Motorola 2007 Annual Report Download - page 76

A second key assumption is the discount rate. The discount rate assumptions used for pension benefits and
postretirement health care benefits accounting reflects, at December 31 of each year, the prevailing market rates for
high-quality, fixed-income debt instruments that, if the obligation was settled at the measurement date, would
provide the necessary future cash flows to pay the benefit obligation when due. The Company’s discount rates for
measuring its U.S. pension obligations were 6.75% and 6% at December 2007 and 2006, respectively. The
Company’s discount rates for measuring the Postretirement Health Care Benefits Plan obligation were 6.5% and
5.75% at December 31, 2007 and 2006, respectively.
A final set of assumptions involves the cost drivers of the underlying benefits. The rate of compensation
increase is a key assumption used in the actuarial model for pension accounting and is determined by the Company
based upon its long-term plans for such increases. In both 2007 and 2006, the Company’s rate for future
compensation increase was 4% for the Regular Pension Plan. The Company’s 2007 and 2006 rate for future
compensation increase for the Officers’ Plan was 0%, as the salaries to be utilized for calculation of benefits under
this plan have been frozen. For Postretirement Health Care Benefits Plan accounting, the Company reviews
external data and its own historical trends for health care costs to determine the health care cost trend rates. Based
on this review, the health care cost trend rate used to determine the December 31, 2007 accumulated
postretirement benefit obligation is 9% for 2008, with a declining trend rate of 1% each year until it reaches 5%
by 2012, with a flat 5% rate for 2012 and beyond.
The 2007 and 2006 Regular Plan actual expenses were $174 million and $240 million, respectively. Cash
contributions of $270 million were made to the Regular Pension Plan in 2007. 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 during 2008.
The 2007 and 2006 Postretirement Health Care Benefits Plan actual expenses were $15 million and
$22 million, respectively. Cash contributions of $15 million were made to this plan in 2007. The Company expects
to make cash contributions of approximately $20 million to the Postretirement Health Care Benefits Plan in 2008.
The impact on the future financial results of the Company in relation to retirement-related benefits is
dependent on economic conditions, employee demographics, interest rates and investment performance. The
Company’s measurement date of its plan assets and obligations is December 31.
Recent Accounting Pronouncements
The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”) effective January 1, 2007. Among other things FIN 48 prescribes a
“more-likely-than-not” threshold to the recognition and de-recognition of tax positions, provides guidance on the
accounting for interest and penalties relating to tax positions and requires that the cumulative effect of applying
the provisions of FIN 48 shall be reported as an adjustment to the opening balance of retained earnings or other
appropriate components of equity or net assets in the statement of financial position. The adoption of FIN 48
resulted in a $120 million reduction of the Company’s unrecognized tax benefits and related interest accrual and
has been reflected as an increase in the opening balance of Retained earnings of $27 million and Additional paid-in
capital of $93 million as of January 1, 2007. Upon adoption of FIN 48, the Company also reclassified
unrecognized tax benefits of $877 million from Deferred income taxes to Other liabilities in the Company’s
consolidated balance sheets.
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS 158 has
certain recognition and disclosure requirements which the Company adopted as of December 31, 2006.
Additionally, SFAS 158 requires employers to measure defined benefit plan assets and obligations as of the date of
the statement of financial position. The measurement date provision of SFAS 158 only affects the Company’s
non-U.S. pension plans. The Company adopted the measurement date provisions for its Non-U.S. plans as of
December 31, 2007. Upon adoption of the measurement provisions, the Company recorded $17 million, net of
$2 million of taxes, as a decrease in the opening balance of Retained earnings at January 1, 2007 in the
consolidated statements of stockholders’ equity.
In September 2006, the FASB issued EITF 06-4, “Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4”). EITF 06-4 requires that
endorsement split-dollar life insurance arrangements which provide a benefit to an employee beyond the
postretirement period be recorded in accordance with SFAS No. 106, “Employer’s Accounting for Postretirement
68 MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS