Motorola 2008 Annual Report Download - page 62

in cash received from net sales of Sigma Fund investments, and (ii) a $318 million decrease in proceeds from the
sales of investments and businesses, partially offset by: (i) a $4.3 billion decrease in cash used for acquisitions and
investments, and (ii) a $380 million increase in sales of short-term 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 $853 million in net proceeds from sales of Sigma Fund investments in 2008, compared to
$6.9 billion in net proceeds from sales of Sigma Fund investments in 2007 and $1.3 billion in net cash used to
purchase Sigma Fund investments in 2006. The Sigma Fund aggregate balances were $4.2 billion at December 31,
2008 (including $2.4 billion held by the Company or its subsidiaries outside of the U.S.), compared to $5.2 billion
at December 31, 2007 (including $3.5 billion held by the Company or its subsidiaries outside of 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 continue to efficiently repatriate non-U.S. funds, including Sigma Fund
investments.
The Sigma Fund portfolio is managed by four premier independent investment management firms. The
investment guidelines of the Sigma Fund require that purchased investments must be in high-quality, investment
grade (rated at least A/A-1 by Standard & Poor’s or A2/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 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 38 days and
39 days at December 31, 2008 and 2007, 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 December 31, 2008 and 2007, $3.7 billion and $5.2 billion, respectively, of the Sigma Fund investments
were classified as current in the Company’s consolidated balance sheets. The weighted average maturity of the
Sigma Fund investments classified as current was 5 months (excluding cash of $1.1 billion and impaired securities)
at December 31, 2008, compared to 12 months (excluding cash of $16 million and impaired securities) at
December 31, 2007.
The fair market value of investments in the Sigma Fund was $4.2 billion and $5.2 billion at December 31,
2008 and 2007, respectively. The Company considers unrealized losses in the Sigma Fund to be temporary, as these
losses have resulted primarily from the ongoing disruptions in the capital markets. On the securities for which the
unrealized losses are considered temporary (excluding impaired securities), the Company believes it is probable
that it will be able to collect all amounts it is owed according to their contractual terms, which may be at maturity.
Temporary unrealized losses in the Sigma Fund were $101 million and $57 million at December 31, 2008 and
2007, respectively.
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. During 2008 and 2007, impairment charges in the Sigma Fund were $186 million and $18 million,
respectively. The impairment charges were primarily related to investments in Lehman Brothers Holdings, Inc.,
Washington Mutual, Inc., and Sigma Finance Corporation, an unrelated special investment vehicle managed by
United Kingdom-based Gordian Knot, Limited.
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 consolidated balance sheets. At December 31,
2008, $466 million of the Sigma Fund investments were classified as non-current, and the weighted average
54 MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS