Motorola 2007 Annual Report Download - page 59

Accounts Payable: The Company’s net accounts payable were $4.2 billion at December 31, 2007, compared
to $5.1 billion at December 31, 2006. The Company’s days payable outstanding (“DPO”) were 53 days at
December 31, 2007, compared to 52 days at December 31, 2006. DPO is calculated by dividing accounts payable
by the average daily cost of sales. 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 and DPO 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.
Cash Conversion Cycle: The Company’s cash conversion cycle (“CCC”) was 33 days at December 31, 2007,
compared to 38 days at December 31, 2006. CCC is calculated by adding DSO and DSI and subtracting DPO. The
decrease in CCC at December 31, 2007, compared to December 31, 2006, was driven by lower CCC in the Home
and Networks Mobility and Enterprise Mobility Solutions segments.
Reorganization of Businesses: The Company has implemented reorganization of businesses plans. Cash
payments for exit costs and employee separations in connection with a number of these plans were $281 million in
2007, as compared to $143 million in 2006. Of the $235 million reorganization of businesses accrual at
December 31, 2007, $193 million relates to employee separation costs and is expected to be paid in 2008. The
remaining $42 million in accruals relate to lease termination obligations that are expected to be paid over a
number of years.
Defined Benefit Plan Contributions: The Company contributed $274 million to its U.S. pension plans during
2007, compared to $276 million contributed in 2006. The Company contributed $135 million to its
non-U.S. pension plans during 2007, compared to $122 million contributed in 2006. During 2008, the Company
expects to make cash contributions of approximately $240 million to its U.S. pension plans and approximately
$50 million to its non-U.S. pension plans. The Company contributed $15 million to its retiree health care plan in
2007, compared to $27 million in 2006, and expects to contribute approximately $20 million to this plan in 2008.
Retirement-related benefits are further discussed below in the “Significant Accounting Policies—Retirement-Related
Benefits” section.
Investing Activities
The most significant components of the Company’s investing activities include: (i) proceeds from sales of
Sigma Fund investments, (ii) strategic acquisitions of, or investments in, other companies, (iii) capital expenditures,
and (iv) proceeds from sales of investments and businesses.
Net cash provided by investing activities from continuing operations was $2.4 billion in 2007, compared to
net cash used of $1.4 billion in 2006 and net cash used of $2.4 billion in 2005. This $3.8 billion increase in cash
provided by investing activities from continuing operations was due to: (i) an $8.2 billion increase in proceeds
from sales of Sigma Fund investments, (ii) a $484 million increase in proceeds from sales of short-term
investments, (iii) a $122 million decrease in capital expenditures, and (iv) an $81 million increase in proceeds
received from the disposition of property, plant and equipment, partially offset by: (i) a $3.5 billion increase in
cash used for acquisitions and investments, and (ii) a $1.6 billion decrease in proceeds from sales of investments
and businesses. The $2.4 billion in cash used for investing activities from continuing operations in 2005 was
primarily due to the $3.2 billion of net cash used for purchase of Sigma Fund investments, partially offset by $1.5
billion in proceeds from sale of investments and businesses.
Sigma Fund: The Company and its wholly-owned subsidiaries invest most of their excess cash in a fund (the
“Sigma Fund”) that is similar to a money market fund. During 2007, the Company liquidated a similar second
fund and now maintains only one fund. The Company received $6.9 billion in net proceeds from sales of Sigma
Fund investments in 2007, compared to $1.3 billion in net cash used to purchase Sigma Fund investments in 2006.
The Sigma Fund aggregate balances were $5.2 billion at December 31, 2007, compared to $12.2 billion at
December 31, 2006. At December 31, 2007, $1.7 billion of the Sigma Fund investments were held in the U.S. and
$3.5 billion were held by the Company or its subsidiaries in other countries. Repatriation of some of these funds
could be subject to delay and could have potential adverse tax consequences.
The Sigma Fund portfolio is managed by four major independent investment management firms. Investments
are made in high-quality, investment grade (rated at least A/A-1 by S&P or A2/P-1 by Moody’s at purchase date),
U.S. dollar-denominated debt obligations including certificates of deposit, commercial paper, government bonds,
corporate bonds and asset- and mortgage-backed securities. The Sigma Fund’s investment policies require that
floating rate instruments must have a maturity, at purchase date, that does not exceed thirty-six months with an
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS