700 were indirect employees.
The adjustments of $1$18 million reflect $9$27 million of reversals of accruals no longer needed, partially offset by $8$9 million of translation adjustments. The $9$27 million of reversals represent approximately 100200 employees.
During the threesix months ended March 29,June 28, 2008, approximately 1,5003,000 employees, of which 8001,500 were direct employees and 7001,500 were indirect employees, were separated from the Company. The $74$152 million used in 2008 reflects cash payments to these separated employees. The remaining accrual of $231$177 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at March 29,June 28, 2008, iswas expected to be paid to approximately 3,800 separated employees in2,600 during the second half of 2008. Since that time, $182$128 million has been paid to approximately 3,4002,300 separated employees and $49$46 million was reversed.
14. Acquisitions-relatedAcquisitions related Intangibles
Intangible Assets
Amortized intangible assets were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | April 4, 2009 | | December 31, 2008 | | July 4, 2009 | | December 31, 2008 | |
| | | Gross
| | | | Gross
| | | | Gross
| | | | Gross
| | | |
| | | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| |
| | | Amount | | Amortization | | Amount | | Amortization | | Amount | | Amortization | | Amount | | Amortization | |
| | | | |
| |
| Intangible assets | | | | | | | | | | | | | |
| Completed technology | | $ | 1,126 | | | $ | 673 | | | $ | 1,127 | | | $ | 633 | | | $ | 1,121 | | | $ | 710 | | | $ | 1,127 | | | $ | 633 | |
| Patents | | | 292 | | | | 139 | | | | 292 | | | | 125 | | | | 288 | | | | 151 | | | | 292 | | | | 125 | |
| Customer-related | | | 277 | | | | 116 | | | | 277 | | | | 104 | | | | 276 | | | | 125 | | | | 277 | | | | 104 | |
| Licensed technology | | | 129 | | | | 119 | | | | 129 | | | | 118 | | | | 130 | | | | 120 | | | | 129 | | | | 118 | |
| Other intangibles | | | 150 | | | | 129 | | | | 150 | | | | 126 | | | | 149 | | | | 131 | | | | 150 | | | | 126 | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 1,974 | | | $ | 1,176 | | | $ | 1,975 | | | $ | 1,106 | | | $ | 1,964 | | | $ | 1,237 | | | $ | 1,975 | | | $ | 1,106 | |
| |
Amortization expense on intangible assets, which is included within Other and Eliminations, was $71$70 million and $83$81 million for the three months ended AprilJuly 4, 2009 and March 29,June 28, 2008, respectively, and $141 million and $164 million for the six months ended July 4, 2009 and June 28, 2008, respectively. As of AprilJuly 4, 2009, annual amortization expense is estimated to be $278 million for 2009, $256 million in 2010, $242 million in 2011, $50$49 million in 2012 and $29 million in 2013.
Amortized intangible assets, excluding goodwill, by business segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | April 4, 2009 | | December 31, 2008 | | July 4, 2009 | | December 31, 2008 | |
| | | Gross
| | | | Gross
| | | | Gross
| | | | Gross
| | | |
| | | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| | Carrying
| | Accumulated
| |
| Segment | | Amount | | Amortization | | Amount | | Amortization | |
| | | | Amount | | Amortization | | Amount | | Amortization | |
| | | | |
| |
| Mobile Devices | | $ | 44 | | | $ | 44 | | | $ | 45 | | | $ | 45 | | | $ | 45 | | | $ | 45 | | | $ | 45 | | | $ | 45 | |
| Home and Networks Mobility | | | 722 | | | | 537 | | | | 722 | | | | 522 | | | | 712 | | | | 544 | | | | 722 | | | | 522 | |
| Enterprise Mobility Solutions | | | 1,208 | | | | 595 | | | | 1,208 | | | | 539 | | | | 1,207 | | | | 648 | | | | 1,208 | | | | 539 | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 1,974 | | | $ | 1,176 | | | $ | 1,975 | | | $ | 1,106 | | | $ | 1,964 | | | $ | 1,237 | | | $ | 1,975 | | | $ | 1,106 | |
| |
2324
Goodwill
The following tables display a rollforward of the carrying amount of goodwill from January 1, 2009 to AprilJuly 4, 2009, by business segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | January 1,
| | | | | | April 4,
| | January 1,
| | | | | | July 4,
| |
| Segment | | 2009 | | Adjustments(1) | | Dispositions | | 2009 | |
| | | | 2009 | | Adjustments(1) | | Dispositions | | 2009 | |
| | | | |
| |
| Home and Networks Mobility | | $ | 1,409 | | | $ | (4 | ) | | $ | — | | | $ | 1,405 | | | $ | 1,409 | | | $ | (3 | ) | | $ | — | | | $ | 1,406 | |
| Enterprise Mobility Solutions | | | 1,428 | | | | — | | | | (11 | ) | | | 1,417 | | | | 1,428 | | | | (1 | ) | | | (11 | ) | | | 1,416 | |
| | | | | | | | | | | | | | | | | | | |
| | | $ | 2,837 | | | $ | (4 | ) | | $ | (11 | ) | | $ | 2,822 | | | $ | 2,837 | | | $ | (4 | ) | | $ | (11 | ) | | $ | 2,822 | |
| |
| | |
| (1) | | Includes translation adjustments. |
2425
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
This commentary should be read in conjunction with the Company’s condensed consolidated financial statements for the quartersthree and six months ended AprilJuly 4, 2009 and March 29,June 28, 2008, as well as the Company’s consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in the Company’sForm 10-K for the year ended December 31, 2008.
Executive Overview
What businesses are we in?
Motorola reports financial results for the following operating business segments:
| | |
| | • | TheMobile Devicessegment designs, manufactures, sells and services wireless handsets with integrated software and accessory products, and licenses intellectual property. In the firstsecond quarter of 2009, the segment’s net sales were $1.8 billion, representing 34%33% of the Company’s consolidated net sales.* |
| |
| | • | TheHome and Networks Mobilitysegment designs, manufactures, sells, installs and services: (i) digital video, Internet Protocol video 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 to cable television and telecom service providers (collectively, referred to as the “home business”), and (ii) wireless access systems, including cellular infrastructure systems and wireless broadband systems, to wireless service providers (collectively, referred to as the “network business”). In the firstsecond quarter of 2009, the segment’s net sales were $2.0 billion, representing 37%36% of the Company’s consolidated net sales.* |
| |
| | • | TheEnterprise Mobility Solutionssegment designs, 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 solutions to a wide range of enterprise markets, including government and public safety agencies (which, together with all sales to distributors of two-way communication products, are referred to as the “government and public safety market”), as well as retail, energy and utilities, transportation, manufacturing, healthcare and other commercial customers (which, collectively, are referred to as the “commercial enterprise market”). In the firstsecond quarter of 2009, the segment’s net sales were $1.6$1.7 billion, representing 30%31% of the Company’s consolidated net sales.* |
First-QuarterSecond-Quarter Summary
| | |
| | • | Net Sales were $5.4$5.5 Billion:Our net sales were $5.4$5.5 billion in the firstsecond quarter of 2009, down 28%32% compared to net sales of $7.4$8.1 billion in the firstsecond quarter of 2008. Compared to the year-ago quarter, net sales decreased 45% in the Mobile Devices segment, decreased 16%27% in the Home and Networks Mobility segment and decreased 11%17% in the Enterprise Mobility Solutions segment. |
| |
| | • | Operating Loss of $449Earnings were $10 Million: We incurred anhad operating lossearnings of $449$10 million in the firstsecond quarter of 2009, compared to an operating lossearnings of $269$5 million in the firstsecond quarter of 2008. Operating margin was (8.4)%0.2% of net sales in the firstsecond quarter of 2009, compared to (3.6)%0.1% of net sales in the firstsecond quarter of 2008. |
| |
| | • | Loss FromEarnings from Continuing Operations of $291were $26 Million, or $0.13$0.01 per Share:We incurred ahad net lossearnings from continuing operations of $291$26 million, or $0.13$0.01 per diluted common share, in the firstsecond quarter of 2009, compared to a net loss from continuing operations of $194$4 million, or $0.09$0.00 per diluted common share, in the firstsecond quarter of 2008. |
| |
| | • | First-QuarterHandset Shipments were 14.8 Million Units: We shipped 14.8 million handsets in the second quarter of 2009, a 47% decrease compared to shipments of 28.1 million handsets in the second quarter of 2008, and a 1% increase sequentially compared to shipments of 14.7 million handsets in the first quarter of 2009. |
|
| • | Second-Quarter Global Handset Market Share Estimated at 6.0%, based on Handset Shipments of 14.7 Million Units:5.5%: We estimate our share of the global handset market in the firstsecond quarter of 2009 was approximately 6.0%5.5%, a decrease of approximately 34 percentage points versus the second quarter of 2008 and a decrease of approximately half a percentage point versus the first quarter of 2008.2009. |
|
| • | Digital Entertainment Device Shipments were 3.7 Million: We shipped 14.73.7 million handsetsdigital entertainment devices in the firstsecond quarter of 2009, a 46% decrease of 26% compared to shipments of 27.45.1 million handsetsdevices in the firstsecond quarter of 2008. |
* When discussing the net sales of each of our three segments, we express the segment’s net sales as a percentage of the Company’s consolidated net sales. However, certain of our segments sell products to other Motorola businesses and intracompany sales are eliminated as part of the consolidation process. Therefore, the percentages of consolidated net sales for our business segments do not always sum to 100%.
2526
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | |
| | • | Digital Entertainment Device Shipments were 4.3Operating Cash Flow of $150 Million: We shipped 4.3generated net cash from operating activities of $150 million digital entertainment devices in the first quarter of 2009, an increase of 2% compared to shipments of 4.2 million devices in the first quarter of 2008. |
|
| • | Operating Cash Usage of $1.0 Billion: We used $1.0 billion of net cash for operating activities in the firstsecond quarter of 2009, compared to using $343generating $204 million of net cash from operating activities in the second quarter of 2008. During the first half of 2009, the Company used $864 million of net cash for operating activities, incompared to $139 million of cash used during the first quarterhalf of 2008. The increase in net cash used for operating activities was primarily driven by: (i) a reduction in the volume of accounts receivable sold to third parties, and (ii) an increase in payments for employee severance and exit costs related to the Company’s reorganization of business plans. |
Net sales for each of our business segments were as follows:
| | |
| | • | In Mobile Devices: Net sales were $1.8 billion in the firstsecond quarter of 2009, a decrease of 45% compared to net sales of $3.3 billion in the firstsecond quarter of 2008. The decrease in net sales was primarily driven by a 46%47% decrease in unit shipments, partially offset by a 2%5% increase in average selling price (“ASP”). On a geographic basis, net sales decreased substantially in all regions. On a product technology basis, net sales decreased substantially for GSM, CDMA and 3G technologies, partially offset by an increase in net sales offor iDEN technologies. |
| |
| | • | In Home and Networks Mobility: Net sales were $2.0 billion in the firstsecond quarter of 2009, a decrease of 16%27% compared to net sales of $2.4$2.7 billion in the firstsecond quarter of 2008. On a geographic basis, net sales decreased substantially in Asia and Latin America, and to a lesser extent, decreased in North America and the Europe, Middle East and Africa region and Latin America and increased in Asia.(“EMEA”). The decrease in net sales reflects a 21%27% decrease in net sales in the networks business and a 12%26% decrease in net sales in the home business. |
| |
| | • | In Enterprise Mobility Solutions: Net sales were $1.6$1.7 billion in the firstsecond quarter of 2009, a decrease of 11%17% compared to net sales of $1.8$2.0 billion in the firstsecond quarter of 2008. On a geographic basis, net sales decreased in all regions.North America, EMEA, and Latin America and increased in Asia. The decrease in net sales was driven byreflects a double-digit percentage decline28% decrease in net sales to the commercial enterprise market and a single-digit percentage decline13% decrease in net sales to the government and public safety market. |
Looking Forward
AdverseChallenging economic conditions around the world have impacted many of our customers and consumers, and resultedresulting in slowingreduced demand forin many of our businesses. However,In the longer-term,second quarter, although sales remained substantially below year ago levels, we began to see some stabilization in global economic conditions. For the longer term, the fundamental trend regarding the dissolution of boundaries between the home, work and mobility continues to evolve. We believe our focus on designing and delivering differentiated wired and wireless communications products, unique experiences and powerful networks, as well as complementary support services, will enable consumers to have a broader choice of when, where and how they connect to people, information and entertainment. While many markets we serve will have little to no growth, or even contraction, in 2009, there still remain large numbers of businesses and consumers around the world who have yet to experience the benefits of converged wireless communications, mobility and the Internet. As economies, financial markets and business conditions improve, this will present new opportunities to extend our brand, to market our products and services and to pursue profitable growth.
In our Mobile Devices business, we expect the overall global handset market to remain intensely competitive, with lower total demand in 2009 than in 2008 due to the continued adverse economic environment around the world. Our strategy is focused on simplifying our product platforms, enhancing our productsmartphone portfolio, in the mid- and high-tier, reducing our cost structure and strengthening our position in priority markets. We expect our transition to a more competitive portfolio will show progress by the fourth quarter of 2009, as we introduce our Android-based smartphones, and continue in 2010. Looking ahead to the next year, the majority of our new devices will be smartphones as we expand Android across a broader set of price points and address a wider set of customers. Priority markets will include North America, Latin America and parts of Asia, including China. We have also increased our focus on our accessories portfolio to deliver complete mobile experiences and to complement our handset features and functionalities. We have implemented cost-reduction initiatives to ensure that we have a more competitive cost structure. These actions will accelerate our speed to market with new products, allow us to offer richer consumer experiences and improve our financial performance.
In our Home and Networks Mobility business, we are focused on delivering personalized media experiences to consumers at home andon-the-go and enabling service providers to operate their networks more efficiently and profitably. We will build on our market leading position in digital entertainment devices and video delivery systems to capitalize on demand for high definition TV, personalized video services, broadband connectivity and higher speed. Due to economic conditions, demand is slowing in 2009 in the home business’ addressable market, particularly in the U.S. InWe continue to invest in next-generation wireless technologies with our WiMAX and LTE systems. Globally, we support a global footprint of WiMAX customers and expect an increase$500 to $600 million in WiMAX product sales in 2009. We expect the overall 2G and 3G wireless infrastructure market to decline in 2009 compared to 2008 and
26
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to remain highly competitive. The Home and Networks Mobility business will continue to optimize its cost structure and will continue to make investments in next-generation technologies commensurate with opportunities for profitable growth.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In our Enterprise Mobility Solutions business, we have market leading positions in both mission-critical and business critical communications solutions. We continue to develop next-generation products and solutions for our government and public safety and commercial enterprise customers. We believe that our government and public safety customers will continue to place a high priority on mission-critical communications and homeland security solutions. Our focus is on the innovation and delivery of products that meet our customers’ needs, such as the second-quarter introduction of our new APX 7000 Project 25 two-way radio, which has multi-band functionality that provides instant interoperability between first responders, improves officer coordination and response time and delivers loud, clear audio in a rugged, ergonomic form factor. Our focus for our commercial enterprise customers is to meet their needs for two-way communication, converged communications and solutions whichthat increase worker mobility and productivity, as well as enhance end user experiences. Both our government andCommercial enterprise customers are facing uncertainty and volatility as a result of the ongoing globalcontinue to face challenging, yet somewhat stabilizing economic challenges,conditions, which will likely lead to lower capital spending by customers in the commercial enterprise markets.market for the full year 2009 as compared to 2008. In the government and public safety market, while we are currently experiencing solidstable levels of demand, budget constraints could impact the timing and volume of purchases by these customers.our customers, resulting in lower spending for the full year 2009 compared to 2008. We believe that our comprehensive portfolio of products and services and market leadership make our Enterprise Mobility Solutions business well positionedwell-positioned to meet these challenges.
In February 2009, the American Recovery and Reinvestment Act of 2009 (the “Stimulus Package”) became law. The Stimulus PackageThis stimulus package implements nearly $800 billion of spending and investment by the U.S. Federal government, including spending in areas of infrastructure and technology, which may benefit our customers and, consequently, Motorola. Similarly,Other governments around the European Union Member States have agreedworld are implementing similar stimulus packages. These stimulus packages present opportunities for Motorola in terms of equipment sales and tax incentives. In 2009, we expect these stimulus packages to a recovery package, which is now being considered bylargely provide funding for the European Parliament,continuation of €5 billion for energy, broadband deploymentexisting projects and rural development projectsprocurement plans that may provide opportunities for equipment sales into the European market. This is in additionhave otherwise been delayed or suspended due to individual Member States’ recovery packages.budget shortfalls. We will continue to monitor these activities and partner with our customers to drive these opportunities.
The Company is implementing a number of global actions to reduce its cost structure. These actions are primarily focused on our Mobile Devices business, but also include the other businesses and corporate functions. These actions are expected to result in a significant reduction in the Company’s cost structure in 2009. To ensure alignment with changing market conditions, the Company will continually review its cost structure as it aggressively manages costs throughout 2009 while maintaining investments in innovation and future growth opportunities.
The Company has previously announced that it is pursuing the creation of two independent, publicly traded companies. The Company continues to progress on various elements of its separation plan. Management and the Board of Directors remain committed to separation in as expeditious a manner as possible and continue to believe this is the best path for the Company to maximize value for all of our shareholders.
The Company remains very focused on the strength of its balance sheet and its overall liquidity position. InFor the remainder of 2009, operating cash flow improvement, working capital management and preservation of total cash will continue to be major focuses for the Company. We will continue to direct our available funds, including the Sigma Fund investments, primarily into cash or very highly-rated, short-term securities. In addition,During the first half of 2009, the Company repatriated in excess of $1.6 billion in funds from international jurisdictions to the U.S. with minimal cash tax cost. As appropriate, the Company expects to continue to repatriate funds from international jurisdictions to the U.S. with little or nominimal cash tax cost induring the remainder of 2009. The Company believes it has more than sufficient liquidity to operate its business.
We conduct our business in highly competitive markets, facing both new and established competitors. The markets for many of our products are characterized by rapidly changing technologies, frequent new product introductions, changing consumer trends, short product life cycles and evolving industry standards. Market disruptions caused by new technologies, the entry of new competitors into markets we serve, and frequent consolidations among our customers and competitors, among other matters, can introduce volatility into our businesses. We face a very challenging global economic environment with reduced visibility and slowing demand. Meeting all of these challenges requires consistent operational planning and execution and investment in technology, resulting in innovative products that meet the needs of our customers around the world. As we execute on meeting these objectives, we remain focused on taking the necessary action to design and deliver differentiated and innovative products and services that will advance the way the world connects by simplifying and personalizing communications and enhancing mobility.
2728
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Three Months Ended | | Six Months Ended | |
| | | April 4,
| | % of
| | March 29,
| | % of
| | July 4,
| | % of
| | June 28,
| | % of
| | July 4,
| | % of
| | June 28,
| | % of
| |
| (Dollars in millions, except per share amounts) | | 2009 | | Sales | | 2008 | | Sales | | 2009 | | Sales | | 2008 | | Sales | | 2009 | | Sales | | 2008 | | Sales | |
| | | | |
| |
| Net sales | | $ | 5,371 | | | | | | $ | 7,448 | | | | | | $ | 5,497 | | | | | | | $ | 8,082 | | | | | | | $ | 10,868 | | | | | | | $ | 15,530 | | | | | |
| Costs of sales | | | 3,875 | | | | 72.1 | % | | | 5,303 | | | | 71.2 | % | | | 3,787 | | | | 68.9 | % | | | 5,757 | | | | 71.2 | % | | | 7,662 | | | | 70.5 | % | | | 11,060 | | | | 71.2 | % |
| | | | | | | | | | | | | | | |
| Gross margin | | | 1,496 | | | | 27.9 | % | | | 2,145 | | | | 28.8 | % | | | 1,710 | | | | 31.1 | % | | | 2,325 | | | | 28.8 | % | | | 3,206 | | | | 29.5 | % | | | 4,470 | | | | 28.8 | % |
| | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 869 | | | | 16.2 | % | | | 1,183 | | | | 15.9 | % | | | 822 | | | | 15.0 | % | | | 1,115 | | | | 13.8 | % | | | 1,691 | | | | 15.6 | % | | | 2,298 | | | | 14.8 | % |
| Research and development expenditures | | | 847 | | | | 15.8 | % | | | 1,054 | | | | 14.2 | % | | | 775 | | | | 14.1 | % | | | 1,048 | | | | 13.0 | % | | | 1,622 | | | | 14.9 | % | | | 2,102 | | | | 13.5 | % |
| Other charges | | | 229 | | | | 4.3 | % | | | 177 | | | | 2.3 | % | | | 103 | | | | 1.9 | % | | | 157 | | | | 1.9 | % | | | 332 | | | | 3.1 | % | | | 334 | | | | 2.2 | % |
| | | | | | | | | | | | | | | |
| Operating loss | | | (449 | ) | | | (8.4 | )% | | | (269 | ) | | | (3.6 | )% | |
| Operating earnings (loss) | | | | 10 | | | | 0.2 | % | | | 5 | | | | 0.1 | % | | | (439 | ) | | | (4.0 | )% | | | (264 | ) | | | (1.7 | )% |
| | | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense, net | | | (35 | ) | | | (0.6 | )% | | | (2 | ) | | | (0.0 | )% | | | (30 | ) | | | (0.5 | )% | | | (10 | ) | | | (0.1 | )% | | | (65 | ) | | | (0.6 | )% | | | (12 | ) | | | (0.1 | )% |
| Gains (loss) on sales of investments and businesses, net | | | (20 | ) | | | (0.4 | )% | | | 19 | | | | 0.2 | % | |
| Gains on sales of investments and businesses, net | | | | 30 | | | | 0.5 | % | | | 39 | | | | 0.5 | % | | | 10 | | | | 0.1 | % | | | 58 | | | | 0.4 | % |
| Other | | | 70 | | | | 1.3 | % | | | (5 | ) | | | (0.1 | )% | | | 23 | | | | 0.4 | % | | | (92 | ) | | | (1.2 | )% | | | 93 | | | | 0.9 | % | | | (97 | ) | | | (0.6 | )% |
| | | | | | | | | | | | | | | |
| Total other income (expense) | | | 15 | | | | 0.3 | % | | | 12 | | | | 0.1 | % | | | 23 | | | | 0.4 | % | | | (63 | ) | | | (0.8 | )% | | | 38 | | | | 0.3 | % | | | (51 | ) | | | (0.3 | )% |
| | | | | | | | | | | | | | | |
| Loss from continuing operations before income taxes | | | (434 | ) | | | (8.1 | )% | | | (257 | ) | | | (3.5 | )% | |
| Earnings (loss) from continuing operations before income taxes | | | | 33 | | | | 0.6 | % | | | (58 | ) | | | (0.7 | )% | | | (401 | ) | | | (3.7 | )% | | | (315 | ) | | | (2.0 | )% |
| Income tax benefit | | | (146 | ) | | | (2.7 | )% | | | (67 | ) | | | (0.9 | )% | | | (2 | ) | | | (0.0 | )% | | | (55 | ) | | | (0.7 | )% | | | (148 | ) | | | (1.4 | )% | | | (122 | ) | | | (0.8 | )% |
| | | | | | | | | | | | | | | |
| | | | (288 | ) | | | (5.4 | )% | | | (190 | ) | | | (2.6 | )% | | | 35 | | | | 0.6 | % | | | (3 | ) | | | 0.0 | % | | | (253 | ) | | | (2.3 | )% | | | (193 | ) | | | (1.2 | )% |
| Less: Earnings attributable to the noncontrolling interests | | | 3 | | | | 0.0 | % | | | 4 | | | | 0.0 | % | |
| Less: Earnings (loss) attributable to noncontrolling interests | | | | 9 | | | | 0.1 | % | | | (7 | ) | | | (0.0 | )% | | | 12 | | | | 0.1 | % | | | (3 | ) | | | 0.0 | % |
| | | | | | | | | | | | | | | |
| Loss from continuing operations* | | | (291 | ) | | | (5.4 | )% | | | (194 | ) | | | (2.6 | )% | |
| Earnings (loss) from continuing operations* | | | | 26 | | | | 0.5 | % | | | 4 | | | | 0.0 | % | | | (265 | ) | | | (2.4 | )% | | | (190 | ) | | | (1.2 | )% |
| Earnings from discontinued operations, net of tax | | | 60 | | | | 1.1 | % | | | — | | | | — | % | | | — | | | | — | % | | | — | | | | — | % | | | 60 | | | | 0.5 | % | | | — | | | | — | % |
| | | | | | | | | | | | | | | |
| Net loss | | $ | (231 | ) | | | (4.3 | )% | | $ | (194 | ) | | | (2.6 | )% | |
| Net earnings (loss) | | | $ | 26 | | | | 0.5 | % | | $ | 4 | | | | 0.0 | % | | $ | (205 | ) | | | (1.9 | )% | | $ | (190 | ) | | | (1.2 | )% |
| | | | | | | | | | | | | | | |
| Earnings (loss) per diluted common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | (0.13 | ) | | | | | $ | (0.09 | ) | | | | | $ | 0.01 | | | | | | | $ | 0.00 | | | | | | | $ | (0.12 | ) | | | | | | $ | (0.08 | ) | | | | |
| Discontinued operations | | | 0.03 | | | | | | | — | | | | | | | — | | | | | | | | — | | | | | | | | 0.03 | | | | | | | | — | | | | | |
| | | | | | | | | | | | | | | |
| | | $ | (0.10 | ) | | | | | $ | (0.09 | ) | | | | | $ | 0.01 | | | | | | | $ | 0.00 | | | | | | | $ | (0.09 | ) | | | | | | $ | (0.08 | ) | | | | |
| |
| | |
| * | | Amounts attributable to Motorola, Inc. common shareholders. |
Results of Operations—Three months ended AprilJuly 4, 2009 compared to three months ended March 29,June 28, 2008
Net Sales
Net sales were $5.4$5.5 billion in the firstsecond quarter of 2009, down 28%32% compared to net sales of $7.4$8.1 billion in the firstsecond quarter of 2008. The decrease in net sales reflects: (i) a $1.5 billion, or 45%, decrease in net sales in the Mobile Devices segment, (ii) a $392$737 million, or 16%27%, decrease in net sales in the Home and Networks Mobility segment, and (iii) a $207$357 million, or 11%17%, decrease in net sales in the Enterprise Mobility Solutions segment. The 45% decrease in net sales in the Mobile Devices segment was primarily driven by a 46%47% decrease in unit shipments.shipments, partially offset by a 5% increase in ASP. The 16%27% decrease in net sales in the Home and Networks Mobility segment reflects a 21%27% decrease in net sales in the networks business and a 12%26% decrease in net sales in the home business. The 11%17% decrease in net sales in the Enterprise Mobility Solutions segment net sales was driven byreflects a double-digit percentage decline28% decrease in net sales to the commercial enterprise market and a single-digit percentage decline13% decrease in net sales to the government and public safety market.
Gross Margin
Gross margin was $1.5$1.7 billion, or 27.9%31.1% of net sales, in the firstsecond quarter of 2009, compared to $2.1$2.3 billion, or 28.8% of net sales, in the firstsecond quarter of 2008. The decrease in gross margin reflects lower gross margin in all segments. The decrease in gross margin in the Mobile Devices segment was primarily driven by the 45% decrease in net sales. The decrease in gross margin in the Enterprise Mobility Solutions segment was primarily driven by: (i) the 11%17% decrease in net sales, and (ii) an unfavorable product mix. The decrease in gross margin in the Home and Networks Mobility segment was primarily due to a 16%the 27% decrease in net sales, partially offset by a favorable product mix.
2829
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decreaseincrease in gross margin as a percentage of net sales in the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008 was primarily driven by an increase in gross margin percentage in the Home and Networks Mobility segment, partially offset by a decrease in gross margin percentage in the Mobile Devices and Enterprise Mobility Solutions segments, partially offset by an increase in gross margin percentage in the Home and Networks Mobility segment.segments. The Company’s overall gross margin as a percentage of net sales can be impacted by the proportion of overall net sales generated by its various businesses.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased 27%26% to $869$822 million, or 16.2%15.0% of net sales, in the firstsecond quarter of 2009, compared to $1.2$1.1 billion, or 15.9%13.8% of net sales, in the firstsecond quarter of 2008. The decrease in SG&A expenses reflects lower SG&A expenses in all segments. The decrease in the Mobile Devices segment was primarily driven by lower marketing expenses and savings from cost-reduction initiatives. The decreases in the Enterprise Mobility Solutions and Home and Networks Mobility segments were primarily due to savings from cost-reduction initiatives. SG&A expenses as a percentage of net sales increased in the Enterprise Mobility Solutions and Home and Networks Mobility and Enterprise Mobility Solutions segments and decreased in the Mobile Devices segment.
Research and Development Expenditures
Research and development (“R&D”) expenditures decreased 20%26% to $847$775 million, or 15.8%14.1% of net sales, in the firstsecond quarter of 2009, compared to $1.1$1.0 billion, or 14.2%13.0% of net sales, in the firstsecond quarter of 2008. The decrease in R&D expenditures reflects lower R&D expenditures in all segments. The decreases in all segments were primarily due to savings from cost-reduction initiatives. R&D expenditures as a percentage of net sales increased in all segments. The Company participates in very competitive industries with constant changes in technology and, accordingly, the Company continues to believe that a strong commitment to R&D is required to drive long-term growth.
Other Charges
The Company recorded net charges of $229$103 million in Other charges in the firstsecond quarter of 2009, compared to net charges of $177$157 million in the firstsecond quarter of 2008. The charges in the firstsecond quarter of 2009 include: (i) $158 million of net reorganization of business charges included in Other charges, and (ii) $71 million of charges relating to the amortization of intangibles. The charges in the first quarter of 2008 included: (i) $83$70 million of charges relating to the amortization of intangibles, (ii) $74$49 million of net reorganization of business charges included in Other charges, and (iii) $39 million of charges related to a $20facility impairment, partially offset by income of $55 million chargerelated to collections received on a legal settlement. The charges in the second quarter of 2008 included: (i) $81 million of charges relating to the amortization of intangibles, (ii) $37 million of charges related to a legal settlement.settlement, (iii) $20 million of transaction costs related to the proposed separation of the Company, and (iv) $19 million of net reorganization of business charges included in Other charges. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was $35$30 million in the firstsecond quarter of 2009, compared to net interest expense of $2$10 million in the firstsecond quarter of 2008. Net interest expense in the firstsecond quarter of 2009 includes interest expense of $62$49 million, partially offset by interest income of $27$19 million. Net interest expense in the firstsecond quarter of 2008 included interest expense of $78$74 million, partially offset by interest income of $76$64 million. The increase in net interest expense is primarily attributed to lower interest income due to the decrease in average cash, cash equivalents and the Sigma Fund balances in the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008 and the significant decrease in short-term interest rates.rates, partially offset by lower interest expense due to a decrease in the Company’s level of outstanding debt.
Gains (Loss) on Sales of Investments and Businesses
The lossgain on sales of investments and businesses was $20$30 million in the firstsecond quarter of 2009, compared to gains of $19$39 million in the firstsecond quarter of 2008. In the firstsecond quarter of 2009 the net lossgain was primarily relatescomprised of: (i) a gain attributable to a loss on the saledisposition of a business.single business, and (ii) gains related to sales of certain of the Company’s equity investments. In the firstsecond quarter of 2008 the net gain primarily related to the salesales of certain of the Company’s shares in an equity investments, of which $29 million of the gain was attributed to a single investment.
Other
Net income classified as Other, as presented in Other income (expense), was $70$23 million in the firstsecond quarter of 2009, compared to net charges of $5$92 million in the firstsecond quarter of 2008. The net income in the firstsecond quarter of 2009 was primarily comprised of: (i) a $67 million gain related to the extinguishment of a portion$68 million mark-to-market increase in the value of Sigma Fund investments, partially offset by: (i) $34 million of foreign currency expense, and (ii) $26 million of investment impairment charges. The net charges in the Company’s outstandingsecond quarter of 2008 were primarily comprised of $116 million of investment impairment charges, of
2930
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
long-term debt, (ii)
which $83 million of charges were attributed to a $9single strategic investment, partially offset by $13 million decreaseof foreign currency gains.
Effective Tax Rate
The Company recorded $2 million of net tax benefits in the temporarysecond quarter of 2009, compared to $55 million of net unrealized losstax benefits in the second quarter of 2008. During the second quarter of 2009, the Company’s net tax benefit was favorably impacted by a reduction in unrecognized tax benefits for facts that now indicate the extent to which certain tax positions are more-likely-than-not of being sustained, and tax benefits on reorganization of business charges. The Company’s net tax benefit was unfavorably impacted by non-cash tax charges to increase deferred tax valuation allowances, tax charges on collections received from a legal settlement, a mark-to-market increase on the value of Sigma Fund investments and adjustments to software and silicon platform consolidation reserves, as well as a facility impairment charge for which the Company recorded no net tax benefit. The Company’s effective tax rate, excluding these items, was 44%.
During the second quarter of 2008, the Company’s net tax benefit was favorably impacted by a reduction in unrecognized tax benefits, as well as a net tax benefit on a legal settlement, transaction-related costs and restructuring charges. The Company’s net tax benefit was unfavorably impacted by a gain on a sale of an investment, and an investment impairment charge for which the Company recorded no net tax benefit. The Company’s effective tax rate, excluding these items, was 34%.
Earnings (loss) from Continuing Operations
The Company had net earnings from continuing operations before income taxes of $33 million in the second quarter of 2009, compared with a net loss from continuing operations before income taxes of $58 million in the second quarter of 2008. After taxes, and excluding Earnings (loss) attributable to noncontrolling interests, the Company had net earnings from continuing operations of $26 million, or $0.01 per diluted share, in the second quarter of 2009, compared to a net earnings from continuing operations of $4 million, or $0.00 per diluted share, in the second quarter of 2008.
Results of Operations—Six months ended July 4, 2009 compared to six months ended June 28, 2008
Net Sales
Net sales were $10.9 billion in the first half of 2009, down 30% compared to net sales of $15.5 billion in the first half of 2008. The decrease in net sales reflects: (i) a $3.0 billion, or 45%, decrease in net sales in the Mobile Devices segment, (ii) a $1.1 billion, or 22%, decrease in net sales in the Home and Networks Mobility segment, and (iii) $6a $564 million, or 15%, decrease in net sales in the Enterprise Mobility Solutions segment. The 45% decrease in net sales in the Mobile Devices segment was primarily driven by a 47% decrease in unit shipments, partially offset by a 4% increase in ASP. The 22% decrease in net sales in the Home and Networks Mobility segment reflects a 24% decrease in net sales in the networks business and a 20% decrease in net sales in the home business. The 15% decrease in the Enterprise Mobility Solutions segment net sales reflects a 27% decline in net sales to the commercial enterprise market and a 10% decline in net sales to the government and public safety market.
Gross Margin
Gross margin was $3.2 billion, or 29.5% of net sales, in the first half of 2009, compared to $4.5 billion, or 28.8% of net sales, in the first half of 2008. The decrease in gross margin reflects lower gross margin in all segments. The decrease in gross margin in the Mobile Devices segment was primarily driven by the 45% decrease in net sales. The decrease in gross margin in the Enterprise Mobility Solutions segment was primarily driven by: (i) the 15% decrease in net sales, and (ii) an unfavorable product mix. The decrease in gross margin in the Home and Networks Mobility segment was primarily due to the 22% decrease in net sales, partially offset by a favorable product and regional mix.
The increase in gross margin as a percentage of net sales in the first half of 2009 compared to the first half of 2008 was primarily driven by an increase in gross margin percentage in the Home and Networks Mobility segment, partially offset by a decrease in gross margin percentage in the Mobile Devices and Enterprise Mobility Solutions segments.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses decreased 26% to $1.7 billion, or 15.6% of net sales, in the first half of 2009, compared to $2.3 billion, or 14.8% of net sales, in the first half of 2008. The decrease in SG&A expenses reflects lower SG&A expenses in all segments. The decrease in the Mobile Devices segment was primarily driven by lower marketing expenses and savings from cost-reduction initiatives. The decreases in the Enterprise Mobility Solutions and Home and Networks Mobility segments were primarily due to savings from cost-reduction initiatives.
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SG&A expenses as a percentage of net sales increased in the Home and Networks Mobility and Enterprise Mobility Solutions segments and decreased in the Mobile Devices segment.
Research and Development Expenditures
Research and development (“R&D”) expenditures decreased 23% to $1.6 billion, or 14.9% of net sales, in the first half of 2009, compared to $2.1 billion, or 13.5% of net sales, in the first half of 2008. The decrease in R&D expenditures reflects lower R&D expenditures in all segments. The decreases in all segments were primarily due to savings from cost-reduction initiatives. R&D expenditures as a percentage of net sales increased in all segments.
Other Charges
The Company recorded net charges of $332 million in Other charges in the first half of 2009, compared to net charges of $334 million in the first half of 2008. The charges in the first half of 2009 include: (i) $207 million of foreign currencynet reorganization of business charges included in Other charges, (ii) $141 million of charges relating to the amortization of intangibles, and (iii) $39 million of charges related to a facility impairment, partially offset by income of $55 million related to collections received on a legal settlement. The charges in the first half of 2008 include: (i) $164 million of charges relating to the amortization of intangibles, (ii) $93 million of net reorganization of business charges included in Other charges, (iii) $57 million of charges related to legal settlements, and (iv) $20 million of transaction costs related to the proposed separation of the Company. The net reorganization of business charges are discussed in further detail in the “Reorganization of Businesses” section.
Net Interest Expense
Net interest expense was $65 million in the first half of 2009, compared to net interest expense of $12 million in the first half of 2008. Net interest expense in the first half of 2009 includes interest expense of $111 million, partially offset by interest income of $46 million. Net interest expense in the first half of 2008 included interest expense of $152 million, partially offset by interest income of $140 million. The increase in net interest expense is primarily attributed to lower interest income due to the decrease in average cash, cash equivalents and Sigma Fund balances in the first half of 2009 compared to the first half of 2008 and the significant decrease in short-term interest rates, partially offset by lower interest expense due to a decrease in the Company’s level of outstanding debt.
Gains on Sales of Investments and Businesses
The gains on sales of investments and businesses were $10 million in the first half of 2009, compared to gains of $58 million in the first half of 2008. In the first half of 2009, the net gain primarily relates to sales of certain of the Company’s equity investments, partially offset by a net loss on the sale of specific businesses. In the first half of 2008, the net gain primarily related to sales of certain of the Company’s equity investments, of which $29 million of gain was attributed to a single investment.
Other
Net income classified as Other, as presented in Other income (expense), was $93 million in the first half of 2009, compared to net charges of $97 million in the first half of 2008. The net income in the first half of 2009 was primarily comprised of: (i) a $75 million mark-to-market increase in the value of Sigma Fund investments, and (ii) a $67 million gain related to the extinguishment of a portion of the Company’s outstanding long-term debt, partially offset by: (i) $7$33 million of other-than-temporary investment impairment charges, and (ii) $1$28 million of impairment charges on the Sigma Fund investments.foreign currency losses. The net charges in the first quarterhalf of 2008 were primarily comprised of: (i) $18of $138 million of other-than-temporary investment impairment charges, and (ii) $4of which $83 million of impairment charges on the Sigma Fund investments,were attributed to a single strategic investment, partially offset byby: (i) $24 million of gains relating to several interest rate swaps not designated as hedges.hedges, and (ii) $14 million of foreign currency gains.
Effective Tax Rate
The Company recorded $146$148 million of net tax benefits in the first quarterhalf of 2009, compared to $67$122 million of net tax benefits in the first quarterhalf of 2008. During the first quarterhalf of 2009, the Company’s net tax benefit was favorably impacted by a reduction in unrecognized tax benefits for facts that now indicate the extent to which certain tax positions are more-likely-than-not of being sustained, and tax benefits on reorganization of business charges, fixed asset impairments and exit costs andcosts. The Company’s net tax benefit was unfavorably impacted by non-cash tax charges to increase deferred tax valuation allowances, tax charges on a gain on debt repurchase.repurchase, collections received on a legal settlement, a mark-to-market increase in the value of Sigma Fund investments, and adjustments to software and silicon platform consolidation reserves, as well as a facility impairment charge for which the Company recorded no net tax benefit. The Company’s effective tax rate, excluding these items, was 34%.
32
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the first quarterhalf of 2008, the Company’s net tax benefit was favorably impacted by a reduction in unrecognized tax benefits on reorganizationfor facts that now indicate the extent to which certain tax positions are more-likely-than-not of businessbeing sustained, and net tax benefits from restructuring charges, and legal settlements, and transaction-related costs. The Company’s net tax benefit was unfavorably impacted by a gain on a sale of an investment, and a tax charge on derivative gains.gains, and an investment impairment charge for which the Company recorded no net tax benefit. The Company’s ongoing effective tax rate, excluding these items, was 35%.34%
Loss from Continuing Operations
The Company incurred a net loss from continuing operations before income taxes of $434$401 million in the first quarterhalf of 2009, compared with a net loss from continuing operations before income taxes of $257$315 million in the first quarterhalf of 2008. After taxes, and excluding Earnings (loss) attributable to the noncontrolling interests, the Company incurred a net loss from continuing operations of $291$265 million, or $0.13$0.12 per diluted share, in the first quarterhalf of 2009, compared to a net loss from continuing operations of $194$190 million, or $0.09$0.08 per diluted share, in the first quarterhalf of 2008.
Earnings from Discontinued Operations
During the first quarter of 2009, the Company completed the sale of: (i) Good Technology, and (ii) the biometrics business unit, which includes its Printrak trademark. The Company had earnings from discontinued operations before income taxes of $162 million in the first quarter of 2009, primarily comprised of $175 million of net gains from the sale of businesses. After taxes, the Company had earnings from discontinued operations of $60 million, or $0.03 per diluted share, in the first half of 2009, all of which occurred during the first quarter of 2009. The Company had no such activity during the second quarter of 2009. For all other applicable prior periods, the operating results of these businesses have not been reclassified as discontinued operations, since the results are not material to the Company’s condensed consolidated financial statements.
Reorganization of Businesses
The Company maintains a formal Involuntary Severance Plan (the “Severance Plan”), which permits the Company to offer eligible employees severance benefits based on years of service and employment grade level in the event that employment is involuntarily terminated as a result of areduction-in-force or restructuring. The Company recognizes termination benefits based on formulas per the Severance Plan at the point in time that future settlement is probable and can be reasonably estimated based on estimates prepared at the time a restructuring plan is approved by management. Exit costs consist of future minimum lease payments on vacated facilities and other contractual terminations. At each reporting date, the Company evaluates its accruals for employee separation and exit costs to ensure the accruals are still appropriate. In certain circumstances, accruals are no longer needed because of efficiencies in carrying out the plans or because employees previously identified for separation resigned from the Company and did not receive severance or were redeployed due to circumstances not foreseen when the original plans were initiated. In these cases, the Company reverses accruals through the condensed consolidated statements of operations where the original charges were recorded when it is determined they are no longer needed.
The Company expects to realize cost-saving benefits of approximately $219$196 million during the remaining ninesix months of 2009 from the plans that were initiated during the first quarterhalf of 2009, representing: (i) $44$38 million of savings in Costs of sales, (ii) $101$87 million of savings in R&D expenditures, and (iii) $74$71 million of savings in SG&A expenses. Beyond 2009, the Company expects the reorganization plans initiated during the first quarterhalf of 2009 to provide annualized cost savings of approximately $313$404 million, representing: (i) $62$78 million of savings in Cost of sales, (ii) $144$179 million of savings in R&D expenditures, and (iii) $107$147 million of savings in SG&A expenses.
30
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2009 Charges
During the first quarterhalf of 2009, the Company committed to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. All three of the Company’s business segments, as well as corporate functions, are impacted by these plans, with the majority of the impact in the Mobile Devices segment. The employees affected are located in all regions.
During the firstsecond quarter of 2009, the Company recorded net reorganization of business charges of $204$58 million, including $46$9 million of charges in Costs of sales and $158$49 million of charges under Other charges in the Company’s condensed consolidated statements of operations. Included in the aggregate $204$58 million are charges of $204$60 million for employee separation costs, $4$18 million for exit costs and $17$1 million for fixed asset impairment charges, partially offset by $21 million of reversals for accruals no longer needed.
During the first half of 2009, the Company recorded net reorganization of business charges of $262 million, including $55 million of charges in Costs of sales and $207 million of charges under Other charges in the Company’s condensed consolidated statements of operations. Included in the aggregate $262 million are charges of $264 million for
33
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
employee separation costs, $22 million for exit costs and $18 million for fixed asset impairment charges, partially offset by $42 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by business segment:
| | | | | | | | | | | | | |
| | | April 4,
| |
| Three Months Ended | | 2009 | |
| July 4, 2009 | | | Three Months Ended | | Six Months Ended |
| | |
| Mobile Devices | | $ | 128 | | | $ | 33 | | | $ | 161 | |
| Home and Networks Mobility | | | 21 | | | | 12 | | | | 33 | |
| Enterprise Mobility Solutions | | | 30 | | | | 7 | | | | 37 | |
| | | | | | | | | |
| | | | 179 | | | | 52 | | | | 231 | |
| Corporate | | | 25 | | | | 6 | | | | 31 | |
| | | | | | | | | |
| | | $ | 204 | | | $ | 58 | | | $ | 262 | |
| |
The following table displays a rollforward of the reorganization of businesses accruals established for exit costs and employee separation costs from January 1, 2009 to AprilJuly 4, 2009:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accruals at
| | | | | | | | Accruals at
| | Accruals at
| | | | | | | | Accruals at
|
| | | January 1,
| | Additional
| | | | Amount
| | April 4,
| | January 1,
| | Additional
| | | | Amount
| | July 4,
|
| | | 2009 | | Charges | | Adjustments (1) | | Used | | 2009 | | 2009 | | Charges | | Adjustments(1) | | Used | | 2009 |
| | |
| Exit costs | | $ | 80 | | | $ | 4 | | | $ | (5 | ) | | $ | (27 | ) | | $ | 52 | | | $ | 80 | | | $ | 22 | | | $ | (8 | ) | | $ | (38 | ) | | $ | 56 | |
| Employee separation costs | | | 170 | | | | 204 | | | | (20 | ) | | | (148 | ) | | | 206 | | | | 170 | | | | 264 | | | | (33 | ) | | | (276 | ) | | | 125 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 250 | | | $ | 208 | | | $ | (25 | ) | | $ | (175 | ) | | $ | 258 | | | $ | 250 | | | $ | 286 | | | $ | (41 | ) | | $ | (314 | ) | | $ | 181 | |
| |
| | |
| (1) | | Includes translation adjustments. |
Exit Costs
At January 1, 2009, the Company had an accrual of $80 million for exit costs attributable to lease terminations. The additional 2009 additional charges of $4$22 million are primarily related to the exit of leased facilities and contractual termination costs, both within the Mobile Devices segment. The adjustments of $5$8 million reflect: (i) $3$7 million of reversals of accruals no longer needed, and (ii) $2$1 million of translation adjustments. The $27$38 million used in 2009 reflects cash payments. The remaining accrual of $52$56 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at AprilJuly 4, 2009, represents future cash payments primarily for lease termination obligations.
Employee Separation Costs
At January 1, 2009, the Company had an accrual of $170 million for employee separation costs, representing the severance costs for approximately 2,000 employees. The 2009 additional charges of $204$264 million represent severance costs for approximately an additional 5,6006,800 employees, of which 2,0002,200 are direct employees and 3,6004,600 are indirect employees.
The adjustments of $20$33 million reflect: (i) $18reflect $35 million of reversals of accruals no longer needed, and (ii)partially offset by $2 million of translation adjustments.
During the first quarterhalf of 2009, approximately 5,1007,200 employees, of which 2,1002,900 were direct employees and 3,0004,300 were indirect employees, were separated from the Company. The $148$276 million used in 2009 reflects cash payments to these separated employees. The remaining accrual of $206$125 million, which is included in Accrued liabilities in the
31
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company’s condensed consolidated balance sheets at AprilJuly 4, 2009, is expected to be paid to approximately 2,5001,600 separated employees in 2009.
2008 Charges
During the first quarterhalf of 2008, the Company committed to implement various productivity improvement plans aimed at achieving long-term, sustainable profitability by driving efficiencies and reducing operating costs. All three of the Company’s business segments, as well as corporate functions, are impacted by these plans, with the majority of the impact in the Mobile Devices segment. The employees affected are located in all regions.
During the firstsecond quarter of 2008, the Company recorded net reorganization of business charges of $109$20 million, including $35$1 million of charges in Costs of sales and $74$19 million of charges under Other charges in the Company’s condensed consolidated statements of operations. Included in the aggregate $109$20 million are charges of $113$41 million for employee separation costs, partially offset by $21 million of reversals for accruals no longer needed.
During the first half of 2008, the Company recorded net reorganization of business charges of $129 million, including $36 million of charges in Costs of sales and $93 million of charges under Other charges in the Company’s condensed consolidated statements of operations. Included in the aggregate $129 million are charges of $154 million for
34
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
employee separation costs and $5 million for exit costs, partially offset by $9$30 million of reversals for accruals no longer needed.
The following table displays the net charges incurred by business segment:
| | | | | | | | | | | | | |
| | | March 29,
| |
| Three Months Ended | | 2008 | |
| June 28, 2008 | | | Three Months Ended | | Six Months Ended |
| | |
| Mobile Devices | | $ | 71 | | | $ | 6 | | | $ | 77 | |
| Home and Networks Mobility | | | 20 | | | | 3 | | | | 23 | |
| Enterprise Mobility Solutions | | | 9 | | | | 3 | | | | 12 | |
| | | | | | | | | |
| | | | 100 | | | | 12 | | | | 112 | |
| Corporate | | | 9 | | | | 8 | | | | 17 | |
| | | | | | | | | |
| | | $ | 109 | | | $ | 20 | | | $ | 129 | |
| |
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 March 29,June 28, 2008:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accruals at
| | | | | | | | Accruals at
| | Accruals at
| | 2008
| | | | 2008
| | Accruals at
|
| | | January 1,
| | Additional
| | | | Amount
| | March 29,
| | January 1,
| | Additional
| | 2008(1)
| | Amount
| | June 28,
|
| | | 2008 | | Charges | | Adjustments(1) | | Used | | 2008 | | 2008 | | Charges | | Adjustments | | Used | | 2008 |
| | |
| Exit costs | | $ | 42 | | | $ | 5 | | | $ | 2 | | | $ | (5 | ) | | $ | 44 | | | $ | 42 | | | $ | 5 | | | $ | (2 | ) | | $ | (11 | ) | | $ | 34 | |
| Employee separation costs | | | 193 | | | | 113 | | | | (1 | ) | | | (74 | ) | | | 231 | | | | 193 | | | | 154 | | | | (18 | ) | | | (152 | ) | | | 177 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 235 | | | $ | 118 | | | $ | 1 | | | $ | (79 | ) | | $ | 275 | | | $ | 235 | | | $ | 159 | | | $ | (20 | ) | | $ | (163 | ) | | $ | 211 | |
| |
| | |
| (1) | | Includes translation adjustments. |
Exit Costs
At January 1, 2008, the Company had an accrual of $42 million for exit costs attributable to lease terminations. The additional 2008 additional charges of $5 million were primarily related to contractual termination costs of a planned exit of outsourced design activities. The $5adjustments of $2 million reflect $3 million of reversals of accruals no longer needed, partially offset by $1 million of translation adjustments. The $11 million used in 2008 reflects cash payments. The remaining accrual of $44$34 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at March 29,June 28, 2008, represented future cash payments primarily for lease termination obligations.
Employee Separation Costs
At January 1, 2008, the Company had an accrual of $193 million for employee separation costs, representing the severance costs for approximately 2,800 employees. The 2008 additional charges of $113$154 million represented severance costs for approximately an additional 2,6003,000 employees, of which 1,300 were direct employees and 1,3001,700 were indirect employees.
The adjustments of $1$18 million reflected $9reflect $27 million of reversals of accruals no longer needed, partially offset by $8$9 million of translation adjustments. The $9$27 million of reversals representedrepresent approximately 100200 employees.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the first quarterhalf of 2008, approximately 1,5003,000 employees, of which 8001,500 were direct employees and 7001,500 were indirect employees, were separated from the Company. The $74$152 million used in 2008 reflects cash payments to these separated employees. The remaining accrual of $231$177 million, which is included in Accrued liabilities in the Company’s condensed consolidated balance sheets at March 29,June 28, 2008, was expected to be paid to approximately 3,800 separated employees in2,600 during the second half of 2008. Since that time, $182$128 million has been paid to approximately 3,4002,300 separated employees and $49$46 million was reversed.
Liquidity and Capital Resources
As highlighted in the condensed consolidated statements of cash flows, the Company’s liquidity and available capital resources are impacted by four key components: (i) cash and cash equivalents, (ii) operating activities, (iii) investing activities, and (iv) financing activities.
Cash and Cash Equivalents
At AprilJuly 4, 2009, the Company’s cash and cash equivalents (which are highly-liquid investments with an original maturity of three months or less) were $3.3$2.9 billion, an increasea decrease of $201$183 million compared to $3.1 billion at December 31, 2008. At AprilJuly 4, 2009, $574$562 million of this amount was held in the U.S. and $2.7$2.3 billion was held by the Company or its
35
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
subsidiaries in other countries. At AprilJuly 4, 2009, restricted cash was $337$367 million (including $100$119 million held outside the U.S.), compared to $343 million (including $279 million held outside the U.S.) at December 31, 2008.
The Company continues to analyze and review various repatriation strategies to continue to efficiently repatriate funds. The Company has approximately $2.6$2.0 billion of earnings in foreign subsidiaries that are not permanently reinvested and may be repatriated without additional U.S. federal income tax charges to the Company’s condensed consolidated statements of operations, given the U.S. federal tax provisions accrued on undistributed earnings and the utilization of available foreign tax credits. On a cash basis, these repatriations from the Company’snon-U.S. subsidiaries could require the payment of additional foreign taxes. While the Company regularly repatriates funds and a significant portion of the funds currently offshore can be repatriated quickly with minimal adverse financial impact, repatriation of some of these funds could be subject to delay for local country approvals and could have potential adverse tax consequences.
Operating Activities
In the first quarterhalf of 2009, the cash used for operating activities was $1.0 billion,$864 million, compared to $343$139 million of cash used for operating activities in the first quarterhalf of 2008. The primary contributors to the usage of cash in the first quarterhalf of 2009 included: (i) a $1.4$2.2 billion decrease in accounts payable and accrued liabilities, (ii) a loss from continuing operations (adjusted for non-cash items) of $262 million, and (iii) a $204$203 million increase in accounts receivable.receivable, and (iii) a $117 million cash outflow due to changes in other assets and liabilities. These uses of cash were partially offset by: (i) a $582$990 million decrease in net inventory, and (ii) a $217$507 million decrease in other current assets.assets, and (iii) income from continuing operations (adjusted for non-cash items) of $162 million.
Accounts Receivable: The Company’s net accounts receivable were $3.7 billion at AprilJuly 4, 2009, compared to $3.5 billion at December 31, 2008. The increase in net accounts receivable was significantly impacted by a reduction in the volume of accounts receivable sold, as further described below. The increase in net accounts receivable reflects an increaseincreases in accounts receivable in the Mobile Devices segment, and decreasesHome and Network Mobility segments and a decrease in accounts receivable in the Enterprise Mobility Solutions and Home and Network Mobility segments.segment. The Company’s businesses sell their products in a variety of markets throughout the world and payment terms can vary by market type and geographic location. Accordingly, the Company’s levels of net accounts receivable can be impacted by the timing and level of sales that are made by its various businesses and by the geographic locations in which those sales are made.
The Company’s levels of net accounts receivable can also be impacted by the timing and amount of accounts receivable sold to third parties, which can vary by period and can be impacted by numerous factors. Although the Company continued to sell accounts receivable during the first quarterhalf of 2009, the volume of accounts receivable sold was lower than in prior quarters.periods. The lower volume was primarily driven by the Company’s lower net sales and the Company’s decision to reduce accounts receivable sales. In addition, the availability of committed facilities to sell such accounts receivable decreased due to global economic conditions and the related tightening in the credit markets. As further described under “Sales of Receivables”, during the first quarter of 2009, one of the Company’s committed receivables facilities expired during the first quarter of 2009 and was not renewed.renewed and another facility was terminated during the second quarter of 2009. However, the Company implemented a new committed domestic accounts receivable facility during the second quarter of 2009. During the remainder of 2009, the Company expects quarterly sales of accounts receivable in a range comparable to the second quarter of 2009.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Inventory: The Company’s net inventory was $2.1$1.7 billion at AprilJuly 4, 2009, compared to $2.7 billion at December 31, 2008. The decrease in netNet inventory reflects a decrease in net inventorydecreased in all segments. Inventory management continues to be an area of focus as the Company balances the need to maintain strategic inventory levels to ensure competitive delivery performance to its customers against the risk of inventory excess and obsolescence due to rapidly changing technology and customer spending requirements.
Accounts Payable: The Company’s accounts payable were $2.3$2.2 billion at AprilJuly 4, 2009, compared to $3.2 billion at December 31, 2008. The decrease in accountsAccounts payable reflects a decrease in accounts payabledecreased in all segments. The Company buys products in a variety of markets throughout the world and payment terms can vary by market type and geographic location. Accordingly, the Company’s levels of accounts payable can be impacted by the timing and level of purchases made by its various businesses and by the geographic locations in which those purchases are made.
Reorganization of Businesses: The Company has implemented reorganization of businesses plans. Cash payments for employee severance and exit costs in connection with a number of these plans were $175$314 million in the first quarterhalf of 2009, as compared to $79$163 million in the first quarterhalf of 2008. Of the $262$181 million of reorganization of businesses accrualaccruals at AprilJuly 4, 2009, $210$125 million relatesrelate to employee separation costs and is expected to be paid in 2009. The remaining $52$56 million in accruals relate to lease termination obligations that are expected to be paid over a number of years.
Benefit Plan Contributions: During the first quarterhalf of 2009, the Company contributed $60$80 million and $8$22 million to its U.S. Regular Pension Plan andnon-U.S. plans, respectively. The Company expectsdoes not expect to make cashsignificant additional contributions of approximately $180 million to its U.S. Regular Pension Plan during 2009. The Company has amended its U.S. Regular
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pension Plan, the Officers’ Plan and MSPPthe Motorola Supplemental Pension Plan such that: (i) no participant shall accrue any benefits or additional benefits on or after March 1, 2009, and (ii) no compensation increases earned by a participant on or after March 1, 2009 shall be used to compute any accrued benefit. DuringFor the remainder of 2009, the Company expects to make additional cash contributions of approximately $50$30 million to itsnon-U.S. pensionplans plans and no cash contributions to its retiree health care plan.
Investing Activities
The most significant components of the Company’s investing activities in the first quarterhalf of 2009 included: (i) net proceeds from sales of the Sigma Fund investments, (ii) proceeds from the sales of short-term investments, (iii) proceeds from sales of investments and businesses, (iii) proceeds from sales of short-term investments, (iv) capital expenditures, and (v) strategic acquisitions of, or investments in, other companies.
Net cash provided by investing activities was $1.6 billion$924 million in the first quarterhalf of 2009, compared to net cash provided of $553$557 million in first quarter of 2008. The $1.0 billion increase in cash provided by investing activities in the first quarterhalf of 2009 as compared to the first quarter of 20082008. This $367 million increase was primarily due to: (i) a $688$163 million increase in cash receivedproceeds from net sales of the Sigma Fundshort-term investments, (ii) a $125 million decrease in cash used for acquisitions and investments, (iii) a $117$155 million increase in proceeds from sales of investments and businesses, (iii) a $153 million decrease in cash used for acquisitions and investments, and (iv) a $59 million increase in proceeds from sales of short-term investments, and (v) a $40$94 million decrease in cash used for capital expenditures.expenditures, partially offset by: (i) a $117 million decrease in cash received from net sales of Sigma Fund investments, and (ii) an $82 million decrease in distributions received from 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 $1.3 billion in net proceeds from sales of the Sigma Fund investments in the first quarter of 2009, compared to $631$670 million in net proceeds from sales of the Sigma Fund investments in the first quarterhalf of 2009, compared to $787 million in net proceeds from sales of Sigma Fund investments in the first half of 2008. The Sigma Fund aggregate balances were $2.8$3.6 billion at AprilJuly 4, 2009 (including $1.9$2.1 billion held by the Company’sCompany or its subsidiaries outside the U.S.), compared to $4.2 billion at December 31, 2008 (including $2.4 billion held by the Company or its subsidiaries outside the U.S.). While the Company regularly repatriates funds and a significant portion of the Sigma Fund investments currently offshore can be repatriated quickly and with minimal adverse financial impact, repatriation of some of these funds could be subject to delay and could have potential adverse tax consequences. The Company continues to analyze and review various repatriation strategies to allow for the efficient repatriation ofnon-U.S. funds, including the Sigma Fund investments.
The Sigma Fund portfolio is managed by four independent investment management firms. The investment guidelines of the Sigma Fund require that purchased investments must be in high-quality, investment grade (rated at leastA/A-1 by Standard & Poor’s orA2/P-1 by Moody’s Investors Service), U.S. dollar-denominated debt obligations, including certificates of deposit, commercial paper, government bonds, corporate bonds and asset- and mortgage-backed securities. Under the Sigma Fund’s investment policies, except for debt obligations of the U.S. treasury and U.S. agencies, no more than 5% of the Sigma Fund portfolio is to consist of debt obligations of any one issuer. The Sigma Fund’s investment
34
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
policies further require that floating rate investments must have a maturity at purchase date that does not exceed thirty-six months with an interest rate that is reset at least annually. The average interest rate reset of the investments held by the funds must be 120 days or less. The actual average interest rate reset of the portfolio (excluding cash and impaired securities) was 3227 days and 38 days at AprilJuly 4, 2009 and December 31, 2008, respectively.
Investments in the Sigma Fund are carried at fair value. The Company primarily relies on valuation pricing models and broker quotes to determine the fair value of investments in the Sigma Fund. The valuation models are developed and maintained by third-party pricing services, and use a number of standard inputs, including benchmark yields, reported trades, broker/dealer quotes where the counterparty is standing ready and able to transact, issuer spreads, benchmark securities, bids, offers and other reference data. For each asset class, quantifiable inputs related to perceived market movements and sector news may be considered in addition to the standard inputs.
At April 4, 2009 and December 31, 2008, $2.6 billion and $3.7 billion, respectively, of the Sigma Fund investments were classified as current in the Company’s condensed consolidated balance sheets. The weighted average maturity of the Sigma Fund investments classified as current was 4 months (excluding impaired securities) at April 4, 2009, compared to 5 months (excluding cash of $1.1 billion and impaired securities) at December 31, 2008.
The fair market value of investments in the Sigma Fund was $2.8$3.6 billion andat July 4, 2009, compared to $4.2 billion at April 4, 2009 and December 31, 2008, respectively. The temporary net unrealized loss in the Sigma Fund was $93 million as of April 4, 2009 and $101 million as of December 31, 2008. The $8 million decrease
During the first half of 2009, the Company recorded gains from the change in the temporary net unrealized lossfair value of theSigma Fund investments of the Sigma Fund during the first quarter of 2009 was recognized$75 million in Other income (expense) in the condensed consolidated statementsstatement of operations. As discussed below, the $42 million increase in the temporary net unrealized losses of the investments of the Sigma Fund during the first quarter of 2008 was recorded in the condensed consolidated statement of stockholders’ equity.
If it becomes probable the Company will 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 three months ended April 4, 2009 and March 29, 2008, impairment charges in the Sigma Fund were $1 million and $4 million, respectively.
Securities with a significant temporary unrealized loss and a maturity greater than 12 months and impaired securities have been classified as non-current in the Company’s condensed consolidated balance sheets. At April 4, 2009 and December 31, 2008, $257 million and $466 million, respectively, of the Sigma Fund investments were classified as non-current. The weighted average maturity of the Sigma Fund investments classified as non-current (excluding impaired securities) was 15 and 16 months, respectively.
During the fourth quarter of 2008, the Company changed its accounting for changes in the temporary net unrealized lossesfair value of investments in the Sigma Fund. Prior to the fourth quarter of 2008, the Company distinguished between declines it considered temporary and declines it considered permanent. When it became probable that the Company would not collect all amounts it was owed on a security according to its contractual terms, the Company considered the security to be impaired and recorded the permanent decline in fair value in earnings. During the first half of 2008, the Company recorded $4 million of permanent impairments of Sigma Fund investments in the condensed consolidated statement of operations.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Declines in fair value of a security that the Company considered temporary were recorded as a component of stockholders’ equity. During the first half of 2008, the Company recorded $37 million of temporary declines in the fair value of Sigma Fund investments in its condensed consolidated statements of stockholders’ equity.
Beginning in the fourth quarter of 2008, the Company began recording all changes toin the temporary net unrealized lossesfair value of investments in the Sigma Fund in the condensed consolidated statement of stockholders’ equity. However, during the fourth quarter of 2008, the Company determined that changes to the temporary net unrealized losses of investments in the Sigma Fund should be recorded in the condensed consolidated statements of operations. In its stand-alone financial statements, the Sigma Fund uses “investment company” accounting practices and records all changes in the value of the underlying investments in earnings, whether such changes are considered temporary or permanent declines in value. The Company determined that the underlying accounting practices of the Sigma Fund in its stand-alone financial statements should be retained in the Company’s financial statements. Accordingly, the Company recorded the cumulative temporary net unrealized loss of $101 million on investments in the Sigma Fund investments in its consolidated statementsstatement of operations during the fourth quarter of 2008. The Company determined that amounts that arose in periods prior to the fourth quarter of 2008 were not material to the consolidated results of operations in those periods.
Strategic Acquisitions and Investments: The Company used net cash for acquisitions and new investment activities of $15$21 million in the first quarterhalf of 2009, compared to net cash used of $140$174 million in the first quarterhalf of 2008. The cash used in the first quarterhalf of 2009 was comprised offor small strategic investments across the Company. During the first quarterhalf of 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. and Hangzhou Image Silicon, known collectively as Dahua Digital (part of the Home and Networks Mobility segment), and (iii) completed the acquisition of Soundbuzz Pte. Ltd. (part of the Mobile Devices segment).
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Expenditures: Capital expenditures were $71$137 million in the first quarterhalf of 2009, compared to $111$231 million in the first quarterhalf of 2008. The Company’s emphasis in making capital expenditures is to focus on strategic investments driven by customer demand and new design capability.
Sales of Investments and Businesses: The Company received $137$226 million in net proceeds from the sales of investments and businesses in the first quarterhalf of 2009, compared to proceeds of $20$71 million in the first quarterhalf of 2008. The $137$226 million in proceeds in the first quarterhalf of 2009 was primarily related to the sale of the biometrics business.business, which was sold during the first quarter of 2009. The $20$71 million in proceeds in the first quarterhalf of 2008 were primarily comprised of net proceeds received in connection with the salesales of ancertain of the Company’s equity investment.investments.
Short-Term Investments: At AprilJuly 4, 2009, the Company had $19$45 million in short-term investments (which are highly-liquid fixed-income investments with an original maturity greater than three months but less than one year), compared to $225 million of short-term investments at December 31, 2008.
Investments: In addition to available cash and cash equivalents, the Sigma Fund balances (current and non-current) and short-term investments, the Company views its investments as an additional source of liquidity. The majority of these securities are available-for-sale and cost-method investments in technology companies. The fair market values of these securities are subject to substantial price volatility. In addition, the realizable value of these securities is subject to market and other conditions. At AprilJuly 4, 2009, the Company’s available-for-sale equity securities portfolio had an approximate fair market value of $118$78 million, which represented a cost basis of $103$54 million and a net unrealized gain of $15$24 million. At December 31, 2008, the Company’s available-for-sale equity securities portfolio had an approximate fair market value of $117 million, which represented a cost basis of $114 million and a net unrealized gain of $3 million.
Financing Activities
The most significant components of the Company’s financing activities in the first half of 2009 were: (i) payment of dividends, (ii) repayment and repurchase of debt, and(ii) payment of dividends, (iii) issuance of common stock.stock, and (iv) repayment of short-term borrowings.
Net cash used for financing activities was $218$235 million in the first quarterhalf of 2009, compared to $415$485 million used in the first quarterhalf of 2008. Cash used for financing activities in the first quarterhalf of 2009 was primarily: (i) $129 million of cash used for the repurchase of debt, (ii) $114 million of cash used to pay dividends, and (iii) $31$54 million of net cash used for the repayment of short-term borrowings, partially offset by $56 million of net cash received from the issuance of common stock in connection with the Company’s employee stock option plans and employee stock purchase plan.
Cash used for financing activities in the first quarterhalf of 2008 was primarily: (i) $227 million of cash used to pay dividends, (ii) $138 million of cash used to purchase approximately 9.0 million shares of the Company’s common stock under the share repurchase program, (ii) $114 millionall during the first quarter of cash used to pay dividends,2008, (iii) $114 million of cash used for the repayment of maturing long-term debt, and (iv) $54$81 million of net cash used for the repayment of short-term borrowings.borrowings, partially offset by $82 million of net cash received from the issuance of common stock in connection with the Company’s employee stock option plans and employee stock purchase plan.
Commercial Paper and Other Short-Term Debt: At AprilJuly 4, 2009, the Company’s outstanding notes payable and current portion of long-term debt was $63$40 million, compared to $92 million at December 31, 2008. Net cash used for the repayment of short-term
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
borrowings was $31$54 million in the first quarterhalf of 2009, compared to repayment of $54$81 million of short-term borrowings in the first quarterhalf of 2008. At AprilJuly 4, 2009 and December 31, 2008, the Company had no commercial paper outstanding.
Long-termLong-Term Debt: At AprilJuly 4, 2009, the Company had outstanding long-term debt of $3.9 billion, compared to $4.1 billion at December 31, 2008. Although we believethe Company believes that weit will be able to maintain sufficient access to the capital markets, the current volatility and reduced liquidity in the financial markets may result in periods of time when access to the capital markets is limited for all issuers or issuers with credit ratings similarissuers. Further, as a “split rated credit”, the Company’s ability to issue long-term debt may be limited. The market into which split rated debt is offered can be very volatile and can be unavailable for periods of time. As a result, it may be more difficult for the Company’s.Company to quickly access the long-term debt market and any debt issued may be more costly, which may impact the Company’s financial and operating flexibility.
During the first quarter of 2009, the Company completed the open market purchase of $199 million of its outstanding long-term debt for an aggregate purchase price of $133 million, including $4 million of accrued interest. Included in the $199 million of long-term debt repurchased were repurchases of a principal amount of: (i) $11 million of the $400 million outstanding of the 7.50% Debentures due 2025, (ii) $20 million of the $309 million outstanding of the 6.50% Debentures due 2025, (iii) $14 million of the $299 million outstanding of the 6.50% Debentures due 2028, and (iv) $154 million of the $600 million outstanding of the 6.625% Senior Notes due 2037. The Company recognized a gain of approximately $67 million related to these open market purchases in Other within Other income (expense) in the condensed consolidated statements of operations.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In March 2008, the Company repaid, at maturity, the entire $114 million outstanding of 6.50% Senior Notes due March 1, 2008.
The Company may from time to time seek to retire certain of its outstanding debt through open market cash purchases, privately-negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.
Share Repurchase Program: During the first quarterhalf of 2009, the Company did not repurchase any of its common shares. During the first quarterhalf of 2008, the Company paid an aggregate of $138 million, including transaction costs, to repurchase 9.0 million shares at an average price of $15.32.$15.32, all of which were repurchased during the first quarter of 2008.
Through actions taken in July 2006 and March 2007, the Board of Directors had 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 onof time. This authorization expired in June 30, 2009. The timing2009 and amount of future repurchases will be based on market and other conditions. As of April 4, 2009, the Company remained authorized to purchase an aggregate amount of up to $3.6 billion of additional shares under the current stock repurchase program.was not renewed. The Company has not repurchased any shares since the first quarter of 2008. All repurchased shares have been retired.
Payment of Dividends: During the first quarterhalf of 2009, the Company paid $114 million in cash dividends to holders of its common stock, all of which was paid during the first quarter of 2009, related to the payment of a dividend declared in November 2008. In February 2009, the Company announced that its Board of Directors suspended the declaration of quarterly dividends on the Company’s common stock. Currently, the Company does not expect to pay any additional cash dividends during the remainder of 2009.
Credit Ratings: Three independent credit rating agencies, Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) and Standard & Poor’s (“S&P”), assign ratings to the Company’s short-term and long-term debt. The following chart reflects the current ratings assigned to the Company’s senior unsecured non-credit enhanced long-term debt and the Company’s commercial paper by each of these agencies.
| | | | | | | | | | | |
Name of
| | Long-Term
| | Commercial
| | |
| Rating Agency | | Debt Rating | | Paper Rating | | Date and Recent Actions Taken |
| |
| |
| Fitch | | | BBB- | | | | F-3 | | | February 3, 2009,downgraded long-term debt to BBB- (negative outlook) from BBB (negative outlook) and downgraded short-term debt to F-3 (negative outlook) from F-2 (negative outlook). |
| | | | | | | | | | | |
| Moody’s | | | Baa3 | | | | P-3 | | | February 3, 2009,downgraded long-term debt to Baa3 (negative outlook) from Baa2 (review for downgrade) and downgraded short-term debt to P-3 (negative outlook) from P-2 (review for downgrade). |
| | | | | | | | | | | |
| S&P | | | BB+ | | | | — | | | December 5, 2008,downgraded long-term debt to BB+ (stable outlook) from BBB (credit watch negative) and withdrew the rating on commercial paper from A-2 (credit watch negative).paper. |
| |
| |
Since the Company has investment grade ratings from Fitch and Moody’s and a non-investment grade rating from S&P, it is referred to as a “split rated credit”.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Credit Facilities
TheIn June 2009, the Company maintains a $2.0 billion five-yearelected to amend its domestic syndicated revolving credit facility (as amended from time to time, the “Credit Facility”) that maturesis scheduled to mature in December 2011 (as2011. In light of ongoing uncertainties in the macroeconomic environment and resulting capital market dislocations, the Company believed it was prudent to restructure the Credit Facility to facilitate ongoing access to incremental liquidity. As part of the amendment, the Company reduced the size of the Credit Facility to the lesser of: (1) $1.5 billion, or (2) an amount determined based on eligible domestic accounts receivable and inventory. If the Company elects to borrow under the Credit Facility, only then and not before, it would be required to pledge its domestic accounts receivables and, at its option, domestic inventory. As amended, the“5-Year Credit Facility”), whichFacility does not require the Company to meet any financial covenants unless remaining availability under the Credit Facility is not utilized.less than $225 million. In order to borrow fundsaddition, until borrowings are made under the5-Year Credit Facility, the Company mustis able to use its working capital assets in any capacity in conjunction with other capital market funding alternatives that may be in compliance with various representations, conditions and covenants contained in the agreement, including a financial covenant relatingavailable to the ratio of total debt to adjusted EBITDA (the “Financial Covenant”).Company. The Company was in compliance with the terms of the5-Yearhas never borrowed under this Credit Facility at April 4, 2009. If the Company borrows under the5-Year Credit Facility, it is required to remain in compliance with the terms of the agreement. Therefore, the amount of incremental liquidity available from borrowing under the5-Year Credit Facility is contingent on the Company maintaining compliance with the Financial Covenant at the end of each quarter.or predecessor syndicated revolving credit facilities.
Events over the past several months, including failures and near failures of a number of large financial service companies, have made the capital markets increasingly volatile. The Company also has access to uncommitted
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
non-U.S. credit facilities (“uncommitted facilities”), but in light of the state of the financial services industry and the Company’s current financial condition, the Company does not believe it is prudent to assume the same level of funding will be available under these facilities going forward as has been available historically.
Long-term Customer Financing Commitments
Outstanding Commitments: Certain purchasers of the Company’s infrastructure equipment continue tomay request that suppliersthe Company provide long-term financing (defined as financing with terms greater than one year) in connection with equipment purchases.the sale of equipment. These requests may include all or a portion of the purchase price of the equipment. However, the Company’s obligation to provide long-term financing is often 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 $295$343 million and $370 million at AprilJuly 4, 2009 and December 31, 2008, respectively. Of these amounts, $163$14 million and $266 million were supported by letters of credit or by bank commitments to purchase long-term receivables at AprilJuly 4, 2009 and December 31, 2008, respectively. 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 $34$30 million and $43 million at AprilJuly 4, 2009 and December 31, 2008, respectively (including $22 million and $23 million at AprilJuly 4, 2009 and December 31, 2008, respectively, relating to the sale of short-term receivables). Customer financing guarantees outstanding were $4$3 million and $6 million at AprilJuly 4, 2009 and December 31, 2008, respectively (including $2$1 million and $4 million at AprilJuly 4, 2009 and December 31, 2008, respectively, relating to the sale of short-term receivables).
Outstanding Long-Term Receivables: The Company had net long-term receivables of $201$107 million, (net of allowances for losses of $4$3 million) at AprilJuly 4, 2009, compared to netlong-term receivables of $162 million (net of allowances for losses of $7 million) at December 31, 2008. These long-term receivables are generally interest bearing, with interest rates ranging from 3% to 14%. DuringInterest income recognized on long-term receivables was not significant for the first quarterssecond quarter of both 2009, and 2008,compared to interest income of $1 million for the second quarter of 2008. Interest income recognized on long-term receivables was $1 million.million and $2 million for the first halves of 2009 and 2008, respectively.
Sales of Receivables
TheFrom time to time, the Company sells accounts receivablesreceivable and long-term receivables to third parties in transactions that qualify as “true-sales.”“true-sales”. Certain of these accounts receivablesreceivable and long-term receivables are sold to third parties on a one-time, non-recourse basis, while others are sold to third parties under committed facilities that involve contractual commitments from these parties to purchase qualifying receivables up to an outstanding monetary limit. Committed facilities may be revolving in nature and, typically, must be renewed on an annual basis.annually. The Company may or may not retain the obligation to service the sold accounts receivable and long-term receivables.
In the aggregate, at AprilAt July 4, 2009, these committed facilities provided for up to $383 million to be outstanding with the third parties at any time, as compared to up to $967 million at December 31, 2008. As of April 4, 2009, $231 million of the Company’s committed facilities were utilized, compared to $759 million utilized at December 31, 2008. Of the $383Company had $200 million of committed facilities at April 4, 2009, there were no revolving facilities associated withfor the sale of accounts receivables andreceivable, of which $107 million was utilized. At December 31, 2008, the $383 million were committed facilities associated with the sale of specific long-term financing transactions to a single customer (of which the $231 million were utilized at April 4, 2009). Of the $967Company had $532 million of committed facilities at December 31, 2008, $532 million were revolving facilities associated withfor the sale of accounts receivables (ofreceivable, of which $497 million were utilized at December 31, 2008) and $435 million were committed facilities associated withwas utilized. During the salefirst quarter of specific long-term financing transactions to a single customer (of which $262 million were utilized at December 31, 2008). In addition, before receivables can be sold under certain of the revolving committed facilities, they may need to meet contractual requirements, such as credit quality or insurability.
For many years, the Company has utilized a number of receivables programs to sell a broadly-diversified group of accounts receivables to third parties. Certain of the accounts receivables were sold to a multi-seller commercial paper conduit. This program provided for up to $400 million of accounts receivables to be outstanding with the conduit at any2009,
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
time.
a $400 million committed accounts receivable facility expired and was not renewed. During the firstsecond quarter of 2009, this $400a $132 million committed accounts receivable facility expired andwas terminated. In June 2009, the Company is currently negotiatinginitiated a replacement facility. The Company is also negotiating an additionalnew $200 million committed revolving domestic accounts receivable sales facility for European receivables,facility.
In addition, as of December 31, 2008, the Company had $435 million of committed facilities associated with the intent that the combined capacitysale of the two new facilities will be greater than the $400long-term financing receivables for a single customer, of which $262 million committed facility that expired. However, it is not certain when or ifwas utilized. At July 4, 2009, the Company will be successful in securing such facilities.had no significant committed facilities for the sale of long-term receivables.
DuringTotal sales of accounts receivable and long-term receivables were $367 million during the firstsecond quarter of 2009, total accounts receivables and long-term receivables sold by the Company were $259 million, compared to $745$921 million and $1.1during the second quarter of 2008. Total sales of receivables were $626 million during the first half of 2009, compared to $1.7 billion during the first and fourth quartershalf of 2008, respectively (including $218 million, $695 million and $1.0 billion, respectively, of accounts receivables). As of April2008. At July 4, 2009, there were $470 million of receivables outstanding under these programs for which the Company retained servicing obligations (including $95for $233 million of sold accounts receivable),receivables and $369 million of long-term receivables compared to $1.0 billion outstanding$621 of accounts receivables and $400 million of long-term receivables at December, 31, 2008 (including $621 million of accounts receivable).2008.
Under certain receivables programs,arrangements, the value of the receivablesaccounts receivable sold is covered by credit insurance obtainedpurchased from independentthird-party insurance companies, less deductibles or self-insurance requirements under the policies (with the Company retaining credit exposure for the remaining portion).insurance policies. The Company’s total credit exposure, less insurance coverage, to outstanding short-termaccounts receivables that have been sold was $22 million and $23 million at AprilJuly 4, 2009 and December 31, 2008, respectively. Reserves of $4 million were recorded for potential losses at both April 4, 2009 and December 31, 2008.
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 the Company receives 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 a counterparty to one of these contracts could result in expenses to the Company that are far in excess of the revenue received from the counterparty in connection with the contract.
Indemnification Provisions: In addition, the Company may provide indemnifications for losses that result from the breach of general warranties contained in certain commercial, intellectual property and divestiture agreements. Historically, the Company has not made significant payments under these agreements, nor have there been significant claims asserted against the Company. However, there is an increasing risk in relation to intellectual property indemnities given the current legal climate. In indemnification cases, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these 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 the Company may have recourse against third parties for certain payments made by the Company.
Legal Matters: The Company is a defendant in various lawsuits, claims and actions, which arise in the normal course of business. These include actions relating to products, contracts and securities, as well as matters initiated by third parties or Motorola relating to infringements of patents, violations of licensing arrangements and other intellectual property-related matters. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations.
Segment Information
The following commentary should be read in conjunction with the financial results of each reporting segment for the three and six months ended AprilJuly 4, 2009 and March 29,June 28, 2008 as detailed in Note 12, “Segment Information,” of the Company’s condensed consolidated financial statements.
Mobile Devices Segment
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | Six Months Ended | | |
| | | July 4,
| | June 28,
| | | | July 4,
| | June 28,
| | |
| | | 2009 | | 2008 | | % Change | | 2009 | | 2008 | | % Change |
| |
| |
| Segment net sales | | $ | 1,829 | | | $ | 3,334 | | | | (45 | )% | | $ | 3,630 | | | $ | 6,633 | | | | (45 | )% |
| Operating loss | | | (253 | ) | | | (346 | ) | | | (27 | )% | | | (762 | ) | | | (764 | ) | | | (0 | )% |
| |
| |
For the second quarter of 2009, the segment’s net sales represented 33% of the Company’s consolidated net sales, compared to 41% in the second quarter of 2008. For the first half of 2009, the segment’s net sales represented 33% of the Company’s consolidated net sales, compared to 43% in the first half of 2008.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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Mobile Devices Segment
| | | | | | | | | | | | | |
| | | Three Months Ended | | |
| | | April 4,
| | March 29,
| | |
| (Dollars in millions) | | 2009 | | 2008 | | % Change |
| |
| |
| Segment net sales | | $ | 1,801 | | | $ | 3,299 | | | | (45 | )% |
| Operating loss | | | (509 | ) | | | (418 | ) | | | 22 | % |
| |
| |
For the first quarter of 2009, the segment’s net sales represented 34% of the Company’s consolidated net sales, compared to 44% in the first quarter of 2008.
Three months ended AprilJuly 4, 2009 compared to three months ended March 29,June 28, 2008
In the firstsecond quarter of 2009, the segment’s net sales were $1.8 billion, a decrease of 45% compared to net sales of $3.3 billion in the firstsecond quarter of 2008. The 45% decrease in net sales was primarily driven by a 46%47% decrease in unit shipments, partially offset by a 2%5% increase in average selling price (“ASP”). The segment’s net sales were negatively impacted by the segment’s limitedreduced product offerings in criticallarge market segments, particularly 3G products, including smartphones, and the segment’s decision to deemphasize very low-tier products. In addition, the segment’s net sales were impacted by the global economic downturn, which resulted in slowinglower end-user demand.demand compared to the year-ago quarter. On a product technology basis, net sales decreased substantially for GSM, CDMA and 3G technologies, partially offset by an increase in net sales for iDEN technologies. On a geographic basis, net sales decreased substantially in all regions.
The segment incurred an operating loss of $509$253 million in the firstsecond quarter of 2009, compared to an operating loss of $418$346 million in the firstsecond quarter of 2008. The increasedecrease in the operating loss was primarily due to the decrease in gross margin, driven by: (i) a 45% decrease in net sales, and (ii) an unfavorable change in product mix. Also contributing to the operating loss was an increase in reorganization of business charges, relating primarily to higher employee severance costs. These factors were partially offset by decreases in: (i) selling, general and administrative (“SG&A”) expenses, primarily due to lower marketing expenses and savings from cost-reduction initiatives, and (ii) research and development (“R&D”) expenditures, reflecting savings from cost-reduction initiatives. These factors were partially offset by the decrease in gross margin, driven by the 45% decrease in net sales. Also contributing to the operating loss was an increase in reorganization of business charges, due to higher employee severance costs and the exit of certain facilities. As a percentage of net sales in the second quarter of 2009 as compared to the second quarter of 2008, R&D expenditures increased and SG&A expenses and gross margin decreased.
The segment’s industry typically experiences short life cycles for new products. Therefore, it is vital to the segment’s success that new, compelling products are constantly introduced. Accordingly, a strong commitment to R&D is required and, even in these difficult times,amidst challenging global economic conditions, the segment will continue to make the appropriate investments to develop a differentiated product portfolio and fuel long-term growth. As a percentage of net sales in the first quarter of 2009 as compared to the first quarter of 2008, R&D expenditures increased and SG&A expenses and gross margin decreased.
Unit shipments in the firstsecond quarter of 2009 were 14.714.8 million units, a 46%47% decrease compared to shipments of 27.428.1 million units in the second quarter of 2008 and a 1% increase sequentially compared to shipments of 14.7 million units in the first quarter of 2008 and a 23% decrease compared to shipments of 19.2 million units in the fourth quarter of 2008.2009. Contributing to the segment’s decrease in shipments was a double-digit percentage decline in total industry shipments as compared to the firstsecond quarter of 2008. The segment estimates its worldwide market share to be approximately 6.0%5.5% in the firstsecond quarter of 2009, a decrease of approximately 34 percentage points versus the second quarter of 2008 and a decrease of approximately half a percentage point versus the first quarter of 2008.2009.
In the firstsecond quarter of 2009, ASP was upincreased approximately 5% compared to the second quarter of 2008 and approximately 2% compared to the first quarter of 2008 and flat compared to the fourth quarter of 2008.2009. ASP is impacted by numerous factors, including product mix, market conditions and competitive product offerings, and ASP trends often vary over time.
AsSix months ended July 4, 2009 compared to six months ended June 28, 2008
In the first half of 2009, the segment’s revenue transactions are largely denominatednet sales were $3.6 billion, a decrease of 45% compared to net sales of $6.6 billion in local currencies, the segmentsfirst half of 2008. The 45% decrease in net sales was primarily driven by a 47% decrease in unit shipments, partially offset by a 4% increase in ASP. The segment’s net sales were negatively impacted by the weakeningsegment’s reduced product offerings in large market segments, particularly 3G products, including smartphones, and the value of these local currencies againstsegment’s decision to deemphasize very low-tier products. In addition, the U.S. dollar. A number of our more significant international markets, particularly in Latin America,segment’s net sales were impacted by this trendthe global economic downturn, which resulted in late 2008 andlower end-user demand than in the first quarterhalf of 2009. 2008. On a product technology basis, net sales decreased substantially for GSM, CDMA and 3G technologies, partially offset by an increase in net sales for iDEN technologies. On a geographic basis, net sales decreased substantially in all regions.
The Company is unable to predict future volatilitysegment incurred an operating loss of $762 million in the currency markets.first half of 2009, compared to an operating loss of $764 million in the first half of 2008. The slight decrease in the operating loss was primarily due to decreases in: (i) SG&A expenses, primarily due to lower marketing expenses and savings from cost-reduction initiatives, and (ii) R&D expenditures, reflecting savings from cost-reduction initiatives. These factors were largely offset by the decrease in gross margin, driven by the 45% decrease in net sales. Also contributing to the operating loss was an increase in reorganization of business charges, due to higher employee severance costs and the exit of certain facilities. As a percentage of net sales in the first half of 2009 as compared to the first half of 2008, R&D expenditures increased and SG&A expenses and gross margin decreased.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Home and Networks Mobility Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | Three Months Ended | | | | Six Months Ended | | |
| | | April 4,
| | March 29,
| | | | | July 4,
| | June 28,
| | | | July 4,
| | June 28,
| | |
| (Dollars in millions) | | 2009 | | 2008 | | % Change | | |
| | | | 2009 | | 2008 | | % Change | | 2009 | | 2008 | | % Change |
| | | | |
| |
| Segment net sales | | $ | 1,991 | | | $ | 2,383 | | | | (16 | )% | | $ | 2,001 | | | $ | 2,738 | | | | (27 | )% | | $ | 3,992 | | | $ | 5,121 | | | | (22 | )% |
| Operating earnings | | | 115 | | | | 153 | | | | (25 | )% | | | 153 | | | | 245 | | | | (38 | )% | | | 268 | | | | 398 | | | | (33 | )% |
| |
For the second quarter of 2009, the segment’s net sales represented 36% of the Company’s consolidated net sales, compared to 34% for the second quarter of 2008. For the first quarterhalf of 2009, the segment’s net sales represented 37% of the Company’s consolidated net sales, compared to 32% for33% in the first quarterhalf of 2008.
Three months ended AprilJuly 4, 2009 compared to three months ended March 29,June 28, 2008
In the firstsecond quarter of 2009, the segment’s net sales decreased 16%27% to $2.0 billion, compared to $2.4$2.7 billion in the firstsecond quarter of 2008. The 16%27% decrease in net sales primarily reflects a 21%27% decrease in net sales in the networks business and a 12%26% decrease in net sales in the home business. The 21%27% decrease in net sales in the networks business was primarily driven by lower net sales of GSM and UMTS infrastructure equipment.equipment, partially offset by higher net sales of WiMAX products. The 12%26% decrease in net sales in the home business was primarily driven by an 8%a 32% decrease in net sales of digital entertainment devices, reflectingreflecting: (i) a lower ASP due to product mix shift, partially offset by a 2% increase26% decrease in shipments of digital entertainment devices to 4.3 million.3.7 million, and (ii) a lower ASP due to a product mix shift.
On a geographic basis, the 16%27% decrease in net sales was primarily driven by substantially lower net sales in Asia and Latin America and, to a lesser extent, lower net sales in North America and the Europe, Middle East and Africa region (“EMEA”). The decrease in net sales in North America was primarily due to lower net sales in the home business. The decrease in net sales in Asia was primarily driven by lower net sales of UMTS and Latin America,GSM infrastructure equipment, partially offset by higher net sales of CDMA infrastructure equipment. The decrease in Asia.net sales in EMEA was primarily due to lower net sales of GSM infrastructure equipment, partially offset by higher net sales of WiMAX products and higher net sales in the home business. The decrease in net sales in Latin America was primarily due to lower net sales in the home business. Net sales in North America accounted for approximately 53% of the segment’s total net sales in the second quarter of 2009, compared to approximately 51% of the segment’s total net sales in the second quarter of 2008.
The segment had operating earnings of $153 million in the second quarter of 2009, compared to operating earnings of $245 million in the second quarter of 2008. The decrease in operating earnings was primarily due to a decrease in gross margin, driven by the 27% decrease in net sales, partially offset by a favorable product mix. Also contributing to the decrease in operating earnings were $39 million of charges related to a facility impairment. These factors were partially offset by decreases in both SG&A expenses and R&D expenditures, reflecting savings from cost-reduction initiatives. As a percentage of net sales in the second quarter of 2009 as compared the second quarter of 2008, gross margin, SG&A expenses and R&D expenditures increased, while operating margin decreased.
Six months ended July 4, 2009 compared to six months ended June 28, 2008
In the first half of 2009, the segment’s net sales decreased 22% to $4.0 billion, compared to $5.1 billion in the first half of 2008. The 22% decrease in net sales primarily reflects a 24% decrease in net sales in the networks business and a 20% decrease in net sales in the home business. The 24% decrease in net sales in the networks business was primarily driven by lower net sales of GSM and UMTS infrastructure equipment, partially offset by higher net sales of WiMAX products. The 20% decrease in net sales in the home business was primarily driven by a 21% decrease in net sales of digital entertainment devices, reflecting: (i) a 13% decrease in shipments of digital entertainment devices to 8.0 million, and (ii) a lower ASP due to a product mix shift.
On a geographic basis, the 22% decrease in net sales was driven by lower net sales in all regions. The decrease in net sales in North America was primarily due to lower net sales in the home business and lower net sales of CDMA infrastructure equipment. The decrease in net sales in EMEA was primarily due to lower net sales of GSM infrastructure equipment, partially offset by higher net sales of WiMAX products and higher net sales in the home business. The decrease in net sales in Asia was primarily driven by lower net sales of GSM and UMTS infrastructure equipment, partially offset by higher net sales of CDMA infrastructure equipment and higher net sales in the home business. The decrease in net sales in Latin America was primarily due to lower net sales in the home business. The increase in net sales in Asia was primarily driven by higher net sales of CDMA infrastructure equipment and higher net sales in the home business, partially offset by lower net sales of GSM infrastructure equipment. Net sales in North America accounted for approximately 50% of the segment’s total net sales in the first quarter of 2009, compared to approximately 51% of the segment’s total net sales in the first quarterhalf of both 2009 and 2008.
The segment had operating earnings of $115$268 million in the first quarterhalf of 2009, compared to operating earnings of $153$398 million in the first quarterhalf of 2008. The decrease in operating earnings was primarily due to a decrease in gross margin, driven by the 16%22% decrease in net sales, partially offset by a favorable product mix. TheAlso contributing to the decrease in gross margin was
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
operating earnings were $39 million of charges related to a facility impairment. These factors were partially offset by decreases in both SG&A expenses and R&D expenditures, reflecting savings from cost-reduction initiatives. As a percentage of net sales in the first quarterhalf of 2009 as compared to the first quarterhalf of 2008, gross margin, and SG&A expenses and R&D expenditures increased, while operating margin decreased.
Enterprise Mobility Solutions Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | | Three Months Ended | | | | Six Months Ended | | |
| | | April 4,
| | March 29,
| | | | | July 4,
| | June 28,
| | | | July 4,
| | June 28,
| | |
| (Dollars in millions) | | 2009 | | 2008 | | % Change | | |
| | | | 2009 | | 2008 | | % Change | | 2009 | | 2008 | | % Change |
| | | | |
| |
| Segment net sales | | $ | 1,599 | | | $ | 1,806 | | | | (11 | %) | | $ | 1,685 | | | $ | 2,042 | | | | (17 | )% | | $ | 3,284 | | | $ | 3,848 | | | | (15 | )% |
| Operating earnings | | | 156 | | | | 250 | | | | (38 | %) | | | 227 | | | | 377 | | | | (40 | )% | | | 383 | | | | 627 | | | | (39 | )% |
| |
For the second quarter of 2009, the segment’s net sales represented 31% of the Company’s consolidated net sales, compared to 25% for the second quarter of 2008. For the first quarterhalf of 2009, the segment’s net sales represented 30% of the Company’s consolidated net sales, compared to 24% for25% in the first quarterhalf of 2008.
Three months ended April 4, 2009July 4,2009 compared to three months ended March 29,June 28, 2008
In the firstsecond quarter of 2009, the segment’s net sales decreased 11%17% to $1.6$1.7 billion, compared to $1.8$2.0 billion in the firstsecond quarter of 2008. The 11%17% decrease in net sales was driven byreflects a double-digit percentage28% decline in net sales to the commercial enterprise market and a single-digit percentage13% decline in net sales to the government and public safety market. The decrease in net sales to the commercial enterprise market was primarily driven by lower net sales in North America and EMEA. The decrease in net sales to the government and public safety market was primarily driven by
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
decreased net sales in North America, EMEA and Latin America, partially offset by higher net sales in Asia. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately 58% of the segment’s net sales in the second quarter of 2009, compared to approximately 57% in the second quarter of 2008.
The segment had operating earnings of $227 million in the second quarter of 2009, compared to operating earnings of $377 million in the second quarter of 2008. The decrease in operating earnings was primarily due to a decrease in gross margin, driven by: (i) the 17% decrease in net sales, and (ii) an unfavorable product mix. These factors were partially offset by decreased SG&A expenses and R&D expenditures, primarily related to savings from cost-reduction initiatives. As a percentage of net sales in the second quarter of 2009 as compared to the second quarter of 2008, gross margin decreased and R&D expenditures and SG&A expenses increased.
Six months ended July 4, 2009 compared to six months ended June 28, 2008
In the first half of 2009, the segment’s net sales decreased 15% to $3.3 billion, compared to $3.8 billion in the first half of 2008. The 15% decrease in net sales reflects a 27% decline in net sales to the commercial enterprise market and a 10% decline in net sales to the government and public safety market. The decrease in net sales to the commercial enterprise market was primarily driven by lower net sales in North America and EMEA. The decrease in net sales to the government and public safety market was primarily driven by decreased net sales in North America, EMEA and Latin America. Net sales in North America continued to comprise a significant portion of the segment’s business, accounting for approximately 58% of the segment’s net sales in the first quarterhalf of 2009, compared to approximately 55%57% in the first quarterhalf of 2008.
The segment had operating earnings of $156$383 million in the first quarterhalf of 2009, compared to operating earnings of $250$627 million in the first quarterhalf of 2008. The decrease in operating earnings was primarily due to a decrease in gross margin, driven by: (i) the 11%15% decrease in net sales, and (ii) an unfavorable product mix. Also contributing to the decrease in operating earnings was an increase in reorganization of business charges, relating primarily to higher employee severance costs. These factors were partially offset by decreased SG&A expenses and R&D expenses,expenditures, primarily related to savings from cost-reduction initiatives. As a percentage of net sales in the first quarterhalf of 2009 as compared to the first quarterhalf of 2008, gross margin and operating margin decreased and R&D expenditures and SG&A expenses increased.
Significant Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s condensed 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 the Sigma Fund and investment portfolios
— Restructuring activities
— Retirement-related benefits
— Valuation and recoverability of goodwill and long-lived assets
Valuation and recoverability of goodwill and long-lived assets
Goodwill: The Company’s goodwill impairment test, performed annually during the fourth quarter, is done at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment. In 2008, for the Enterprise Mobility Solutions segment, the Company identified two reporting units, the Government and Public Safety reporting unit and the Enterprise Mobility reporting unit. During the fourth quarter of 2008, the Company recognized a goodwill impairment charge of $1.6 billion at its Enterprise Mobility reporting unit. The decline in the fair value of the reporting unit, as measured in the fourth quarter of 2008, resulted from lower forecasted future cash flows for the reporting unit and an approximate 1% increase in the discount rate applied in the fourth quarter of 2008, as compared to forecasted future cash flows and the discount rate applied as of the fourth quarter of 2007. The lower cash flows, projected as of December 31, 2008, resulted from lower revenues and operating margins for future periods, due to lower forecasted capital spending by its customers during 2009, compounded by the estimated growth from the lower revenue base in future periods. The discount rate applied during the fourth quarter of 2008, as compared to the rate applied during the fourth quarter of 2007, increased as a result of higher observed risk premiums in the market.
While we have currently experienced somewhat stabilizing economic conditions in the commercial enterprise market, a protracted global economic downturn could result in a further deterioration in the forecasted operating results and future forecasted cash flows of the Enterprise Mobility reporting unit, resulting in the potential for additional impairments to goodwill in future periods.
Recent Accounting Pronouncements
The Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) on January 1, 2008 for financial assets and liabilities, and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS 157 defines fair value, establishes a framework for measuring fair value as required by other accounting pronouncements and expands fair value measurement disclosures. The provisions of SFAS 157 are applied prospectively upon adoption and did not have a material impact on the Company’s condensed consolidated financial statements. The disclosures required by SFAS 157 are included in Note 9, “Fair Value Measurements,” to the Company’s condensed consolidated financial statements.
In February 2008, the FASB issued FASB Staff Position157-2, which delays the effective date of SFAS 157 for non-financial assets and liabilities, which are not measured at fair value on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008. The Company adoptedFSP 157-2 as of January 1, 2009, noting no material impact from this pronouncement.
In AprilJune 2009, the FASB issued SFAS 168, “The FASB Staff Position (“FSP”)157-4, which provides additional guidance around estimating fair value whenAccounting Standards Codification and the volume and levelHierarchy of activity in a market significantly decreases and when to identify
42
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
market transactions that are not deemed to be orderly. The FSP isGenerally Accepted Accounting Principles-a replacement of FASB Statement No 162.” This FASB established the effective date for reporting periods after June 15, 2009, and shall be applied prospectively. The Company is still evaluating the potential impactuse of this FSP.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), a revision of SFAS 141, “Business Combinations.” SFAS 141R establishes requirements for the recognition and measurement of acquired assets, liabilities, goodwill and non-controlling interests. SFAS 141R also provides disclosure requirements related to business combinations. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The Company adopted SFAS 141R effective January 1, 2009, and has applied it prospectively to business combinations subsequent to this date. The adoption has not had a material impact on the consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position 141(R)-1, which revised the guidance in FAS 141(R) over accounting for contingency liabilities assumed in a business combination. The Company has adopted this FSP in conjunction with the adoption of FAS 141(R), as of January 1, 2009. The adoption has not had a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new standards for the accounting for and reporting of non- controlling interests (formerly minority interests) and for the loss of control of partially owned and consolidated subsidiaries. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company adopted SFAS 160 as of January 1, 2009. The adoption did not have a material impact on the consolidated financial statements.
In April 2009, the FASB issued FSPFAS 115-2 andFAS 124-2 “Recognition and Presentation of Other-Than-Temporary impairments”, which revises the analysis a company should go through to determine if an other than temporary impairment on debt investments exists, as well as, the calculation of the amount of impairment to be recognized. This FSP is effectivecodification for interim and annual periods after June 15, 2009, and shall be applied prospectively. The Company is currently assessing the impact of adopting this FSP on the condensed consolidated financial statements.
In April 2009, the FASB issued FASB Staff PositionNo. FAS 107-1 and APB28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This staff position requires disclosures about the fair value of financial instruments whenever a public company issues financial information for interim reporting periods. This staff position is effective for interim reporting periods ending after JuneSeptember 15, 2009. Companies should account for the adoption of the guidance on a prospective basis. The Company does not expectanticipate the adoption of this staff positionFASB to have a material impact on the consolidatedtheir financial statements. The Company will update their disclosures for the appropriate FASB codification references after adoption, in the third quarter of 2009.
In June 2009, the FASB also issued SFAS 167 “Amendments to FASB Interpretation No. 46”, and SFAS 166 “Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140.”SFAS 167 amends the existing guidance around FIN 46(R), to address the elimination of the concept of a qualifying special purpose entity, Also, it replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 provides for additional disclosures about an enterprise’s involvement with a variable interest entity. SFAS 166, Amends SFAS 140 to eliminate the concept of a qualifying special purpose entity, amends the derecognition criteria for a transfer to be accounted for as a sale under SFAS 140, and will require additional disclosure over transfers accounted for as a sale. The effective date for both pronouncements is for the first fiscal year beginning after November 15, 2009, and will require retrospective application. The Company is still assessing the potential impact of adopting these two statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Financial Instruments
Foreign Currency Risk
The Company uses financial instruments to reduce its overall exposure to the effects of currency fluctuations on cash flows. The Company’s policy prohibits speculation in financial instruments for profit on the exchange rate price fluctuation, trading in currencies for which there are no underlying exposures, or entering into transactions for any currency to intentionally increase the underlying exposure. Instruments that are designated as part of a hedging relationship must be effective at reducing the risk associated with the exposure being hedged and are designated as part of a hedging relationship at the inception of the contract. Accordingly, changes in market values of hedge instruments must be highly correlated with changes in market values of underlying hedged items both at the inception of the hedge and over the life of the hedge contract.
The Company’s strategy related to foreign exchange exposure management is to offset the gains or losses on the financial instruments against losses or gains on the underlying operational cash flows or investments based on the operating business units’ assessment of risk. The Company enters into derivative contracts for some of the Company’s non-functional currency receivables and payables, which are primarily denominated in major currencies that can be traded on open markets. The Company typically uses forward contracts and options to hedge these currency exposures. In addition, the Company enters into derivative contracts for some firm commitments and some forecasted transactions, which are designated as part of a hedging relationship if it is determined that the transaction qualifies for hedge accounting under the provisions of SFASStatement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting“Accounting for Derivative Instruments and Hedging Activities.” A portion of the Company’s exposure is from currencies 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 AprilJuly 4, 2009 and December 31, 2008, the Company had outstanding foreign exchange contracts totaling $2.4$1.8 billion and $2.6 billion, respectively. Management believes that these financial instruments should not subject the Company to undue risk due to foreign exchange movements because gains and losses on these contracts should generally offset losses and gains on the underlying assets, liabilities and transactions, except for the ineffective portion of the instruments, which are charged to Other within Other income (expense) in the Company’s condensed consolidated statements of operations.
The following table shows the five largest net notional amounts of the positions to buy or sell foreign currency as of AprilJuly 4, 2009 and the corresponding positions as of December 31, 2008:
| | | | | | | | | | | | | | | | | |
| | | Notional Amount | | | Notional Amount |
| | | April 4,
| | December 31,
| | | July 4,
| | December 31,
|
| Net Buy (Sell) by Currency | | 2009 | | 2008 | | | 2009 | | 2008 |
| | | | |
| |
| Chinese Renminbi | | | (566 | ) | | $ | (481 | ) | | $ | (469 | ) | | $ | (481 | ) |
| Brazilian Real | | | | (401 | ) | | | (356 | ) |
| Euro | | | (488 | ) | | | (445 | ) | | | (297 | ) | | | (445 | ) |
| Brazilian Real | | | (407 | ) | | | (356 | ) | |
| Japanese Yen | | | | (116 | ) | | | 542 | |
| British Pound | | | 255 | | | | 122 | | | | 152 | | | | 122 | |
| Japanese Yen | | | 128 | | | | 542 | | |
| |
Interest Rate Risk
At AprilJuly 4, 2009, the Company’s short-term debt consisted primarily of $59$36 million of short-term variable rate foreign debt. At AprilJuly 4, 2009, the Company has $3.9 billion of long-term debt, including the current portion of long-term debt, which is primarily priced at long-term, fixed interest rates.
As part of its domestic liability management program, the Company from time to timehistorically 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. During the fourth quarter of 2008, the Company terminated all of its Hedging Agreements. The termination of the Hedging Agreements resulted in cash proceeds of approximately $158 million and a net gain of approximately $173 million, which was deferred and is being recognized as a reduction of interest expense over the remaining term of the associated debt.
Additionally, one of the Company’s European subsidiaries has outstanding interest rate agreements (“Interest Agreements”) relating to a Euro-denominated loan. The interest on the Euro-denominated loan is variable. The Interest
44
Agreements change the characteristics of interest rate payments from variable to maximum fixed-rate payments. The Interest Agreements are not accounted for as a part of a hedging relationship and, accordingly, the changes in the fair
46
value of the Interest Agreements are included in Other income (expense) in the Company’s condensed consolidated statements of operations. During the second quarter of 2009, the Company’s European subsidiary terminated a portion of the Interest Agreements to ensure that the notional amount of the Interest Agreements matched the amount outstanding under the Euro-denominated loan. The termination of the Interest Agreements resulted in an expense of approximately $2 million. The weighted average fixed rate payments on these Interest Agreements was 5.04%5.02%. The fair value of the Interest Agreements at AprilJuly 4, 2009 and December 31, 2008 were $(5)$(3) million and $(2) million, respectively.
Counterparty Risk
The use of derivative financial instruments exposes the Company to counterparty credit risk in the event of nonperformance by counterparties. However, the Company’s risk is limited to the fair value of the instruments when the derivative is in an asset position. The Company actively monitors its exposure to credit risk. At present time, all of the counterparties have investment grade credit ratings. The Company is not exposed to material credit risk with any single counterparty. As of AprilJuly 4, 2009, the Company was exposed to an aggregate credit risk of $14$7 million with all counterparties.
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, accrued liabilities, derivatives and other financing commitments. The Company’s Sigma Fund, available-for-sale investment portfolios and derivatives are recorded in the Company’s consolidated balance sheets at fair value. All other financial instruments, with the exception of long-term debt, are carried at cost, which is not materially different than the instruments’ fair values.
Using quoted market prices and market interest rates, the Company determined that the fair value of long-term debt at July 4, 2009 was $3.2 billion, compared to a face value of $3.8 billion. Since considerable judgment is required in interpreting market information, the fair value of the long-term debt is not necessarily indicative of the amount which could be realized in a current market exchange.
Forward-Looking Statements
Except for historical matters, the matters discussed in thisForm 10-Q are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements included in: (1) the Executive Summary under “Looking Forward”,Forward,” about: (a) about the creation of two independent public companies and expected results, (b) our business strategies and expected results, including cost-reduction activities, (c) our market expectations for each of our businesses, (d) the timing and impact of new product launches, (e) WiMAX product sales, (f) ability and cost to repatriate funds, (e)(g) the effect of the American Recoverygovernment stimulus packages, and Reinvestment Act of 2009, and (f)(h) adequacy of liquidity; (2) “Management’s Discussion and Analysis,” about: (a) future payments, charges, use of accruals and expected cost-saving benefits associated with our reorganization of business programs and employee separation costs, (b) the Company’s ability and cost to repatriate funds, (c) expected quarterly sales of accounts receivable, (d) the impact of the timing and level of sales and the geographic location of such sales, (d)(e) expectations for the Sigma Fund and other investments, (e)(f) future cash contributions to pension plans or retiree health benefit plans, (f)(g) purchase obligation payments, (g)(h) the Company’s ability and cost to access the capital markets, (h)(i) the Company’s plans with respect to the level of outstanding debt, (i)(j) expected payments pursuant to commitments under long-term agreements, (j)(k) the Company’s ability and cost to obtain performance related bonds, (k)(l) the outcome of ongoing and future legal proceedings, (l)(m) the completion and impact of pending acquisitions and divestitures, and (m)(n) the impact of recent accounting pronouncements on the Company; (3) “Legal Proceedings,” about the ultimate disposition of pending legal matters, and (4) “Quantitative and Qualitative Disclosures about Market Risk,” about: (a) the impact of foreign currency exchange risks, (b) future hedging activity and expectations of the Company, and (c) the ability of counterparties to financial instruments to perform their obligations.
Some of the risk factors that affect the Company’s business and financial results are discussed in “Item 1A: Risk Factors” on pages 18 through 30 of our 2008 Annual Report onForm 10-K. We wish to caution the reader that the risk factors discussed in each of these documents and those described in our other Securities and Exchange Commission filings, could cause our actual results to differ materially from those stated in the forward-looking statements.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our senior management, including our chief executive officers and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined inRules 13a-15(e) and
47
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annualquarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officers and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to Motorola, including our consolidated subsidiaries, required to be disclosed 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 officers and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended AprilJuly 4, 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
45
Part II — Other Information
Item 1: Legal Proceedings
Telsim-Related Cases
In April 2001, Telsim Mobil Telekomunikasyon Hizmetleri A.S. (“Telsim”)Howell v. Motorola, Inc., a wireless telephone operator in Turkey, defaulted on the payment of approximately $2 billion of loans owed toet al.
A class action,Howell v. Motorola, Inc., et al., was filed against Motorola and various of its subsidiaries (the “Telsim Loans”directors, officers and employees in the United States District Court for the Northern District of Illinois (“Illinois District Court”) on July 21, 2003, alleging breach of fiduciary duty and violations of the Employment Retirement Income Security Act (“ERISA”). The Uzan family controlledcomplaint 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 inflated by a failure to disclose vendor financing to Telsim until 2004 when an agency of the Turkish government took over control of Telsim. In December 2005, Telsim was sold by the Turkish government to Vodafone and Motorola received an aggregate payment fromin connection with the sale of $910 million.telecommunications equipment by Motorola. The plaintiff sought to represent a class of participants in the Plan and sought an unspecified amount of damages. On September 30, 2005, the district court dismissed the second amended complaint filed on October 15, 2004 (the “Howell Complaint”). Three new purported lead plaintiffs subsequently intervened in the case, and filed a motion for class certification seeking to represent a class of Plan participants. On September 28, 2007, the Illinois District Court granted the motion for class certification but narrowed the requested scope of the class. On October 25, 2007, the Illinois District Court modified the scope of the class, granted summary judgment dismissing two of the individually-named defendants in light of the narrowed class, and ruled that the judgment as to the original named plaintiff, Howell, would be immediately appealable. The class as certified includes all Plan participants for whose individual accounts the Plan purchasedand/or held shares of Motorola common stock from May 16, 2000 through May 14, 2001, with certain exclusions. On February 15, 2008, plaintiffs and defendants each filed motions for summary judgment in the Illinois District Court. On February 22, 2008, the appellate court granted defendants’ motion for leave to appeal from the Illinois District Court’sclass-certification decision. In addition, the original named plaintiff, Howell, appealed the dismissal of his claim. On June 17, 2009, the Illinois District Court granted summary judgment in favor of all defendants on all counts. On June 25, 2009, the appellate court dismissed as moot defendants’ class certification appeal and stayed Howell’s appeal, pending an appeal by plaintiffs of the summary judgment decision. On July 14, 2009, plaintiffs appealed the summary judgment decision.
The Company continues its efforts to collect on its judgmentIn re Adelphia Communications Corp. Securities and Derivative Litigation
Motorola is currently named as a defendant in four cases consolidated as part of $2.13 billion (the “U.S. Judgment”) for compensatory damages rendered bytheIn re Adelphia Communications Corp. Securities and Derivative Litigationpending in the United States District Court for the Southern District of New York (the “District Court”)York. On June 16, 2009, Motorola’s October 12, 2004 motion to dismiss the claims against the Uzans on July 31, 2003 and affirmed by the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”)it in 2004 and in connection with foreign proceedings against the Uzan family. However, the Company believes that the ongoing litigation, collectionand/or settlement processes against the Uzan family will be very lengthy in lightone of the Uzans’ continued resistance to satisfycases,Argent Classic Convertible Arbitrage Fund L.P., et al. v. Scientific-Atlanta, Inc., et al., was granted. On June 22, 2009, final judgment was entered dismissing the judgments against them and their decision to violate various courts’ orders, including orders holding themcase. In addition, on May 21, 2009, in contempt of court. Following a remand from the Second Circuitanother one of the U.S. Judgment, on February 8, 2006, cases,W.R. Huff Asset Management Co. L.L.C. v. Deloitte & Touche LLP, et al,the District Court awarded a judgment in favor of Motorola for $1 billion in punitive damages against the Uzan family and their co-conspirator, Antonio Luna Bettancourt. That decision was affirmed by the Second Circuit on November 21, 2007. The District Court, on April 10, 2007, denied the Uzans’which had previously granted Motorola’s motion to vacatedismiss, permitted the U.S. Judgment. That decision was affirmed by the Second Circuit on March 31, 2009.filing of a Third Amended Complaint. On June 23, 2009, Motorola moved to dismiss those claims.
Intellectual Property Related Cases
Tessera, Inc. v. Motorola, Inc., et al.
Motorola is a purchaser of semiconductor chips with certain ball grid array (“BGA”) packaging from suppliers including Qualcomm, Inc. (“Qualcomm”), Freescale Semiconductor, Inc. (“Freescale Semiconductor”), ATI Technologies, Inc. (“ATI”), Spansion Inc. (“Spansion”), and STMicroelectronics N.V. (“STMicro”). On April 17, 2007, Tessera, Inc. (“Tessera”) filed patent infringement legal actions against Qualcomm, Freescale Semiconductor, ATI, Spansion, STMicro and Motorola in the U.S. International Trade Commission (the “ITC”) (In the Matter of Certain Semiconductor Chips with
48
Minimized Chip Package Size and Products Containing Same, Inv.No. 337-TA-605) and the United States District Court, Eastern District of Texas (“Texas District Court”), Tessera, Inc. v. Motorola, Inc., Qualcomm, Inc., Freescale Semiconductor, Inc. and ATI Technologies, Inc. (“Tessera case”), alleging that certain BGA packaged semiconductors infringe patents that Tessera claimsclaimed to own. Tessera is seekingsought orders to ban the importation into the U.S. of certain semiconductor chips with BGA 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 JudgeMay 20, 2009, the ITC issued an initialits final determination finding Tessera’s asserted patents are valid and infringed. The ITC issued a Limited Exclusion Order that Tessera failed to proveprohibited the importation of certain semiconductor chips that BGA packaged semiconductors contained in Motorola productscontain devices that infringe Tessera’s patent claims.asserted patents. The ITC also issued a Cease and Desist Order against Motorola, Qualcomm, Freescale Semiconductor and Spansion directing them to cease certain acts including selling infringing articles out of U.S. inventories. On January 30,June 2, 2009, Motorola entered into a license agreement with Tessera in order to avoid any interruption of supply to Motorola or its U.S. customers for products containing Tessera’s chip packaging technology which was the subject of the above ITC orders. On June 8, 2009, the International Trade Commission issued a notice that it will reviewTexas District Court dismissed the Administrative Law Judge’s initial determinationTessera case as to Motorola with prejudice. All outstanding litigation between Motorola and a final determination on the meritsTessera is expected on or before May 20, 2009. The patent claims being asserted by Tessera are subject to reexamination proceedings in the U.S. Patent and Trademark Office (“PTO”).
Motorola is a defendant in various other suits, claims and investigations that arise in the normal course of business. In the opinion of management, the ultimate disposition of the Company’s pending legal proceedings will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations.settled.
Item 1A. Risk Factors
The reader should carefully consider, in connection with the other information in this report, the factors discussed in Part I, “Item 1A: Risk Factors” on pages 18 through 30 of the Company’s 2008 Annual Report onForm 10-K. These factors could cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.
46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) The following table provides information with respect to acquisitions by the Company of shares of its common stock during the quarter ended AprilJuly 4, 2009.
ISSUER PURCHASES OF EQUITY SECURITIES
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | (d) Maximum Number
| |
| | | | | | | | | (c) Total Number of
| | | (or Approximate Dollar
| |
| | | | | | | | | Shares Purchased
| | | Value) of Shares that
| |
| | | | | | | | | as Part of Publicly
| | | May Yet be Purchased
| |
| | | (a) Total Number
| | | (b) Average Price
| | | Announced Plans or
| | | Under the Plans or
| |
| Period | | of Shares Purchased | | | Paid per Share | | | Programs(1) | | | Programs(1) | |
| | |
| |
| 01/01/09 to 01/30/09 | | | 0 | | | | | | | | 0 | | | $ | 3,629,062,576 | |
| 01/31/09 to 02/27/09 | | | 0 | | | | | | | | 0 | | | $ | 3,629,062,576 | |
| 02/28/09 to 04/04/09 | | | 0 | | | | | | | | 0 | | | $ | 3,629,062,576 | |
| | | | | | | | | | | | | | | | | |
| Total | | | 0 | | | | | | | | 0 | | | | | |
| |
| |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | (d) Maximum Number
| |
| | | | | | | | | (c) Total Number of
| | | (or Approximate Dollar
| |
| | | | | | | | | Shares Purchased
| | | Value) of Shares that
| |
| | | | | | | | | as Part of Publicly
| | | May Yet be Purchased
| |
| | | (a) Total Number
| | | (b) Average Price
| | | Announced Plans or
| | | Under the Plans or
| |
| Period | | of Shares Purchased | | | Paid per Share | | | Programs(1) | | | Programs(1) | |
| | |
| |
| 4/5/09 to 5/1/09 | | | 0 | | | | | | | | 0 | | | $ | 3,629,062,576 | |
| 5/2/09 to 5/29/09 | | | 0 | | | | | | | | 0 | | | $ | 3,629,062,576 | |
| 5/30/09 to 7/4/09 | | | 0 | | | | | | | | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | |
| Total | | | 0 | | | | | | | | 0 | | | | | |
| |
| |
| | |
| (1) | | Through actions taken on July 24, 2006 and March 21, 2007, the Board of Directors has 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 onof time. This authorization expired in June 30, 2009. The timing2009 and amount of future repurchases, if any, will be based on market and other conditions.was not renewed. |
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of stockholders on May 4, 2009, and the following matters were voted on at that meeting:
1. The election of the following directors, who will serve until their respective successors are elected and qualified or until their earlier death or resignation:
| | | | | | | | | | | | | |
Director | | For | | | Against | | | Abstain | |
| |
| Gregory Q. Brown | | | 1,838,090,435 | | | | 113,962,392 | | | | 6,348,183 | |
| David W. Dorman | | | 1,841,708,950 | | | | 109,417,944 | | | | 7,274,116 | |
| William R. Hambrecht | | | 1,487,447,976 | | | | 463,118,694 | | | | 7,834,340 | |
| Sanjay K. Jha | | | 1,845,526,905 | | | | 106,488,470 | | | | 6,385,635 | |
| Judy C. Lewent | | | 1,422,798,214 | | | | 527,298,565 | | | | 8,304,231 | |
| Keith A. Meister | | | 1,805,296,164 | | | | 145,468,134 | | | | 7,636,712 | |
| Thomas J. Meredith | | | 1,714,325,446 | | | | 174,708,846 | | | | 69,366,718 | |
| Samuel C. Scott III | | | 1,404,564,695 | | | | 545,317,198 | | | | 8,519,117 | |
| Ron Sommer | | | 1,776,518,258 | | | | 173,388,920 | | | | 8,494,232 | |
| James R. Stengel | | | 1,424,645,430 | | | | 525,484,556 | | | | 8,271,024 | |
| Anthony J. Vinciquerra | | | 1,842,410,375 | | | | 107,878,971 | | | | 8,111,664 | |
| Douglas A. Warner III | | | 1,780,062,191 | | | | 170,454,544 | | | | 7,884,275 | |
| Dr. John A. White | | | 1,774,306,928 | | | | 175,926,787 | | | | 8,167,295 | |
2. An Amendment to the Company’s Restated Certificate of Incorporation to Change Par Value from $3.00 per share to $0.01 per share was approved by the following vote: For, 1,897,780,170; Against, 53,194,306; Abstain, 7,426,534; Broker Non-Vote, 0.
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3. An Amendment to Existing Equity Plans to Permit a Stock Option Exchange Program for Employees (Excluding Executive Officers and Directors) was approved by the following vote: For, 1,185,542,154; Against, 344,045,265; Abstain, 152,518,141; Broker Non-Vote, 276,295,450.
4. An Amendment to the Motorola Employee Stock Purchase Plan of 1999 was approved by the following vote: For, 1,449,135,864; Against, 80,448,382; Abstain, 152,520,543; Broker Non-Vote, 276,296,221.
5. The Stockholder Advisory Vote on Executive Compensation was approved by the following vote: For, 1,244,097,955; Against, 708,755,009; Abstain, 5,548,046; Broker Non-Vote, 0.
6. The ratification of the appointment of the independent registered public accounting firm KPMG LLP was approved by the following vote: For, 1,915,410,070; Against, 38,546,630; Abstain, 4,444,310; Broker Non-Vote, 0.
7. To adopt a Shareholder Proposal Re: Cumulative Voting was defeated by the following vote: For, 604,147,067; Against, 1,074,036,622; Abstain, 3,921,101; Broker Non-Vote, 276,296,220.
8. A shareholder proposal re: Special Shareowner Meetings was approved by the following vote: For, 1,339,065,763; Against, 338,983,368; Abstain, 4,057,032; Broker Non-Vote, 276,294,847.
9. A shareholder proposal re: A Global Set of Corporate Standards for Human Rights at Motorola was defeated by the following vote: For, 95,846,216; Against, 1,233,869,640; Abstain, 352,395,832; Broker Non-Vote, 276,295,322.
Item 5. Other Information.
At the 2009 Annual Meeting of Stockholders held on May 4, 2009 (the “Annual Meeting”), stockholders of the Company approved certain amendments to the Motorola Omnibus Incentive Plan of 2006, the Motorola Omnibus Incentive Plan of 2003, the Motorola Omnibus Incentive Plan of 2002, the Motorola Omnibus Incentive Plan of 2000, the Motorola Amended and Restated Incentive Plan of 1998 and the Motorola Compensation/Acquisition Plan of 2000 (together, the “Plans”), which amendments allow for a one time stock option exchange program (the “Option Exchange Program”). The text of the amendments to the Plans and the material terms of the proposed Option Exchange Program are summarized in the Company’s definitive proxy statement filed with the Securities and Exchange Commission on March 13, 2009 in connection with the Annual Meeting (the “Proxy Statement”). The foregoing description of the amendments to the Plans does not purport to be complete and is qualified in its entirety by reference to the description in the Proxy Statement and the full texts of each Plan filed with this report as Exhibits 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10, respectively.
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Item 6. Exhibits
| | | | | |
Exhibit No. | | Exhibit |
| |
| | 10 | .1 | | 2009 Motorola Incentive Plan (incorporated by reference to Exhibit 10.1 to Motorola’s Report onForm 8-K filed on March 23, 2009 (FileNo. 1-7221)). |
| | 10 | .2 | | 2009 Performance Measures under the 2009 Motorola Incentive Plan (incorporated by reference to Exhibit 10.2 to Motorola’s Report onForm 8-K filed on March 23, 2009 (FileNo. 1-7221)). |
| | 10 | .3 | | Motorola Long Range Incentive Plan (LRIP) of 2009 (incorporated by reference to Exhibit 10.3 to Motorola’s Report onForm 8-K filed on March 23, 2009 (FileNo. 1-7221). |
| | 10 | .4 | | 2009 Performance Measures under the Motorola Long Range Incentive Plan (LRIP) of 2009 (incorporated by reference to Exhibit 10.4 to Motorola’s Report onForm 8-K filed on March 23, 2009 (FileNo. 1-7221)). |
| | *10 | .5 | | Motorola Omnibus Incentive Plan of 2006, as amended through May 4, 2009. |
| | *10 | .6 | | Motorola Omnibus Incentive Plan of 2003, as amended through May 4, 2009. |
| | *10 | .7 | | Motorola Omnibus Incentive Plan of 2002, as amended through May 4, 2009. |
| | *10 | .8 | | Motorola Omnibus Incentive Plan of 2000, as amended through May 4, 2009. |
| | *10 | .9 | | Motorola Amended and Restated Incentive Plan of 1998, as amended through May 4, 2009. |
| | *10 | .10 | | Motorola Compensation/Acquisition Plan of 2000, as amended through May 4, 2009. |
| | *10 | .11 | | Aircraft Time Sharing Agreement dated May 4, 2009, by and between Motorola, Inc. and Gregory Q. Brown. |
| | *10 | .12 | | Aircraft Time Sharing Agreement dated May 4, 2009, by and between Motorola, Inc. and Sanjay K. Jha. |
| | *10 | .13 | | Form of Motorola, Inc. Award Document-Terms and Conditions Related to Employee Nonqualified Stock Options for Gregory Q. Brown, relating to the Motorola Omnibus Incentive Plan of 2006 for a grant on or after May 7, 2009. |
| | *10 | .14 | | Form of Stock Option Consideration Agreement for Gregory Q. Brown for grants on or after May 7, 2009. |
| | *10 | .15 | | Form of Motorola, Inc. Restricted Stock Unit Award Agreement for Gregory Q. Brown relating to the Motorola Omnibus Incentive Plan of 2006, for a grant on or after May 7, 2009. |
| | *31 | .1 | | Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | *31 | .2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | *31 | .3 | | Certification of Edward J. Fitzpatrick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | *32 | .1 | | Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | *32 | .2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | *32 | .3 | | Certification of Edward J. Fitzpatrick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
Exhibit No. | | Exhibit |
|
| *3.(i)(a) | | Certificate of Amendment of Restated Certificate of Incorporation of Motorola, Inc., filed on May 5, 2009 with the Secretary of State of the State of Delaware. |
| *3.(i)(b) | | Restated Certificate of Incorporation of Motorola, Inc., as amended through May 5, 2009. |
| *10.1 | | 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 or after August 1, 2009. |
| *10.2 | | Form of Motorola, Inc. Restricted Stock Unit Agreement relating to the Motorola Omnibus Incentive Plan of 2006 for grants to Appointed Vice Presidents and Elected Officers on or after August 1, 2009. |
| *31.1 | | Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *31.2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *31.3 | | Certification of Edward J. Fitzpatrick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *32.1 | | Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| *32.2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| *32.3 | | Certification of Edward J. Fitzpatrick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
4950
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MOTOROLA, INC.
| | |
| | By: | /s/ Edward J. Fitzpatrick |
Edward J. Fitzpatrick
Senior Vice President, Corporate Controller and
Acting Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer of the Registrant)
Date: May 6,August 4, 2009
5051
EXHIBIT INDEX
| | | | | |
Exhibit No. | | Exhibit |
| |
| | 10 | .1 | | 2009 Motorola Incentive Plan (incorporated by reference to Exhibit 10.1 to Motorola’s Report on Form 8-K filed on March 23, 2009 (File No. 1-7221)). |
| | 10 | .2 | | 2009 Performance Measures under the 2009 Motorola Incentive Plan (incorporated by reference to Exhibit 10.2 to Motorola’s Report on Form 8-K filed on March 23, 2009 (File No. 1-7221)). |
| | 10 | .3 | | Motorola Long Range Incentive Plan (LRIP) of 2009 (incorporated by reference to Exhibit 10.3 to Motorola’s Report on Form 8-K filed on March 23, 2009 (File No. 1-7221). |
| | 10 | .4 | | 2009 Performance Measures under the Motorola Long Range Incentive Plan (LRIP) of 2009 (incorporated by reference to Exhibit 10.4 to Motorola’s Report on Form 8-K filed on March 23, 2009 (File No. 1-7221)). |
| | *10 | .5 | | Motorola Omnibus Incentive Plan of 2006, as amended through May 4, 2009. |
| | *10 | .6 | | Motorola Omnibus Incentive Plan of 2003, as amended through May 4, 2009. |
| | *10 | .7 | | Motorola Omnibus Incentive Plan of 2002, as amended through May 4, 2009. |
| | *10 | .8 | | Motorola Omnibus Incentive Plan of 2000, as amended through May 4, 2009. |
| | *10 | .9 | | Motorola Amended and Restated Incentive Plan of 1998, as amended through May 4, 2009. |
| | *10 | .10 | | Motorola Compensation/Acquisition Plan of 2000, as amended through May 4, 2009. |
| | *10 | .11 | | Aircraft Time Sharing Agreement dated May 4, 2009, by and between Motorola, Inc. and Gregory Q. Brown. |
| | *10 | .12 | | Aircraft Time Sharing Agreement dated May 4, 2009, by and between Motorola, Inc. and Sanjay K. Jha. |
| | *10 | .13 | | Form of Motorola, Inc. Award Document-Terms and Conditions Related to Employee Nonqualified Stock Options for Gregory Q. Brown, relating to the Motorola Omnibus Incentive Plan of 2006 for a grant on or after May 7, 2009. |
| | *10 | .14 | | Form of Stock Option Consideration Agreement for Gregory Q. Brown for grants on or after May 7, 2009. |
| | *10 | .15 | | Form of Motorola, Inc. Restricted Stock Unit Award Agreement for Gregory Q. Brown relating to the Motorola Omnibus Incentive Plan of 2006, for a grant on or after May 7, 2009. |
| | *31 | .1 | | Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | *31 | .2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | *31 | .3 | | Certification of Edward J. Fitzpatrick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | *32 | .1 | | Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | *32 | .2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | *32 | .3 | | Certification of Edward J. Fitzpatrick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
Exhibit No. | | Exhibit |
|
| *3.(i)(a) | | Certificate of Amendment of Restated Certificate of Incorporation of Motorola, Inc., filed on May 5, 2009 with the Secretary of State of the State of Delaware. |
| *3.(i)(b) | | Restated Certificate of Incorporation of Motorola, Inc., as amended through May 5, 2009. |
| *10.1 | | 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 or after August 1, 2009. |
| *10.2 | | Form of Motorola, Inc. Restricted Stock Unit Agreement relating to the Motorola Omnibus Incentive Plan of 2006 for grants to Appointed Vice Presidents and Elected Officers on or after August 1, 2009. |
| *31.1 | | Certification of Gregory Q. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *31.2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *31.3 | | Certification of Edward J. Fitzpatrick pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *32.1 | | Certification of Gregory Q. Brown pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| *32.2 | | Certification of Dr. Sanjay K. Jha pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| *32.3 | | Certification of Edward J. Fitzpatrick pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
5152